2020 food processing sector

8/12/2019 2020 Food Processing Sector

http://slidepdf.com/reader/full/2020-food-processing-sector 1/21

Irish Food Processing Sector1

(Paper primarily drafted by Enterprise Ireland)

1 The views expressed in this background paper do not purport to reflect the views of the Minister, theDepartment of Agriculture, Fisheries and Food or the agencies whose activities are discussed

1



Overview

The key challenge as outlined in the ocial !artnership "#1$ review was the positioning of the %rish food and agricultural economy in a knowledge economycontext& This vision also informed the thrust of the "##' (D!, which was very muchfocused on the )*nowledge +conomy with an emphasis on state support and

investment in -esearch and Development .-/ D0&

The recent dramatic decline in the fortunes of the %rish and world economies hascreated a changed backdrop to an assessment of how the food industry will evolve to"#"#& %n particular, a combination of reduced public and private sector incomes andspending power, a renewed consumerproducer focus on value, price and cost plus thedecline in exche2uer finances mean that current policies must be reassessed&

The belief in the re2uirement to position the agri3food sector firmly in the knowledgeeconomy has not diminished& 4n the contrary, the competitiveness challenge at

primary agriculture level combined with the necessary focus on the environmental

sustainability of agricultural production methods, means that a key strategy of theagri3food sector including the research community must be on the improvedcommunication and adoption of5

• best practice

• new technology

• research and advice&

%reland remains a low cost producer in the +6 of primary beef and dairy products andhas significant capability in the prepared consumer foods sector& 7oncerns at producerlevel about lower prices are suggesting that some producers are contemplating an exit

from meat and dairy& 8owever, difficult as is the current situation in %reland, there is amore profound and sustained trend in reduced dairy and beef production in the 6*&This reduction in supply in our nearest market represents a significant opportunity forthe %rish food and agri sector provided we get our cost base right&

The food and agri3 sector remains the largest employer in the economy accounting for1 9ob in : or ";# ### 9obs across farming manufacturing and distribution& Thesustainability of these advantages over the period to "#"# will depend on acombination of5

• the capability of suppliers and processors to sustain a relentless focus on costs

and competitiveness issues• the impact of +6 wide policy changes in the 7A! budget and the <T4

negotiations on imports into the +6 dairy and beef markets

• The positioning of agriculture in the sustainability agenda in terms of the

7openhagen accord later this year&

• %rish economy recovery policies that will need to balance the taxation of

energy and carbon emissions with the competitiveness challenges facing thesector&

Consmer demand trends

• The current recession has resulted in value price considerations moving backto the top of the consumer demand hierarchy

"



• This increasing demand for value is reflected in the mainstream retail pressure

on food industry suppliers for sustained value promotions and in a growth insales among the discount retailers

• The carbon profile of food is already an important factor in consumer choice&

The meat and dairy sectors are currently vulnerable to both increased taxation

and a negative consumer perception in this context&• %ssues of increased nutritional value and balanced, responsible consumption of

food will continue to be a feature& %ndustry must continuously improve itscommunication of product integrity through improved labelling andresponsible consumption messages&

• The recession has also meant a fall in consumer demand for food out of home&

This trend will continue in the short to medium term but the longer term trendtowards increasing out of home consumption can be expected to resume whenthe recession ends&

The key trends in consumer demand to "#"# are price competitiveness andenvironmental sustainability coupled with longer term trends such as increasedconvenience and enhanced nutrition&

Spply side isses

• !rice volatility, as per dairy prices in "##:=, will continue as a conse2uence

of global market changes and the winding down of +6 internal marketsupports& %ndustry national measures to act as a countercyclical buffer should

be examined&

• >iven the challenging environment for future milk price development and the

need for a more competitivesustainable energy supply for the processingsector, dairy farmers should be encouraged to invest using some of their landfor the production of woodchip and other renewable energy feedstock supplies

• Milk 2uota abolition combined with increased market price volatility means,

for the dairy supply sector, fewer and larger scale farms plus a relentless focuson costs and competitiveness&

• (egotiations on 7A! post "#1; and the Doha <T4 round will have ma9or

implications for the supply balance for meat and dairy products in the +6 and

the level of direct supports for agricultural producers into the future&

• -estructuring at processing level must be prioritised to deal with both

competitive economies of scale issues and the fundamental changes in thedairy product profile that are re2uired

• imilarly, in the beef sector, investment in rationalisation restructuring

coupled with the competitiveness challenge will re2uire an increased focus onmanaging the costs of operating in the %rish economy ,securing skilled labourat a competitive rate and managing the exposure to fluctuations in the value of?T> against the +uro &

;



• %ndustry must improve both their focus and capability in lean manufacture,

new technology adoption innovation and sustainability& For the meat sector,new packagingextended shelf life enhancement and tenderisationtechnologies must be prioritised &

• %n addition to the price and value factors outlined above, retail concentrationand enhanced retail buying power are likely to continue to grow&

• 8owever, an increasing awareness that processors and suppliers cannot

supply product to the retail sector below +6 economy costs has led to the +67ommission to announce an investigation into the introduction of fair trademeasures on a pan +6 level&

• Focus on sustainability at producer and processor level means a focus on

energy efficient and carbon reducing technologies and best practice across the

spectrum in terms of animal production, processing, route to market factorsand distribution capabilities

• ustainability challenges created by increased regulationtaxation and

consumer awareness of the carbon profile of dairy and meat products mustalso be adapted and responded to&

