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REPORT: JIM POWER, ECONOMIST; Economic Prospects for the Irish Food Industry in 2021

February 19, 2021 Profiles and Interview

In the official statistics, the Agri-Food sector is categorised under three headings:

  1. Primary production – Agriculture, Forestry and Fishing.
  2. Food, Beverage and Horticultural production.
  3. Wood processing.

The Agri-Food sector is a very significant component of the Irish economy. It makes a strong national contribution to economic activity and employment, but its regional and rural contribution is vital. Along with tourism, the sector makes a very strong contribution to rural economic activity and employment. Its success is essential for the success of rural Ireland.

The Department of Agriculture, Food & the Marine (DAFM) estimates that in 2019, the broad sector employed over 164,400 people or 7.1 per cent of total employment. Some 137,500 farms produce over €8 billion in output; over 770,000 hectares of forest; and over 2,000 fishing vessels and aquaculture sites produce fish with a value of €770 million. The sector represents 6.7 per cent of modified Gross National Income (GNI*).

In the third quarter of 2020, the CSO’s Quarterly Labour Force Survey shows that 91,800 people were engaged in Crop and Animal production; 51,200 people were engaged in Manufacture of Food Products; and 6,700 were involved in the Manufacture of Beverages. This equates to 149,700 people engaged in the Food and Beverage sector, which is equivalent to 6.5 per cent of total employment in the economy.

The food industry makes a very strong contribution national and local economic sustainability. It supports economic activity and employment in local economies all over the country, and it plays an essential role in sustaining local economies. Through its various elements, it also makes a strong contribution to the national finances.

THE EXPORT CONTRIBUTION OF THE AGRI-FOOD SECTOR

The Agri-Food sector is heavily export-driven, and is a key component of Ireland’s indigenous export economy. There are two main sources of data on the export contribution of the sector – Bord Bia and the Central Statistics Office.

BORD BIA EXPORT PERFORMANCE

The annual Bord Bia Export Performance and Prospects report estimates that Irish food and drink exports declined by 2 per cent in 2020, and were valued at €13 billion.

The Dairy sector accounted for 39.7 per cent of total exports, and Meat and Livestock accounted for 26 per cent, with Beef accounting for 15.9 per cent of the overall total.

In very challenging circumstances, the performance of the food and drink sector was very strong in 2020. COVID-19 restrictions had a dramatic impact on the food service sector; shipping costs increased; global economic growth weakened considerably; sterling was relatively weak; and Brexit created significant uncertainty.

Table 1: Irish Food and Drink Exports (Bord Bia)

CATEGORY 2019 (€) 2020 (€) % ANNUAL CHANGE
Dairy 5,032,197,309 5,166,544,104 +3.0%
Meat & Livestock 3,309,787,944 3,379,698,911 +2.0%
–          Beef (inc. offals) 2,123,166,413 2,071,003,434 -2.0%
–          Pigmeat 514,819,131 586,176,683 =14.0%
–          Sheep 319,440,128 356,858,628 =12.0%
–          Poultry 155,279,410 152,088,357 -2.0%
–          Other Meat 13,612,441 12,033,398 -12.0%
–          Live Animals 183,470,421 201,538,410 =10.0%
Horticulture 204,721,696 220,681,823 +8.0%
Seafood 492,575,397 442,895,371 -10.0%
Prepared Consumer Foods 2,592,179,363 2,493,120,272 -4.0%
Alcohol 1,600,751,241 1,297,261,690 -19.0%
Total 13,232,212,950 13,000,202,172 -2.0%

Source: Bord Bia, Performance and Prospects 2020/21, 13th January 2021.

CSO TRADE DATA FOR FOOD AND BEVERAGES

Trade data from the CSO show that exports of Food, Live Animals, Beverages and Tobacco totalled €13.4 billion in 2019, equivalent to 8.8 per cent of total merchandise exports.

In the first 11 months of 2020, exports of Food, Live Animals, Beverages and Tobacco totalled €11.8 billion, equivalent to 7.9 per cent of total merchandise exports. In the first 11 months, exports of Food and Live Animals declined by 2.9 per cent, and exports of Beverages and Tobacco declined by 14.6 per cent (this category is exclusively made up of Beverages, as there are no Tobacco exports).

Table 2: Irish Agri-Food Exports (CSO)

CATEGORY 2019 (€m) 2020 (JAN-NOV) (€m)
Food & Live Animals €11,724 €10,461
Beverages & Tobacco €1,673 €1,321
TOTAL €13,437 €11,782
% of Total Merchandise Exports 8.8% 7.9%

Source: CSO, Goods Exports & Imports

Table 3 shows the breakdown of Agri-Food exports by destination in the first 11 months of 2020. The United Kingdom accounted for 36.1 per cent of total Agri-Food exports.

Table 3: Agri-Food Exports by Destination (Jan – Nov 2020)

REGION 2020 (JAN-NOV) (€m) % OF TOTAL
United Kingdom €4,253 36.1%
EU-27 €3,844 32.6%
USA €878 7.5%
China €766 6.5%
Rest of World €2,042 17.3%
Total €11,783 100.0%

Source: CSO, Goods Exports & Imports

Trade data from the CSO show that imports of Food, Live Animals, Beverages and Tobacco totalled €8.8 billion in 2019, equivalent to 9.9 per cent of total merchandise imports.

