Socio-Economic Challenges for the Food Sector in Ireland
- (No-Deal) Brexit
The Food & Drink Sector is Ireland’s largest manufacturing sector. It is currently under unprecedented stress, triggered by uncertainties regarding Ireland’s largest export market: the UK. Below are some figures that highlight the importance of the UK for this sector:
- 40% of Irish food and drink exports go to the UK, with total value of €4.4b.
- 70% of prepared consumer foods exports.
- 56% of total meat exports
- 30% of dairy exports (60% of cheese)
- 32% of alcohol exports
Enterprise Ireland recommends Irish businesses take immediate action in order to reduce over-dependency on the UK, either from a sourcing (inputs) or a sales (outputs) point of view (www.prepareforbrexit.ie). The potential drop in sterling coupled with increased competition from either the UK or other countries puts Irish business under extreme pressure from an operational perspective.
These potential difficulties resulting from Brexit can be contextualised by considering other international trade tensions.
- International trade tensions
Searching for alternative export markets is always a hard task. The growing tensions between International Trade blocks (USA-EU, USA-Asia Pacific, EU-Russia) makes it even harder.
In 2014, Russia imposed trade sanctions on EU imports. This led to a strong decline in trade between both blocks, and it has not fully recovered since. These trade sanctions were worsened by additional factors such as the downturn of oil prices and the Russian Ruble. The trade impact was partly diverted to other international markets, but the overall trade diversion did not compensate for the volume of EU exports. Paradoxically, compliance with the sanctions was bypassed temporarily by exporting into Russia via Eurasian Economic Union. Irish Agri-Food exports (mainly dairy, fish and pig-meat) to Russia, worth over €213m in 2013 alone, had dropped 80% in 2015 to just €15.8m.
Imposition of tariffs and tit-for-tat strategies in global trade are having an impact in large economies (i.e. China, Germany). If this situation becomes commonplace, there is a risk of deeper uncertainty on global food and feed markets.
- Global economic growth slows down
Agri-food exports to Germany were valued at €731m in 2018. Germany is the 4th largest importer of Irish food products (after the Netherlands and France). Therefore, there may be opportunities for further growth in countries like Germany. However, Germany’s economy has been teetering on the edge of recession, which could have ripple effect on our export capacity to continental Europe.
- Food Supply & Security for a growing population
In 2011, Ireland had a population of 4.57m and it is expected to increase up to 5.7m by 2040 (Ireland 2040).
Are our food production and supply systems ready to cope with this population increase?
We haven’t been able to accommodate this population growth in terms of housing and infrastructure, so could the same happen with food supply?
We certainly produce more meat and dairy that we can consume, but what about other foods?
We import 3 times more tomatoes that we produce and the same goes for a large number of other plant-based foods. In order to cope with the organic growth in demand of fruits and vegetables, Ireland will need to increase the amount of land dedicated to protected crops. This may increase further if consumer choice of non-animal-based foods continues to increase (i.e. flexitarians, vegetarianism and vegan).
This growth in demand can happen very sharply. For example, in the US it grew from 1% to 6% of the population in a 4-year period. In 2018, Bord Bia published a report stating that 8% of Irish population is vegetarian and 2% is vegan. This data is hard to believe and probably biased as the sampling was small (a larger cohort study in the UK showed only 1% of population as being vegan). Nevertheless, it is obvious that there is a strong need for increasing consumer choices in Ireland.
The Foodwise 2025 report recognises that the weaknesses of the Irish Horticulture sector are the relatively small domestic market, high cost base and labour-intensive industry and limited co-operation among industry sub-sectors. New technologies can certainly reduce high labour costs by making them more efficient.
- Climate Change
The last main socio-economic challenge that Irish food businesses face is climate change. Last year, the storms and extreme weather demonstrated a good example of the havoc that changing weather conditions can play on Irish farming. In 2018, farm income average dropped 15% (it was 22% for dairy farmers), with fluctuations on the price of feed (50% increase) from previous year due to extreme climatic conditions.
Since the 1990s, there have been more global natural disasters, and they have been more intense in magnitude (and of course in costs). Insurance companies are already taking measures to predict and minimise future climate change-related disruptions. This will improve their ability to hedge damages related to extreme weather conditions.
Over the next couple of weeks, I will post a series of short examples on how Trinity Research & Innovation helps Industries and Businesses to overcome these challenges, with case studies of how research can be enabled from concept to impact.