!airy Processing Sector

Overview

The %rish dairy industry is worth approx& @;&'bn and employs ,### people directly&

There are "#,### farmer suppliers milking the dairy cow herd of 1m& There areapproximately "$ main dairy processors and ' of these account for :$B of all milk

processed&

There are three distinct product output categories51& Dairy 7ommodities .Culk Cutter, Culk 7heddar, kim Milk !owder, <hole

Milk !owder, 7asein / 7aseinates, <hey and basic whey derivatives .lactose,demin whey etc0& This category has sales of @"&$bn, exports of @"&;bn andemploys ",$#&

"& Dairy %ngredients .8ighly fractionated milk derivatives incl milk sugars and proteins for inclusion in 8ealth foods, Dietary supplements, %nfant formula,ports nutrition / beverages, Functional foods0& This category has sales of

@;##m, exports of @":#m and employs "##&;& 7onsumer dairy .Ei2uid milk, consumer packs of dairy products including

butter, yoghurt, cheese, etc0& ales of @1bn, little exports .imports of approx @##m0 and employs 1,"##&

The dairy processing sector has always been at best 9ust marginally profitable& Anormal year yields approx "B margin, a good year like "##' resulted in approx Band a bad year like "##: resulted in breakeven for the larger efficient operators andsubstantial losses for smaller companies& The profitability of the sector is directly

related to world supply and demand for dairy products& As long as the industryfocuses on the production of basic dairy commodities it will always be caught up in



the boom3bust cycle& The value added ingredient and consumer foods sectors arehighly profitable& >enerally the more scientific or uni2ue the application the higherthe margin can be achieved& !roducts in his category can range from 1#B margin upto #B margin depending on uni2ueness and where it is in the product life cycle&Cranded consumer products can also achieve similar margin levels&

Strengths

• %relands grass based dairy farming sector is the lowest cost producer of dairy

products in the +6& %F7( FA4 figures indicate the best dairy farmers in%reland are producing milk at 1' c litre v "$" c at best in Denmark and8olland and ;# 7ent in the 6*&

• 4nly (ew ealand at 1; c has a consistently lower cost base

• trong export orientation& :#B of production is exported to 1"# countries

across the world

• %reland has access, though the +6, to a +uropean dairy market that is showing

stable to consistent growth and is particularly well positioned to meet anincreased demand for dairy products from the 6* where production appears to

be in long term decline&

• The dairy processing sector is heavily linked to the infant formula .%F0

industry& %reland is the biggest exporter of infant formula in +urope&

• This link to the %F industry and recent investments in whey and lactose

manufacturing provide a strong platform for future growth&

• A number of strong dairy companies have expanded across +6 and 6A

giving both enhanced capability and global spread&

• *errygold is a recognised international brand&

"ea#nesses

• Too many small scale processors producing non differentiated commodity

dairy products&

• Many of the smaller processors are not selling directly to the market place &

• 4ver dependence on butter in the product mix at #B of milk fat utilisation&

>iven an ongoing decline in butter consumption and the dismantlement of+6 market supports for butter this presents a significant challenge

• Dairy farmers scale is moderate at an average herd siGe of # cows v $ in (

%reland 11# average in the 6* and 1'# in (ew ealand&

• easonality of production while minimising costs restricts the product mix&

easonality leads to poor capacity utilisation which adds to the operatingcosts of processors and impairs their ability to respond to marketre2uirements&

• Distance from the +6 market and seasonality issues restricts capability in

fresh dairy products which are the main growth area&

• Crand devolvement has been low key&

• There is a significant duplication in our international sales efforts with

competition occurring between larger processors and the %DC&

Competitiveness and the !airy Sector

The Dairy 7apital %nvestment Fund in "##' allowed the industry play Hcatch3upI interms of efficient plant and e2uipment& !rior to this investment, companies had tended

$



to neglect investing in their facilities due to the large costs of upgrading facilities&%rish companies were in danger of falling down the value chain& Although the currentinvestments will enhance efficiencies, there are other ma9or competitive issues at playin the %rish sector which also need to be addressed, particularly, the seasonality issue,where : times more milk is produced in summer than in winter& This creates a huge

under3utiliGation of capital and manpower resources in the period eptember toMarch& Also, in comparison to other countries, %reland has too many processorsoperating too many plants&

The evolution of the high cost %rish economy has created challenges for farmers and processors in terms of labour and other manufacturing costs& %reland has particularlyhigh energy costs& A Forfas survey showed energy price inflation in %reland was thehighest in the +6 at '#B in the period 1=== to "## v ;$B +6 average& +nergy costs

per tonne of milk powder dried in %reland v Denmark, France and (ew ealand areset out below5

!rimary Dairy !rocessor @ per *w& @ per tonne %reland #&11"$ ;=&1 France #&#$1 1:&:" Denmark #&#;: ""&"# (ew ealand #&#1:' &$1

This is a huge disadvantage given that :$B of our milk is dried to produce milk powders&

The 7A! reforms of "##; involved a significant movement away from marketmanagement supports& <hile the impact was somewhat delayed, this was alwayslikely to create a more volatile price pattern& The collapse of international dairy

prices in "##:= has seen the first dramatic example of exposure to volatility&This dramatic decline in prices has impacted on the sector in a number of ways3

A large proportion of farmer suppliers are getting a price below the cost of production

+ven though processors are paying a historically low price they themselves areselling below cost&

