A sustained decline in the value of sterling combined with the economic downturn and severe difficulties in the global dairy market created unprecedented challenges for Irish food and drink exporters in 2009, according to Bord Bia's Export Performance and Prospects report launched this week. The value of Irish food and drink exports declined by 12 per cent last year, or by just under €1 billion, to stand at €7.12 billion.

There are indications however that export values are now beginning to stabilise and Bord Bia predicts some recovery in the year ahead. "The prospects for 2010 point to a return to growth for Ireland's food sector," according to Dan Browne, Chairman, Bord Bia. "The potential for stronger export revenues from the key dairy and meat sectors, and investments by prepared food companies to broaden their market presence on the Continent, will help exports as 2010 progresses. However, developments in sterling and consumer sentiment remain critical."

The decline in sterling and price deflation in the marketplace were responsible for the majority of the reduction in export revenues in 2009. "The underlying performance of the industry, reflected in an estimated volume decline of just three per cent, was impressive when set against these challenges," according to Aidan Cotter, Chief Executive, Bord Bia. "Sterling remains the single biggest issue for the industry," he said, adding that, "in 2009, it is estimated the depreciation of sterling reduced the value of exports to the UK by some €400 million."

The agriculture and food industry plays an important role in the Irish economy and remains its largest indigenous sector accounting for almost nine per cent of employment and 10 per cent of exports. As much as 65 per cent of manufacturing exports by Irish-owned firms are estimated to consist of food and drink.

The long-term outlook for the sector, with its high export orientation, remains positive. Due to an expanding world population and evolving demographics, the world will need to produce over 40 per cent more food by 2030 and some 70 per cent more by 2050. It will have to do so from fixed resources while minimising its impact on the environment.

However, as it seeks to avail of emerging opportunities, the challenge for the industry to improve competitiveness while broadening its export reach, remains a formidable one. Ireland's uniqueness within the Euro-zone, sharing a land border with the sterling area, has compounded the industry's difficulties on its domestic market. At the same time, it must compete with UK-based exporters as it seeks to build share elsewhere within the Euro area.

The UK remained Ireland's principal export destination in 2009 with sales valued at just under €3.1 billion, a decrease of 15 per cent compared to 2008 figures. Despite this, the market still accounted for 44 per cent of Ireland's food and drink exports although its share of trade came under pressure as the year progressed, dropping from 48 per cent in January to approximately 43 per cent by late 2009.

The share of exports destined for other EU markets increased to 34 per cent in 2009, from 32 per cent in 2008, helped by a higher share of beef exports destined for the Continent, together with a stronger focus on the region by prepared foods manufacturers. The value of trade to International markets was adversely affected for much of the year by the weaker global dairy market.

Exporters focusing on efficiencies, but concern over sterling remains

Irish food companies have adopted a range of measures to defend their market positions in the face of the economic downturn, according to a recent Bord Bia survey. Measures have included reducing non-staff costs (68 per cent of firms); reducing staff numbers (36 per cent but rising to over 70 per cent among the largest firms); discontinuing some product lines (35 per cent), and reducing expenditures on business development and sales (38 per cent) and new product development (28 per cent).

Eight out of every ten exporters report difficulties in securing price increases in the UK market to compensate for the decline in sterling. As a result, one in every two firms confirmed they have withdrawn from customers that are no longer profitable, while changing their focus to less price sensitive channels and customers.

Nine out of every ten exporters say that the changes they have made will enable them to maintain their business situation in the UK should sterling remain at 90p over the next six months or so. However, if sterling were to remain at this level indefinitely, having fallen by 30 per cent over the last two years, only seven out of ten firms believe they could continue to sustain their business situation. Furthermore, only one in every two believes they could maintain business levels should sterling depreciate further to between 95p and 100p, with the number dropping off to one in three at a rate between 105p and 110p.