In the first 11 months of 2020, imports of Food, Live Animals, Beverages and Tobacco totalled €8.1 billion, equivalent to 10.6 per cent of total merchandise imports. In the first 11 months, imports of Food and Live Animals declined by 0.4 per cent, and imports of Beverages and Tobacco increased by 6.8 per cent.

Table 4: Irish Agri-Food Imports

CATEGORY 2019 (€m) 2020 (JAN-NOV) (€m)
Food & Live Animals €7,877 €7,138
Beverages & Tobacco €965 €977
TOTAL €8,842 €8,115
% TOTAL Merchandise Imports 9.9% 10.6%

Source: CSO, Goods Exports & Imports

In the first 11 months of 2020, 47 per cent of Agri-Food imports originated from the UK.

Table 5: Agri-Food Imports by Destination (Jan – Nov 2020)

REGION 2020 (JAN-NOV) (€m) % OF TOTAL
United Kingdom €3,814 47.0%
Other EU €2,906 35.8%
USA €209 2.5%
China €57 0.7%
Rest of World €1,129 14.0%
Total €8,115 100.0%

Source: CSO, Goods Exports & Imports

Since Ireland joined the EC in 1973, exports of Food, Live Animals, Beverages and Tobacco have growth strongly and have made a significant contribution to Ireland’s export and overall economic performance.

Figure 1: Exports of Food, Live Animals, Beverages and Tobacco

Source: CSO, PxStat

TRENDS IN CONSUMER EXPENDITURE ON FOOD

Figure 2 shows the trend in consumer expenditure on food (excluding eating out) since 1995. Over that period the annual spend on food has increased by almost 92%.

Figure 2: Consumer Expenditure on Food (ex. Eating Out – Current Prices)

Source: CSO, National Income & Expenditure

While the absolute level of consumer expenditure on food has increased significantly over the period, the consumer spend on food has declined from 14.1 per cent of total consumer expenditure on goods and services in 1995 to just 7.1 per cent in 2019.

Figure 3: Consumer Expenditure on Food (ex. Eating Out) as % of Total Consumer Expenditure on goods and services.

Source: CSO, National Income & Expenditure

TRENDS IN FOOD PRICE INFLATION

One of the most significant features of the Irish grocery market is the price compression across a broad range of foodstuffs. Between 2010 and 2020, the average retail price of food declined by 9.2 per cent. This compares to an increase of 6.3 per cent in overall consumer prices. Table 6 gives a breakdown of a wide range of food categories, and with just a few exceptions, the grocery food market is characterised by consistent downward pressure on prices.

The price compression in the retail food sector is a result of intense competition within the grocery sector, and import penetration. This intense price competition is a response to a long-established consumer desire for cheaper food, and very strong competition between the retail multiples.

The retail price trends in the food sector have significant implications for the food supply chain, ranging from the primary producer, to the manufacturer, to the retailer. There is a constant struggle between the requirement to produce high quality food and the price compression that characterises the sector. Consumers need to realise and be educated on the fact that there is a trade off between cheap food and quality.

Table 6: Consumer Price trends 2010 to 2020

ITEM % 2010-2020 ITEM % 2010-2020
Average CPI +6.3% Cheese & Curd -17.4%
Food -9.2% Eggs -2.2%
Bread -4.2% Butter +31.6%
Breakfast Cereals +4.9% Fruit -6.0%
Meat -9.8% Vegetables -9.8%
Beef & Veal +0.3% Potatoes -9.7%
Pork -11.4% Crisps +0.3%
Lamb & Goat -8.5% Sauces & Condiments -7.2%
Poultry -14.5% Coffee -14.4%
Fish -6.5% Tea -6.8%
Fresh Whole Milk -0.8% Beer -1.6%

Source: CSO, CPI Detailed Sub-Indices

THE FUTURE OF THE AGRI-FOOD SECTOR

Policy makers now recognise the contribution that the sector makes to the economy, and that it will make an even more important contribution to the national economy in the future. Ambitious long-term targets have been set for the sector in Food Wise 2025.

Food Wise 2025 is a 10-year strategy for the Agri-food sector that was launched in 2015. The growth strategy for the sector is based on three guiding principles. Namely, Irish food and drink exporters will find their greatest opportunities where they provide offerings that target different life-stage requirements; fit into the lifestyle choices associated with convenience and well-being; and provide products with clear nutritional and health benefits.

The key targets in the strategy include:

  • Grow annual export values to €19 billion per annum, which would represent an 85 per cent increase from the 2012-2014 three-year average. Dairy, beef, seafood, and consumer food and drink are identified as the sub-sectors that will be key to attaining these growth objectives.
  • A focus on value-added products in delivering innovative food solutions to consumers in existing mature markets such as the UK or emerging markets such as China, would be expected to contribute to projected growth of 70 per cent in Gross Value Added to in excess of €13 billion for the sector by 2025, from a 2012 baseline.
  • Increase the value of Primary Production by 65 per cent to almost €10 billion.
  • The creation of an additional 23,000 direct jobs in the agri-food sector all along the supply chain, from primary production to high value-added product development.