$ctions to address Competitiveness

• -estructuring rationalisation of processing capacity&

• %nvestment in new technology aimed at both reducing costs and changing the product mix to better meet global demand for whey and lactose products andfunctional foods

• +nsuring that energy policy supports employment and industrial activity and

does not become a tax on 9obs and exports

• Dissemination of best practice on grassland management and other known cost

reduction strategies at farm level& Teagasc figures show 9ust :B of dairyfarmers nationally are operating detailed farm accounts&

E%port & mar#et orientation

The dairy industry exports @"&;bn and is the largest exporting category in the %risheconomy& %t is important to maintain and grow this sector as it has a huge impact on



balance of payment issues etc& 8owever, as most of the dairy exports are commodity based, their value can fluctuate substantially from year to year& "##' was a very goodyear for world dairy prices whereas "##: was the worst performing year in recentmemory& Approximately two thirds of %rish exports are priced at the world basecommodity price level e&g& bulk butter or bulk skim milk powder& The remaining one

third is value added or branded .eg *errygold0 and can command a higher premiumand is price stable& A key recommendation of the !rospectus report in "##; was thatthis one third5two third ratio be reversed&

Innovation

There has traditionally been a very low level of -/D investment in this sector& Thetwo ma9or constraints on innovation in the sector are operating costs which aredraining resources that should be invested in research and developmentJ and a productmix which is heavily geared towards preserved products and butter fat at a time wherethere is increasing demand for innovative and fresh products&The increased consumer demand for functional foods and nutrition enhanced products

is a key opportunity for the dairy sector& -ecent investments by ; large dairy processors in 7entres of +xcellence have focused some level of activity on enhancingtheir dairy commodity activity& !rimary -/D activity by these companies has beenfocused on the value added ingredients sector&Typical -/D to sales ratio for the commodities sector is #&1B 3 #&;B& The idealindustry target, which is being achieved by best in class dairy companies elsewhere isin the range #&B 3 #&:B& %t is important that %rish companies are encouraged to moveup the -/D value chain& There remains a lack of commercial focus in the universityresearch community which must be rectified and in addition licensing and technologytransfer must be given e2ual weight alongside primary research&

Sstainability

• The dairy sector is hugely challenged& According to international life cycle

analysis, =# B of carbon emitted in the dairy life cycle comes from cows

• Dairying competitiveness is also vulnerable to carbon taxes on energy use and

transport and refrigeration&

• Ket little research awareness at farm level 3some good work done by (

grassland based that is transferable&

• Main focus at producer level has been to resist the imposition of a tax& <hile

this is understandable in the context of carbon leakage and competitiveness, itis not a sustainable policy in its own right&

• The +uropean 7ommissions recent study on the impact of climate change hasindicated that north west +urope can expect more winter rainfall .includingfloods0 rising sea levels, hotter and drier summers& %reland will have tomanage increased wet land issues and the associated problems this will haveon animal husbandry including better housing, and longer stays under shelterand perhaps lower grass yields&

Infant 'tritionals

lobal Profile

• The %nfant Milk Formula .%MF0 market is valued at approx& 6L1#bn&

•%t is the largest category of the 6L"1bn global baby food sector accountingfor close to $#B of the overall market&

'



• The market leader is Mead ohnson at "#B market share, followed by (estle

.1:B0, Abbott .1B0, Danone .1"B0 and <yeth with 1#B&

• The market is growing 1$B on average year3on3year, however growth in Asia

is significantly higher&

• Asia is the largest baby food market, accounting for ;=B of the market,

followed by <estern +urope at "$B&

• Market growth in the developing world represents real opportunity for %MF

companies&

Profile of the sector in Ireland

• The %MF sector is strategically very important to the %rish dairy sector and to

the wider economy&

• %t accounted for @'m in sales in "##: of which nearly 1##B was exported&

• %n excess of 1"#,### metric tonnes of %M! is produced annually utilising over

1##,### metric tonnes of %rish dairy ingredients&

• The key %MF producers based in %reland .>roupe Danone, <yeth and Abbott0supply 1$B of the global re2uirements of infant formula and #B of the +6market re2uirements&

Strengths

• !roven track record in high 2uality manufacture of infant nutritionals for over

;# years&

• 8igh 2uality supply of dairy based raw materials from indigenous suppliers&

• Technically advanced suppliers committed to new product development

.(!D0 and 2uality e&g& involvement in Food for 8ealth %reland .F8%0, +&

akaGakii collaboration between the sector and universities& The %rish supplier base is very open to partnering with the %MF sector on strategic initiatives&

• The expiry of milk 2uotas by "#1$, can increase the capacity of the %rish dairy

sectors to milk supply to the %nfant Formula sector& As the global baby foodmarket continues to grow, %reland will have a secure and ade2uate supply ofhigh 2uality raw materials to facilitate increased production levels of %MF&

• %relands ability to respond to food scarescrises in a professional and credible

manner e&g& C+ and Food / Mouth&

• The %MF sectors ability to access government departments and high level

personnel on important issues with relative ease is of ma9or importance to the

sector&• 8igh level food research capability and facilities i&e& Moorepark, MTE, 677

supported by >overnment&

• %relands low corporation tax of 1"&$B and enhanced -/D tax credit&

• Attractive financial grant support packages are available towards -/D,

8uman -esource Development .8-D0 .incl& EeanCest !ractice0&

"ea#nesses

• Eow level of %rish industry based -/D activity&

• kills gap in the areas of engineering, technical and dairy processing&

cientists with managerial skills are in short supply&

:



