Following years of underperformance, Ireland’s food industry is enjoying a remarkable renaissance, with farm incomes rising and agriculture and food once again becoming an attractive career option for Irish graduates. The backdrop to this is that Irish food and drink is becoming increasingly popular in world markets, with food exporters tapping into a new demand for high-quality products.
Food exports are growing rapidly on the back of the burgeoning middle class in developing markets such as China and India. The abolition of milk quotas in 2015 will also underpin this growth with the market for Irish food exports soon to exceed €10 billion annually.
Growth of middle class
Dairy exports from Ireland to China last year accounted for €280 million, says Bord Bia chief executive Aidan Cotter, adding that 80 per cent comes from infant formula and China is now our second largest market in this sub-sector, with 40 per cent annual growth.
OECD figures indicate the world’s middle class is expected to rise from 1.8 billion in 2010 to 4.8 billion by 2030, with most of the growth coming from the East. China alone is expected to account for 18 per cent of global consumption by then with $10 trillion of spending power. “As populations grow in wealth their consumption of meat and dairy products increases and we are ideally placed to capitalise on this opportunity,” says Cotter.
Mike McKerr, managing partner at financial services firm EY, says that when considering export opportunities, new markets should be pursued but alongside existing ones. “Emerging markets charge very high import duties on foreign goods, particularly those in the agricultural sector, in order to protect their local economy as well as to raise revenue – with some countries raising over half their tax revenue from import taxes.”
There are also very strict permissions required in relation to agricultural products with special approvals being required from various government agencies before a permission to import is granted, he notes.
“There are many other factors to be wary of when exporting to emerging markets, including: ensuring compliance with all documentary and legal requirements at the time of import in order to avoid fines; goods being stopped at the border, along with issues of corruption when dealing with foreign officials,” he adds.
The latest Pathways to Growth report from Bord Bia sees fragmentation within the industry as a problem, especially when Ireland competes with major global food players in international markets. "The food industry is dominated by giant multinational firms, many of whom have turnovers well in excess of Ireland's total food exports. Nestlé for example has a turnover of over $100 billion."
Cotter also acknowledges that a very large part of the business is B2B (business to business) so that even where a product is sold with a value-added element, the final element before the product is put into the hands of consumers is not controlled by the Irish producer. This has led to concerns the industry is not as consumer-centric as it should be.
Artisan sector
Volatility remains a challenge, with climate having an increasingly important impact on world markets. Droughts and crop failure can unleash a price dynamic. In the short-term, global food shortages can lead to higher prices but that also encourages larger food producers in countries such as the US to enter the market, which can result in a very significant price drop. The threat of diseaseand compromises in the food chain, such as the foot-and-mouth and dioxin scares in recent years, can also cause long-term damage to the industry and requires vigilance at all levels.
However despite the potential pitfalls, Asia remains an attractive prospect for many Irish food producers. Exports to Chin, for example, grew by over 40 per cent, with values trebling over the last three years to reach €390 million in 2013.
China is now Ireland’s sixth largest market overall, with strong dairy and pork exports contributing to this, and seafood and beverage exports also growing. China, is Ireland’s second largest dairy and third largest pork market.
Demand in China for Irish seafood is also expected to soar as appetites for non-farmed fish increase.