Bord Bia marketing initiatives

In a move to support the industry broaden its export reach Bord Bia will next month, on 9 February, host 250 international food and drink buyers from eighteen countries to meet with some 160 Irish companies in Dublin. A series of preparatory workshops and briefings is already underway with participating companies to assist maximise business development opportunities from the estimated 1,000 pre-scheduled, 'speed-dating' meetings that will take place during the Marketplace 2010 event.

Meanwhile, Bord Bia's Marketing Fellowship programme, initiated in October 2009, sees twenty-five experienced graduates currently working across 13 overseas markets, from New York to Shanghai, to help boost Irish food and drink exports and support some 113 Irish companies expand their market reach. The graduates are undertaking 168 commercial assignments varying from investigating potential new business opportunities to developing business plans to assist Irish companies enter, and succeed in, emerging and valuable markets such as the Middle East.

Bord Bia is also planning to transform its quality assurance schemes by incorporating environmental sustainability measures that will enable it to objectively promote Ireland as the 'Sustainable Food Island'. The existing schemes, which include over 36,000 independently audited members, enable the Irish meat industry access premium retail and foodservice outlets internationally. The transformation of the schemes is designed to impart additional competitive advantage to the industry and give it a leadership role as markets increasingly factor in climate change and environmental sustainability issues.

Sectoral Analysis

Meat and livestock

* "Poultry exports ...declined by 11 per cent to €180 million"

The combined value of meat and livestock exports is estimated at €2.25 billion in 2009, representing a decrease of nine per cent compared to 2008. Beef exports were valued at €1.4 billion, down 13 per cent on 2008 levels, based on a combination of a four per cent drop in exports to 461,000 tonnes and a nine per cent fall in prices.

The weakness of sterling led to lower market returns for Irish exporters from the UK market, resulting in a two per cent decline – to 52 per cent – in the proportion of exports destined for the UK. Larger shipments to markets such as Italy, the Netherlands and Spain helped increase the proportion of beef exports destined for the Continent to 47 per cent from 45 per cent in 2008.

Pig meat exports recorded a 15 per cent drop to €290 million as a combination of lower supplies and reduced prices affected trade. However, most Irish pigmeat markets and customers have returned to relatively normal patterns of trade following the pig meat recall in December 2008.

Poultry exports were affected by lower returns for processed products despite volumes holding well with the value of exports for the year estimated to have declined by 11 per cent to €180 million.

The value of sheepmeat exports was largely maintained at €166 million. A slow-down in domestic consumption helped offset lower supplies while prices were marginally higher.

The value of livestock exports increased by more than 40 per cent in 2009 to €213 million, helped mainly by the strong rise in live cattle exports which saw numbers almost double during the year.

The prospects for the meat and livestock sector in 2010 will be affected by ongoing price pressure in response to slower consumer spending and currency issues. However, a reasonably tight EU meat supply situation should provide a stable market environment while increased Irish output will boost volumes.

Dairy products and ingredients

The volume of dairy products available to export fell during the year due to a combination of lower milk output and increased use of intervention storage. It is estimated that these developments reduced the value of dairy exports by more than €150 million.

Overall, it is estimated that the value of dairy exports fell by 13 per cent to €2 billion in 2009. However, an additional €90-95 million worth of SMP and butter was sold into intervention and will be available to export from 2010. The strongest performing categories during the year were infant formula and, to a lesser extent, cheese and chocolate crumb.

The prospects for Irish dairy exports in 2010 are more positive given the recent recovery in product prices. It is hoped that this improvement can be maintained and further boost export revenues. Irish milk output is expected to recover from the decline recorded during 2009, which will boost overall availability with the strongest increases in production likely in cheese and whole milk powder.

Seafood

The export market for Irish seafood was challenging in 2009 as weaker sterling led to reduced exports to the UK and led to strong competition in other key markets. Poorer weather in the final quarter of 2009 affected supplies but also helped unit prices. Overall, the value of seafood exports is estimated to have declined by nine per cent to €303 million.