• There are currently low levels of collaboration between the third level

sectorinstitutions and the infant formula sector in strategic -/D&

• Eimitations in relation to capital grant support to support expansions as

outside of the CM< and outh +ast regions, no capital grants are available&

• +xceptionally high manufacturing cost base vs other locations resulting in a

loss of competitiveness& Available data, from a leading %MF producer,indicates that %reland is B more expensive that the lowest cost producer inthe group and "1B more expensive than the average cost&

• Asia represents the fastest growing market place of %MF and this is where real

opportunity exists for %MF companies and suppliers& The %MF sector isaggressively expanding its operations in the Far +ast& This may haveimplications for the viability of %rish plants in the longer term&

• Cilateral Trade Agreements among Asian countries makes local supply into

this region more attractive and hence places %MF plants outside of the regionat a disadvantage&

*ps#illing

• 7ompetitiveness issues re2uire that the %MF sector adopts best practice and

lean manufacturing to drive efficiencies& Training and support in leanmanufacturing is a key re2uirement&

• The sector has difficulty in recruiting appropriate graduates with the necessary

scientific and technical skills& +xperienced personnel with the necessary balance of technical and managerial skills are also difficult to recruit&

Innovation&+echnology +ransfer

• %n order to support the development of the sector, in3company and

collaborative -/D programmes should be encouraged and supported by>overnment&

• %ndustry led partnerships such as Food for 8ealth %reland .F8%0 which is a

uni2ue partnership between four of %relands ma9or dairy processingcompanies and four public research organisations are a valuable / efficientmeans of exploiting research for commercial benefit& The %rish based %MFsector is a potential recipient of the outputs of F8%&

,ision for -.-.

• %reland will be regarded as a centre of excellence in the production and

development of a wide range of nutritional products N ranging fromspecialised infant nutritionals .e&g& hypoallergenic / elemental formulas0,growing up milks .a high growth market0 / sports / medical nutritional

products etc&

• %ncreased production levels of %MF which will be facilitated by the increased

availability of milk post "#1$&

• trong -/D functions based in %reland with global responsibility e&g& >lobal

Technology 7entres&

• trong supplier%MF partnerships in place that focus on collaborative -/D

and value added supply arrangements&

•

8ighly efficient %MF sector which has adopted best in class practices and arerecognised by their parent companies as strategic centres of excellence&

=



• %rish based and non %rish based %MF companies engaging with %rish companies

and third level sectorresearch institutions in strategic collaborative programmes& This may deliver added value research partnerships, supplyarrangements and inward investment&

• uccessful commercialisation of functional ingredients arising from Food for

8ealth %reland .F8%0 by the %rish Dairy industry partners and the %MF sector&Follow on and additional industry led partnerships will be in place deliveringvalue adding opportunities&

Fnctional Ingredients/ Foods and 0everages

lobal Profile

HFunctionalI is commonly recognised as any ingredient, food or beverage thatcontains specific physiologically active components that provide health and wellbeing

benefits beyond basic nutritional functions& <hile Functional foods are continuing togrow in popularity around the world, there is currently no universal definition of thecategory& A lack of legislation means that there are several different definitions ofHfunctionalI and this lack of consistency explains why market valuations on the siGeof the market can vary considerably between sources& The current worldwidefunctional foods market is worth approx& 6L:#bn with an estimated annual growthrate of :B& The sector is pro9ected to grow to between L=$bn and L1=$bn dependingon market research source and definition used&

%ndustry drivers include convenience, increased concern for health and wellbeing,ageing populations, scientifictechnological advances .e&g& nutrigenomics0, desire for

personaliGed food and beverage solutions and the need to add value to commodity products&

This has opened up a potentially significant market for investment and the %rish foodindustry is now being presented with a real opportunity to develop new products, newmarkets and new businesses that focus on food and its health3enhancing role inmodern lifestyle&

+he Irish fnctional Food sector

• The functional food sector in %reland is estimated to be worth in excess of

@1##m& %t is comprised of imported functional products as well as products produced by indigenous food companies& The siGe of the market can varydepending on definition used& 4ne large %rish industry player values the

market at @#m 3 @$#m which is based on food and beverages which display ahealth claim&

• <hile there is no hard data on the value of the %rish produced functional food

and ingredients sector, it is evident that the functional sector offers lucrativeopportunities to the indigenous food industry&

• 7urrently %rish manufacturing capability is largely confined to a small number

of large dairy companies and M+s in the ingredient and beverage sectors&!roducts such as fortified milk drinks, probiotic yoghurts, cholesterol lowering

spreads, energy drinks, functional waters have been successfully launched bythese companies& %n addition, the %rish dairy sector is now a key supplier of

1#



specialised functional ingredients to the global infant, adult and sportsnutritional sectors and on a local basis has very close supply base relationshipswith three of the <orlds largest %nfant Milk Formula producers .<yeth,Abbott and Danone0 who have manufacturing facilities in %reland&

• %rish companies are well positioned to make its mark in this sector& Anexisting strong food and pharma industries base, good availability of 2ualityraw materials, state of the art food and drink research centres, world class thirdlevel facilities all combine to make the environment right& Functional foodshave been designated as a priority sector by +% and the >overnment who haverecommended that potential opportunities in this sector are exploited&

Strengths

• trong market growth N -esearch from market analyst 8ealthFocus has

revealed %rish consumers show a great openness towards fortified foods ascompared to countries in +urope and the 6 .an "##:0&

