Export growth set to resume, predicts Bord Bia

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 last 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. However, the board said there are indications that export values are now beginning to stabilise and it 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: "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, said Bord Bia. Ireland's uniqueness within the eurozone, 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. 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 10 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 10 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 10 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.