Agri-Food Funding New Routes to Growth
EY partners Graham Reid and John Higgins interviewed agri-food companies
and banks about how Ireland can maximise its potential in this expanding market,
and ask is there a lack a funding that will potentially strangle this growth?
I
reland’s image is green. The image of Ireland as a
producer of high quality food is priceless.
Competitor countries envy the reputation that
Ireland holds. Agri-food is Ireland’s largest
indigenous industry, processing beef, pork, lamb,
poultry, cereals, dairy produce, seafood,
prepared food, organic and other products. The industry
employs more than 160,000, exports €10 billon’s
worth of goods to more than 170 countries, and
accounts for eight per cent of gross domestic product.
The potential for more growth is significant. Expanding
markets in Asia and Africa, and the global growth
of middle class markets is increasing the demand
quality food, in particular protein based food, from
trustworthy sources. This offers opportunities for
growth in exports, helping Ireland to achieve a soundly
based economic recovery. Some of this has begun
already. China is now Ireland’s second largest dairy
market, and third largest supplier of pork, according to
Bord Bia. Bord Bia also announced recently that food
and drink industry exports grew by nine per cent to
€10 billion in 2013, with double-digit growth in dairy,
beef and prepared foods. This positive result for the
industry was delivered during a year which included
challenges such as a fodder crisis and the horse
meat scandal.
All sectors including meat and livestock (beef, lamb,
pigs, poultry), prepared food, beverages, seafood,
horticulture and cereals are expected to contribute
to the delivery of the industry’s growth agenda. Most
noteworthy is the dairy sector which is expecting to
grow output by 50% following the abolition of EU milk
quotas next year.
The 2020 Food Harvest Plan (FH2020), a blueprint
prepared by the Department of Agriculture and
Fisheries with industry input set demanding targets
for growth in the decade leading up to 2020.
EY advise some of the key players and has advised
on some of the most important transactions in the
industry in recent years and therefore has a unique
perspective on the agri-food industry. We have been
talking to senior representatives from organisations
and finance providers across the sector, to gauge
progress towards FH2020. We have interviewed
major actors, gauging progress towards FH2020 at the
halfway point, in particular seeking to gain an
understanding of the funding opportunities and growth.
Overall there is an acceptance that good progress
is being made . However, challenges remain, and will
require structural changes, continuing innovation
and evolution of the sector. The general trend among
producers in Ireland is to move away from commodity
products towards value added and brand-centred
products that focus on the requirements of customers
in target markets. It is important these trends
continue to help ensure that Irish produce earns
premium prices so as to minimise the impact of
volatile commodity prices.
Ireland has competitive advantages in food production,
such as our grass-based cattle feeding, and a strong
food brand globally. However the industry needs to
continue to invest and drive efficiencies throughout
the supply chain to ensure we remain competitive in
the global market place. This will require sustainable
investment in operational improvements, new capacity,
sales and marketing, research and development
(R&D), new products and exploring new markets.
Investment needs vary across the different sectors
but the focus should be in the development of more
efficient primary producers and processors. Examples
of opportunities to increase efficiency in the dairy
sector include increasing farm and herd sizes,
consolidating existing processing capabilities and,
where required, building greenfield and highlyefficient processing plants.
John Higgins
Partner, Transaction Advisory Services, EY
T: +353 21 480 5735 | E: [email protected]
There remains strong rationale for the consolidation
of the processing capabilities of the dairy sector.
However arriving at a feasible structure will be
complex and will take time. Glanbia’s proposed
acquisition of Wexford Creamery, subject to
Competition Authority approval, is an example of
this consolidation process. The drivers for further
consolidation may include farmers switching co-operatives as they seek to optimise their farm gate milk
price, lack of processing efficiency, poor financial
performance and a lack of investment, all of which
are interconnected. This theme extends into the other
agri-food sectors with the need to increase economies
of scale and production efficiency to compete in the
global market.
Given the current strength of the dairy sector,
combined with the current high in international prices,
there is evidence of farmers switching from tillage
and beef to dairy farming to take advantage of the
potentially higher return. This will increase supply
in the market but the new dairy farmers may face
challenges such as funding the cost of new facilities
and plant, developing a new herd and delivering the
required product quality and consistency.
To facilitate the sector to deal with these challenges
the ability to access funding, right across the sector
from farm to fork, will be vital.
Graham Reid
Partner, Transaction Advisory Services, EY
T: +353 1 221 1449 | E: [email protected]