• Ageing populations turning to functional foods to facilitate Hhealthy agingI&

• 7onsumer health concerns N Hprevention over cureI is being adopted by health

conscious consumers&

• Advances in nutritionals science e&g& nutrigenomics, metabolomics will drive a

more concerted focus on functional product development

• 8igh level food research capability in the third level sector and across the

research institutes e&g& Teagasc Moorepark, Ashtown Food -esearch 7entre,Marine Functional Foods -esearch %nitiative&

• Technically advanced companies capable of developing and producing

functional ingredients&

• The %rish dairy sector is strongly positioned to exploit opportunities in the

dairy based functional foods and ingredients sector&

• ignificant government commitment and investment towards in3company,

collaborative / publicly funded food research e&g& funding of company

• - / D 7entres, @"#m >overnment investment in Food for 8ealth %reland

.F8%0 and F%-M&

"ea#nesses5

• %n recessionary times, demand for Functional foods may ease as consumer

buying behavior changes&

• +6 -egulatory hurdles.a0 (ew +uropean 8ealth 7laims Directive which came into force re2uiressubstantiation of any claims and hence makes it more difficult now tointroduce new claims& %nnovation in +urope may become more expensiveand possibly stifled as a result&

.b0 (ovel Foods regulation N this regulation is a significant stumbling block for foodingredient manufacturers& (ew functional ingredients aremore likely to be drawn from existing foods than from newly discoveredones&

• 8igh (!D and marketing costs may not attract entrants into this sector&

11



• <eak %nternational consumer brand recognition e&g& %rish brands do not have a

global presence such as Danone HActimelI or (estles brand range&

• %ncreased power of retailers 3 margin differential between standard food

products versus functional foods in the retail sector is reducing&

• Eack of consumer understanding and mistrust of health claims associated with

healthy foods and beverages&

• Eimited focus on the commercialiGation of research / technology by %rish

researchacademic communities compared to other countries e&g& Finland,weden & 8owever, more emphasis is now being placed on exploiting

potential commercialiGation opportunities&

• %ndustry would tend to view publicly funded research programmes such as

F%-M as offering limited commercialiGation opportunities for the %rish foodsector&

• kills gap in industry in relation to areas such as engineering, food technology

and dairy processing& The sector is experiencing difficulties in recruiting

suitable candidates&

*ps#illing

• +nhancement of commercialiGation / %! skills to help maximiGe the

commercial opportunities in the functional foods sector&

• The sector is experiencing difficulty in recruiting sciencetechnology and

engineering graduates with the appropriate skills that industry re2uire& Thethird level sector and industry should engage with each other to address thisskills gap&


• %n order to support the development of the sector, in3company and

collaborative - / D programmes should be encouraged and supported by>overnment&

• %ndustry led partnerships such as Food for 8ealth %reland .F8%0 which is a

uni2ue partnership between four of %relands ma9or dairy processingcompanies and four public research organisations are a valuable / efficientmeans of exploiting research for commercial benefit&

,ision for -.-.

• Development of %reland as an internationally recogniGed centre of functional

research and development&• %reland will have become a world3wide expert in the field of Hmilk miningI

healthy ingredients from milk and will be a supplier of choice of specialiGednutritional ingredients to the %nfant Milk Formula, sports and clinicalnutritional sector&

• The sector will be characteriGed by strategic 9oint ventures and partnerships,

licensing, technology transfer agreements between large and small, indigenousand international food and pharmabio3technology companies& Theseinteractions will harness potential synergies and will contribute towards thedevelopment of an innovative / profitable functional sector&

•

%reland to be recogniGed as a leading location for clinical trials&

1"



• trong focus in terms of exploiting commercialiGation and %! opportunities by

the research institutes / third level sector resulting in start3up companys,licensing deals, technology transfer agreements etc&

• %ncreased levels of - / D collaboration between the food sector and the

research community with a strong focus on industry led partnerships&• Development of a cohesive, long term national sector strategy along with

continued >overnment support and funding towards the development ofthe sector&

Prepared Consumer Foods (PCF)

+nterprise %relands portfolio of client companies in the !7F "sector currentlyamounts to ": companies that exported some @"&: billion of product in "##:,

primarily to the 6*& The bulk of these exports came from four companies&

Strengths

%relands !7F sector en9oys a number of strengths including5

A ready supply of high 2uality raw materials&

A national reputation for a safe, clean environment&

A national reputation for high 2uality food products&

7onvenient access to the 6* market&

"ea#nesses

The sector currently faces a number of challenges, including5

>lobal competition in both domestic and export markets&

A relatively high %rish cost base& Many plants operating at less than optimal capacity or efficiency&

A highly concentrated domestic retail market where the top ; retailers en9oy acombined '#B share&

7ost conscious consumers seeking lower priced products

An industry structure that is comprised mainly of small businesses&

A high dependence on the 6* market&

terling depreciation&

+6 constraints on +% assistance&

-estricted bank credit facilities

-elatively low profit margins resulting in a lack of internally generated fundsfor investment&

,ision -.-.

