Recent news of Irish food companies battling the tough conditions – from Origin Enterprises reporting a fall in earnings to job losses at Musgrave – has come as no surprise to anyone who has followed the plight of the country’s economy in the last 24 months. What remains less certain, is when and where the sector will begin to recover. Chris Brook Carter reports.
The “Celtic Tiger”, which was the term used to describe Ireland’s stellar growth throughout the late 1990s and into the new century, has become more of a toothless pussycat.
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“The Irish economy remains challenging and this year is likely to see continuing weakness in activity and employment,” a PricewaterhouseCoopers (PwC) report out this week said.
Indeed, the Irish economy has had a dismal couple of years. And PwC’s report says it will contract by 1.3% in 2010, following a fourth quarter in 2009 that saw a “substantial contraction”. Investment activity is set to decline “significantly”, the report continued, whilst the tight fiscal policy will also weigh on growth.
As the recession took grip of the Western economies in September 2008, the usual lines regarding the food industry’s ability to ride out financial downturns were trotted out. However, this has proven to be no ordinary recession, and, in keeping with that, the Irish food industry has seen a uglier degree of blood-letting than most had predicted.
Irish retail sales dropped 14.1% in volume terms and 18% in value terms last year, according to the latest figures from Ireland’s Central Statistics Office. Food sales volumes fell by 3.7%, while the value of food sales slid by 9.5% amid price competition from the country’s supermarket chains.
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By GlobalDataThere were some signs of an improvement in December, with sales by value inching up 0.9% in the month compared to levels in November 2009, although volumes fell 0.5%.
However, all in all, it’s been a terrible 12 months and the signs are that the start to 2010 has been equally difficult. The Irish fresh produce group Fyffes has lowered its 2010 earnings guidance, saying trading conditions had got off to a difficult start due to lower demand, a challenging pricing environment, the strength of the dollar against the euro and cold weather in Europe. Kerry Group CEO Stan McCarthy, meanwhile, recently insisted that the worst of Ireland’s economic problems had passed, but admitted Kerry, which had been forced to restructure parts of its Irish business as exports suffered, would need to continue to tweak its business.
The Irish food sector has been battered from all sides. At home, few European consumers have suffered the kind of squeeze seen in the Republic. Meanwhile, the weak pound continues to hit exports to the UK.
“One of the single biggest factors in the decline has been the depreciation of sterling against the euro. Last year, there was a depreciation of 12% and if you take it accumulatively over two years, it has amounted to a 30% decline against the euro over that period. Some 45% of Ireland food and drink exports are destined for the UK market; we reckon that of almost a EUR1bn decline in exports, EUR400m of that was due to sterling,” Aidan Cotter, chief executive of Ireland’s food export agency, Bord Bia told just-food in an interview in January.
All doom and gloom then? Well perhaps not. PwC’s report this week said it was likely that the worst had passed, and noted a sense of “cautious optimism”.
Interestingly, PwC Ireland’s Ann O’Connell noted that: “Export led growth and a strong focus on innovation will be vitally important for Ireland’s economic recovery.” This reflection on the broader economy has strong parallels with the food sector.
The point towards exports as a potential panacea for Ireland certainly rings true for the food market.
Ireland’s food exports are expected to recover in 2010 after falling 12% last year due difficulties in the global dairy market and a weak pound versus the euro. The value of Irish food and drink exports declined by just under EUR1bn (US$1.45bn) last year, to stand at EUR7.12bn. However, there are indications that export values are beginning to stabilise.
Second guessing a potential recovery remains a loaded undertaking. However, as Cotter pointed out in his interview, the two sectors that represent the largest component of Ireland’s exports – dairy and meat – are well-positioned for growth. Global dairy prices continue to rise and many believe that there will be a more benign export market in Europe for meat in the coming year.
Furthermore, whilst “Brand Ireland” may have taken a beating at home and on the financial markets, it remains in rude health among consumers around the world, not least in the UK and on the continent.
