Irish Food Exports Down 12% in 2009, Outlook Improving

The decline in sterling and price deflation in the marketplace were responsible for the majority of the reduction in export revenues in 2009. The underlying performance of the industry, reflected in an estimated volume decline of just 3 percent.

14 Jan 2010 --- A sustained decline in the value of sterling combined with the economic downturn and severe difficulties in the global dairy market created unprecedented challenges for Irish food and drink exporters in 2009, according to Bord Bia’s Export Performance and Prospects report. The value of Irish food and drink exports declined by 12 percent last year, or by just under €1 billion, to stand at €7.12 billion.

There are indications however that export values are now beginning to stabilise and Bord Bia predicts some recovery in the year ahead. "The prospects for 2010 point to a return to growth for Ireland’s food sector", according to Dan Browne, Chairman, Bord Bia. "The potential for stronger export revenues from the key dairy and meat sectors, and investments by prepared food companies to broaden their market presence on the Continent, will help exports as 2010 progresses. However, developments in sterling and consumer sentiment remain critical."

The decline in sterling and price deflation in the marketplace were responsible for the majority of the reduction in export revenues in 2009. "The underlying performance of the industry, reflected in an estimated volume decline of just 3 percent, was impressive when set against these challenges", according to Aidan Cotter, Chief Executive, Bord Bia. "Sterling remains the single biggest issue for the industry", he said, adding that, "in 2009, it is estimated the depreciation of sterling reduced the value of exports to the UK by some €400 million".

The agriculture and food industry plays an important role in the Irish economy and remains its largest indigenous sector accounting for almost 9 percent of employment and 10 percent of exports. As much as 65 percent of manufacturing exports by Irish-owned firms are estimated to consist of food and drink.

The long-term outlook for the sector, with its high export orientation, remains positive. Due to an expanding world population and evolving demographics, the world will need to produce over 40 percent more food by 2030 and some 70 percent more by 2050. It will have to do so from fixed resources while minimising its impact on the environment.

However, as it seeks to avail of emerging opportunities, the challenge for the industry to improve competitiveness while broadening its export reach, remains a formidable one. Ireland’s uniqueness within the eurozone, sharing a land border with the sterling area, has compounded the industry’s difficulties on its domestic market. At the same time, it must compete with UK-based exporters as it seeks to build share elsewhere within the euro area.

The UK remained Ireland’s principal export destination in 2009 with sales valued at just under €3.1 billion, a decrease of 15 percent compared to 2008 figures. Despite this, the market still accounted for 44 percent of Ireland’s food and drink exports although its share of trade came under pressure as the year progressed, dropping from 48 percent in January to approximately 43 percent by late 2009.

The share of exports destined for other EU markets increased to 34 percent in 2009, from 32 in 2008, helped by a higher share of beef exports destined for the Continent, together with a stronger focus on the region by prepared foods manufacturers. The value of trade to International markets was adversely affected for much of the year by the weaker global dairy market.

Irish food companies have adopted a range of measures to defend their market positions in the face of the economic downturn, according to a recent Bord Bia survey. Measures have included reducing non-staff costs (68 percent of firms); reducing staff numbers (36 percent but rising to over 70 percent among the largest firms); discontinuing some product lines (35 percent), and reducing expenditures on business development and sales (38 percent) and new product development (28 percent).

Eight out of every ten exporters report difficulties in securing price increases in the UK market to compensate for the decline in sterling. As a result, one in every two firms confirmed they have withdrawn from customers that are no longer profitable, while changing their focus to less price sensitive channels and customers.

Nine out of every ten exporters say that the changes they have made will enable them to maintain their business situation in the UK should sterling remain at 90p over the next six months or so. However, if sterling were to remain at this level indefinitely, having fallen by 30 percent over the last two years, only seven out of ten firms believe they could continue to sustain their business situation. Furthermore, only one in every two believes they could maintain business levels should sterling depreciate further to between 95p and 100p, with the number dropping off to one in three at a rate between 105p and 110p.

In a move to support the industry broaden its export reach Bord Bia will next month, on February 9th, host 250 international food and drink buyers from eighteen countries to meet with some 160 Irish companies in Dublin. A series of preparatory workshops and briefings is already underway with participating companies to assist maximise business development opportunities from the estimated 1,000 pre-scheduled, "speed-dating" meetings that will take place during the Marketplace 2010 event.

Meanwhile, Bord Bia’s Marketing Fellowship programme, initiated in October 2009, sees twenty five experienced graduates currently working across 13 overseas markets, from New York to Shanghai, to help boost Irish food and drink exports and support some 113 Irish companies expand their market reach. The graduates are undertaking 168 commercial assignments varying from investigating potential new business opportunities to developing business plans to assist Irish companies enter, and succeed in, emerging and valuable markets such as the Middle East.

Bord Bia is also planning to transform its quality assurance schemes by incorporating environmental sustainability measures that will enable it to objectively promote Ireland as the ‘Sustainable Food Island’. The existing schemes, which include over 36,000 independently audited members, enable the Irish meat industry access premium retail and foodservice outlets internationally. The transformation of the schemes is designed to impart additional competitive advantage to the industry and give it a leadership role as markets increasingly factor in climate change and environmental sustainability issues.

The combined value of meat and livestock exports is estimated at €2.25 billion in 2009, representing a decrease of 9 percent compared to 2008. Beef exports were valued at €1.4 billion, down 13 percent on 2008 levels, based on a combination of a 4 percent drop in exports to 461,000 tonnes and a 9 percent fall in prices.

The volume of dairy products available to export fell during the year due to a combination of lower milk output and increased use of intervention storage. It is estimated that these developments reduced the value of dairy exports by more than €150 million.

Overall, it is estimated that the value of dairy exports fell by 13 percent to €2 billion in 2009. However, an additional €90 - €95 million worth of SMP and butter was sold into intervention and will be available to export from 2010. The strongest performing categories during the year were infant formula and to a lesser extent cheese and chocolate crumb.

The prospects for Irish dairy exports in 2010 are more positive given the recent recovery in product prices. It is hoped that this improvement can be maintained and further boost export revenues. Irish milk output is expected to recover from the decline recorded during 2009, which will boost overall availability with the strongest increases in production likely in cheese and whole milk powder.

The export market for Irish seafood was challenging in 2009 as weaker sterling led to reduced exports to the UK and led to strong competition in other key markets. Poorer weather in the final quarter of 2009 affected supplies but also helped unit prices. Overall, the value of seafood exports is estimated to have declined by 9 percent to €303 million.

Exports of prepared foods faced a very difficult market environment during 2009. Given the backdrop, exports, particularly those from indigenous manufacturers, performed reasonably well. Overall, export values of product covered under the prepared foods category fell by an estimated 15 percent to €1.28 billion.

Export values were helped by a relatively positive performance by both chocolate and sugar confectionery and bakery, which helped to partly offset a very challenging environment for ready meals and pizza manufacturers.

The market environment for Irish prepared food exports in 2010 is expected to remain difficult, particularly if sterling remains weak over the coming months. Manufacturers are seeking to adapt products to the changed consumer shopping requirements while also seeking to diversify to a broader range of markets.

Exports of beverages remained under pressure during 2009 as the impact of slower consumer spending and a fall off in the Travel Retail sector and supply chain destocking impacted on export revenues. All markets have also witnessed a noticeable shift toward value propositions.