Future vision for the !7F sector is that of a competitive manufacturing sector, that isinternationally recognised as a producer of safe, premium 2uality, high added value,innovative food products for world markets&

<ith exports of @$ billion, the sector comprises of a number of large scale producersof branded products as well as number of smaller companies focussed on specialised

" This +% classification of the !7F sector is not comparable to the product categories used by the 74&

1;



foods such as functional foods, genuine organic products, ethnic foods and traditional%rish fare&

%n between there is a cadre of extremely efficient medium siGed companies producing private label products for the retail multiples or the ma9or multinationals& %t is

envisaged that a number of client companies will be focussed on developing andlicensing proprietary process or product technologies, enhancing %relands reputationas a )hot bed ) of food innovation&

The successful !7F sector will also have resulted in a number of spin off or servicesub sectors such as cuisine centres of excellence or training colleges, food tourism,cafes etc&

Crrent Enterprise Ireland Strategy

+%s current general strategy for the !7F sector has three components5

ustain the current base of companies and help create cost effective operating platforms for the future through the application of lean manufacturing, fundingthrough the +nterprise tabilisation Fund etc&

Develop the necessary scale through encouraging and assisting industryconsolidation by amalgamations, 9oint ventures etc&

Cuild on the achieved competitive platforms to assist the necessary strategicinvestments to facilitate future growth etc&

+% also focuses on product and process innovation and management development programmes, to ensure the sector is driven by a cadre of managers with the necessary

management and leadership skills, as well as undertaking the necessary operationalcost reduction and efficiency enhancement pro9ects with the ob9ective of increasingcompetitiveness& 7urrent initiatives and pro9ects include5

• Assisting company amalgamations to help build scale etc&

• %mproving operating efficiencies and reducing costs through lean

manufacturing&

• Assisting companies to focus on niche markets&

• Assisting companies with new product and process development&

• 8elping build competitive advantage through recognised brands&

• Focusing on the health and well being agenda

•8elping develop proprietary competence and technology&

• Developing managerial expertise&

• Assist in accessing and exploiting proprietary technology&

• Cuilding processor retailer relationships&

• 8elping develop clusters of companies to build scale and competence&

Ftre Challenges for Food SectorIn addition to dealing with current issues, it is anticipated that Irish companieswill face the challenges and opportunities posed by macro issues such as:

• Food safety and security in a world facing increased water, food and

energy scarcity because of an ever increasing population etc&• <T4 changes 3 increased competition from developing countries&

1



• >enetically Modified 4rganism .>M40 issues

• (ew technologies such as nanotechnology applied to food products&

• (ew processing technologies such as high pressure processing that will

impact on food production&

• More stringent food safety and labelling regulations&

• The blurring of the boundaries between the food and pharmaceutical

sectors through functional foods etc&

• (ew strains of food related bacteria emerging or further food scares in

addition to those experienced previously N )Mad 7ow Disease etc&

• Further global consolidation of the retail multiples N e&g& <al Mart is now

the worlds largest company&

*ps#illing for the Food and !rin#s Sector

There are main areas that need to be addressed in order to improve and upgradeskills in the food / beverage sector5

Leadership

ignificant gaps from a succession perspective for 7+4 and MD,further gap at Tier two senior and middle management, functionalmanagement development vital to generate future sector leaders

A culture of leadership and empowerment skills within companies isvital for <orld 7lass Manufacturing .<7M0 sites going forward&%nnovative process, production skills combined with behaviouralcompetencies are also essential&

Lean Operations

%ntegration of Eean, six igma and *aisen toolbox practices into Foodand Ceverage manufacturing to generate world class manufacturingsites

%nnovate process diagnostics, with highly skilled, super skilleddeployable with replicable, specialist and generic skills

%ntegration at ;rd level as specialism

7ost control and best practice oriented upskilling at all levels acrossthe organisation&

Supply Chain Management

%ntegration of designated resources to manage this function

6pskilling from a green and black belt perspective with both financial

and performance management

%ncrease focus on upply 7hain Management at ;rd level& Innovation

(ecessary skills for the commercial analysis of all stages of product production to identify areas for improved product development&

+mbed and focus on (!D at ;rd level more successfully and upskilltechnical resources on the relevance of consumer and market insights&

%ncreased focus on innovation as a means of finding new ways todeliver value to customers&

Internationalisation

7ommercial sales and negotiation skills, 7ultural differences from an international trade perspective,

1$



6nderstand the foreign buyer, his motivations and practices

7ompliance and legal frameworks in different 9urisdictions& Financial & Commercial Acumen

trategic cost analysis skills, around (!D and production

%ntegration of better measurement of all functions

7ross functional commercial understanding of business viability

uites of HTskillsI to be integrated into all third level courses in theFood 3Agri and Manufacturing field

kills in entrepreneurship should be incorporated into food sciencecourses, encouraging students to see starting a new business as a viableoption&

Smmary

There are significant steps underway and in development addressing the skills gaps

from a strategic perspective with the Food and beverage sector& 4ne notable statisticis that $B of all employees with the Food and Ceverage ector have leavingcertificate education&

7urrently with the move toward <orld 7lass Manufacturing and best practice sitesthere is a shift in the skills base of these employees who are highly motivated by theopportunity to contribute the business and relevant idea generation throughempowerment& Cy "#"# the agri food sector will have significant investment in best

practice manufacturing sites, further up skilling in niche craft artisan businesses andmore cost effective organisations throughout with the overall ob9ective being tosustain employment and generate a population of a HsuperI skilled, more employable

and flexible workforce&

0eef Processing Sector

The %rish beef processing sector comprises ;# +6 licensed slaughtering facilitieswhich handle a combined throughput of approximately 1&m cattle p&a& %n additionthere are a small number of standalone .no slaughtering0 beef boning and beef addedvalue processing businesses& <ith the exception of three dedicated plants, the nationalsheeplamb throughput is handled in facilities which process both species i&e& beef andlamb&