To deliver this growth, it is recognised that a number of key areas will need to be focused on. These include:

  • The attraction, retention, and development of talent along the supply chain, supported by training that will foster the necessary technical and entrepreneurial skill sets.
  • A greater focus on market development that is consumer-insight driven, to ensure Irish products are targeted at the right markets, and the right segments within those markets. These consumer insights will help the sector understand where its opportunities lie in emerging market opportunities, allowing business to focus on exports that deliver the best returns; productivity improvements that are driven by innovation and the adoption of the latest technologies.
  • Adding value to sustainably produced materials, which will support local employment growth, ensure the viability of local producers and protect the environment and natural resources.

Food Wise 2025 makes a number of recommendations under the headings of human capital, competitiveness, market development and innovation.

The strategy for the food sector is quite explicit in its recognition that the agri-food sector will only achieve its full growth potential if it can address the skills needs within the industry. This will involve investment in people currently working in the sector, a commitment to knowledge transfer that brings technological and process advances to the industry, and recognition of the need to attract people with the relevant skills into roles within the industry.

Research, Development and innovation are recognised as key drivers of competitiveness. However, it is recognised that there are challenges in translating research into commercial products and in ensuring that at both the producer and consumer level there is sufficient capacity to absorb new research into innovation.

The overriding theme is that in order to achieve the ambitious targets contained in Food Wise 2025 there is a need for ongoing improvements at both the producer and processing levels. Specifically, at the producer level it is recognised that future profitability and viability will be driven by productivity improvements through the ‘adoption and application of cutting-edge sustainable processes and technologies.’

A guiding principle in Food Wise 2025 is that environmental protection and economic competitiveness are equal and complementary, and that one will not be achieved without the other. The three pillars of sustainability – social, economic and environmental – are viewed as being of equal importance and should carry commensurate weight.

In order to achieve the ambitious targets contained in Food Wise 2025, it is important that the sector and policymakers are aware of the challenges facing the sector and to identify the strategies needed to address those challenges.

THE CONTRIBUTION OF THE AGRI-FOOD SECTOR IN REBUILDING THE ECONOMY

The Agri-food sector was instrumental in pulling the Irish economy out of deep recession after the 2008-2011 period and its real significance to the economy was generally recognised after a decade of being a victim rather than a beneficiary of the ‘Celtic Tiger’ economy. The sector inherited all of the high costs that evolved during the Celtic Tiger period, but enjoyed few of the benefits. It inherited all of the rising input costs, but faced intense price compression at the consumer level.

The economy now finds itself in another difficult situation as result of COVID-19. Some sectors have been particularly damaged by the global pandemic and the associated restrictions. Tourism, non-essential retail, the broad hospitality sector, and certain personal services have been particularly affected. It will be necessary to rebuild all of those sectors as quickly and as effectively as possible.

The impact of COVID-19 on the Agri-Food sector has been significant. Demand from the food service sector has been dramatically undermined, but eating at home has become very important. The sector will eventually revert to normal, and then it will have to play a significant role in rebuilding the overall economy, and particularly rural economic activity and employment.

The issues facing the sector include:

  • Brexit is complicating the movement of product between Ireland the UK in both directions. There has to be an opportunity for import substitution, but the strength of brand will be essential for success on the UK market.
  • Food production will have to become increasingly driven by consideration of sustainability and wellbeing.
  • Food safety and security will need to be increasingly emphasised by the food sector.
  • The importance of strong brands will become increasingly important.
  • Consumer must be encouraged to focus on the economic and social importance of supporting local brands.

THE ROLE OF LOVE IRISH FOOD IN DRIVING ECONOMIC RECOVERY

Love Irish Food (LIF) was formed in 2009 with the aim of helping consumers make informed choices about buying Irish manufactured food and drinks. The aim is to promote the consumption of Irish food and drink, and create a realisation that every time a consumer makes a conscious decision to purchase an Irish manufactured food or drink product, this is supporting vital local employment, local businesses, and local sustainability all over Ireland.

While many Irish agri-food companies have a strong export focus, the domestic market is also very important, particularly for smaller companies who lack scale. Smaller companies can build scale in the domestic market, and eventually achieve an export capability, Love Irish Food must play a key role in driving home these messages, but ultimately it is the purchasing decisions of consumers that will matter most.

In the first 11 months of 2020, Ireland imported over €8 billion worth of food and drink products. Of these imports, the UK accounted for 47 per cent of the total. In the context of Brexit, some of these products from the UK are becoming more difficult to source and more expensive. There has to be potential for import substitution – in other words producing locally, what we previously imported. The decisions taken by Irish consumers can play a key role in this regard. The role of Love Irish Food is to help inform consumers about the impact of such decisions on local communities and local economies. This message has resonated with many people during the COVID-19 crisis, and the objective now is to ensure that post-COVID, consumers will not forget the importance of supporting local producers. By doing so, they are having beneficial impact on the local economy and the environment.

For more information contact info@loveirishfood.ie

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