%n overall terms, ex factory output in "##: was @;&#bn of which @"&#bn was exported&

The processing sector employs approximately 1#,### people&

<hile annual throughput is 1&m cattle implying a weekly average of ;1,###, inactual fact there is some seasonality influence in livestock production which meansthat weekly cattle availability to factories can be as low as "$,### with a weekly highof ;:,###&

A ma9or influencing factor on the supply lines to the processing sector is the livetrade& This features in two ways& Firstly finished animals which are exported livemainly to (&% and processed in that territory and secondly the live sale of youngcalves and weanlings to the 7ontinent& This latter category comprises animals which

1



are within 1$1: months of finishing, are farmed to maturity on the continent and soldto the domestic processing industry&

Strengths

• >ood penetration of 6* and +6 retail markets& This is particularly important

since the 7A! reforms dramatically reduced market supports&• !enetration of retail markets has changed the sectors profile from a froGen

beef exporter to third countries to a fresh food supplier in +6 markets& The penetration of retail markets has facilitated a more even supply pattern

• The primary producer is relatively low3cost grass based producer

• The suckler cow herd of over 1m& animals is a significant national resource

• %ncreasing emphasis on better welfare and environmentally sustainable

extensive production methods at farm level

"ea#nessesuccessive reports and comprehensive beef sectoral analysis has identified thatstructural weaknesses exist in the primary processing segment of the industry& %t isestimated that the national capacity utilisation is about #B and drops to below $#Bduring periods of short supply& The estimated cost of this lack of competitiveness is

@#m pa& The most serious characteristic is that virtually no factory in %relandoperates a full $3day week, with most operating between ; and days for every weekof the year& >iven that the collective view is that beef livestock numbers available for

processing in %reland will remain at best, at current levels for the next number ofyears, the number of slaughtering facilities should be reduced with each operating ona full $ day week& This will generate sufficient profits to fund new initiatives for

shareholders and providing improved margins to stimulate and reward livestock producers to sustain and grow their cattle enterprises&

8igh labour and energy costs are also damaging the competitiveness of the sector&These costs are as much a $#B lower in the 6* 3the principal export market&

The small scale of farmers, particularly in the suckler herd with an average herd siGeof 1# cows and lack of focus on farm productivity are also competitiveness issues&Figures from Teagasc + profit monitor published in uly #= show no improvement inlive weight production per hectare since "##; coupled with a =B increase in feed overthe same period&

E%port Focs

Ceef exports account for =#B of production so the sector is highly exposed to globaltrade developments& The evolution and shape of the Doha <T4 global trade roundand in particular the proposals to increase imports of lower cost beef into the +6 willhave a ma9or bearing on the future of the sector

Competitiveness responses

• %ndividual businesses have been actively pursuing reductions in labour and

other business costs and in lobbying with the other food industry companies

for an improved energy pricing system&

1'



• The beefsheepmeat sector is committed to investing @1'$ million .with tate

assistance of @'#million0 on improved productivity and technology&

• -etail buying power has a specific impact on the meat sector as these products

are regularly used as a loss leader by supermarkets to increase footfall and

attracting consumers with the margins being recovered on other goods&

Sstainability Isses

• As is the case with the dairy sector =#B of the carbonmethane produced in

the beef life cycle is produced on farms&

• At processing level the industry is a significant user of carbon based fuels for

sterilisation, water treatment, energy source, transport and refrigeration& Thismakes the sector vulnerable to potential carbon taxation of fossil fuel

• The 6* retail sector is hugely engaged by the carbon profile of the meat

sector and processors will need to respond to retailer demand forHsustainability measuresI in addition to regulatory or taxation issues& Anumber of companies have invested in tallow burning boilers to both reducetheir energy costs and their carbon profile&

• The meat sector is heavily dependent on the rendering sector for efficient

handling of by products& -estrictions on by product end uses are currentlyimposing a cost on the industry& -endering output is being exported to>ermany and %taly at a cost of @# to @:# tonne for use in energy generation&

• A national waste to energy policy which allows meat and bone meal and other

by products to be used as a carbon offsetting fuel supply could greatlyimprove both the cost structure of the sector by reducing energy costs and thecarbon profile of the sector where by products as bio3fuels would significantlyreduce fossil fuel usage

Innovation

• Focus on tenderisationbeef aging techni2ues and on processing technology

• %nformation capture through improved software development

• There has been some work done on meat functionality but it is not as

developed as in the dairy sector as beef is not as flexible&

0everages Sector

Sector Profile +otal

(o& 7ompanies5 "1ales @m5 @",$=1m+xports5 @1,$$m+mployment5 ",=##

ey +rends in Sector "orldwide

• Beer market is low growth i&e& up "&"B since 1=='&o 7hina has replaced 6 as the largest market&o Oery concentrated top 1# have $"B of global market&

1:



o Flavoured alcoholic beverages are growing e&g& Alco !ops&

• Spirits market is very diverse in product range from country to country&o <hisky is becoming the dominant product as brand, fashion and 2uality

become increasingly important facets of consumer choice&o The largest single market is the 6 .@;bn0 with Asia3!acific -egion

showing the strongest growth .;&B0&• Soft drinks, the 6 is the largest market with Asia, +urope and the Middle +ast

being the fastest growing&o 7arbonates dominate the market .$B0 with bottled water being the

highest growth sector&

Strengths&"ea#nesses of 0everage Companies in Ireland

• 0eer 5 there are two ma9or players who between them control roughly =#B of the

market and employ over 1,$## people& There are some craft brewers and importsof beer but they represent a very small share of the market&

• Spirits2 Two main players and both have an -/D presence in %reland& The other

spirits manufacturers are M+s, primarily manufacturers of cream li2ueurs withsome variant product offerings, for example wine based as opposed to whiskey

based cream li2ueurs

• Soft drin#s 5 the market comprises mineral water and carbonated soft

drinks as well as fruit 9uices and cordials& %n contrast to the beer and spirits sectorsthere are little exports of soft drinks and minimal -/D&

• S3Es 5 have a low capability in terms of technical and innovative skills,

have poor linkages to the third level sector and, in general, have a short term viewof -/D&

Competitiveness&Cost

• Oirtually all of the companies in the beverage sector have reduced their costs

through a combination of redundancies, wage cutsshorter working time, andrenegotiation of prices from suppliers&

• The 6&*& is a key market for the beverage sector and in order to compensate for

the drop in the value of sterling some beverage companies have been switchingfrom %rish to terling suppliers to offset their potential losses&

Sstainability&Climate Change

A number of the larger firms have an extensive sustainability policy in operation andthey generate as much energy as possible from renewablerecycled resources& +nergyefficiency is particularly germane from both a cost and sustainability viewpoint and is

becoming an issue with the multiples&


The larger beverage companies engage in -/D in some form and get strongencouragement and financial support from +nterprise %reland& There has been limitedsuccess in relation to technology transfer&

0a#ery 4 !eserts Sector

There are key differences in the nature of the bakery sector in %reland as compared toother sectors in the food industry& Firstly, it is a traditional industry that over the

1=



decades has experienced significant rationalisation with a large number of closuresand the disappearance of the small local bakery network& At the same time theindustry has fragmented into a number of different business types each with verydifferent cultures, ob9ectives and development challenges& %t is not an export focusedsector and does not lend itself easily to exports due to the nature and value of the

products produced& There are approximately ;## bakery enterprises in %reland, ofwhich ":# can be classified as craft bakeries, and "# as plant bakeries& %n additionthere are a further $# in3store bakeries and an estimated 1$## in3store retail bake3offoutlets& The sector is experiencing consistent growth which is expected to continue&

The total bakery goods market in %reland is estimated to be worth 9ust over @#&$bn atthe retail level annually, of which 1B is imported& The domestic market has showngrowth rates of "3;B, driven by the rising popularity of specialist breads and anincreasing focus on health and well being& The trend for "##$ to "##' was for anincreasing level of imports .@"$:m in "##0 rising by approximately 1#B per annum&The exports from the sector were rising by 'B per annum .@"1;m in "##0& This is an

important sector in economic terms being strategically located throughout %reland andis also important in terms of direct and indirect employment& %n direct employmentalone the sector ranks third behind the Dairy and Meat sectors with ,"##&

The Irish bread market has seen steady growth in the period "##"3"##:, withestimated sales reaching ?1#;m in (% and @;$#m in -4% in "##:& !ro9ections for"#1" are ?11:m and @1m respectively&

The Irish cake market has shown consistent growth also over the period with chilledand individually wrapped cakes driving growth& +stimated sales for "##: are ?;m in

(% and @:m in -4%, pro9ected to rise to ?$m and @1#"m respectively by "#1"&

The biscuit market is valued at ?1"m in (% and @"':m in -4% with sales havingrecovered from a slump in the period "##$3"##& >rowth has been achieved throughinnovation, new recipes and siGe reformulation and sales are forecast to reach ?1min (% and @;1=m in -4% by "#1"&

Strengths

• 7onsolidation of !lant bakeries

• A number of M+ bakers have

o 7ore product specialisation

o Oolume production• *nowledge of competitors products

• Differentiate by product not price

The M+ bakery sector represents the greatest potential for growth and within thissector there are approximately "# businesses which are capable of growth given thecorrect strategies and support mechanisms&

Challenges

• %ncrease in the power of the retail buyers N purchasing policies are acting as

significant drivers of change and are exposing certain weaknesses in the bakery dessert sector

"#



• %ncrease in the cost of raw materials, energy and ingredients

• helf life of most products is short

• >reater intensity of competition

• %ncreased imports

•

More consolidation across the sector • 8igher levels of food legislation and customer compliance re2uirements

• Typical issues affecting the industry include over3capacity, low margins, low

levels of exports, a lack of (!D

• Family3owned, bakery background rather than business&

Competitiveness&cost

• 8igh volume production&

• Automation lean manufacturing

• 7ore product specialisation&

•ourcing lowest cost raw material where possible

E%port& 3ar#et orientation

• +xport market focus will remain in the (&%& and 6* market with more interest

in +uroGone markets as a conse2uence of sterling&

• longer shelf life products and freeGable products markets would include 6A

and candinavia

• Target supply to niche distributors in the market

• !remium products to selected markets at a competitive price

Sstainability

•

!redominantly driven by the retailer • !ackaging usage attempt to reduce

• Attempt to reduce energy consumption

Innovation&+echnology transfer

• Further involvement with third level institutes and Teagasc in Ashtown&

• %nteraction with initiativesprogrammes .heat recovery, lower salt etc0

!ecember -..5

2020 food processing sector

Documents