Food manufacturers facing 'two-way squeeze'

FOOD MANUFACTURERS are facing "a two-way squeeze" from tougher contracts imposed by retail multiples and higher raw material costs, according to consultants Mazars.

The traditional start-of-year contract renegotiation season between major supermarkets and their suppliers have left manufacturers with much more demanding terms, Mazars partner Tommy Doherty said.

"We are regularly hearing of instances where the multiples are demanding longer credit periods and higher discounts," he said.

"We have heard of one example where a multiple has pushed payments out from 30 days to 90 days and demanded a 2.5 per cent discount on the invoice price."

Combined with substantially higher input costs, such as a 50 per cent increase in the price manufacturers pay to farmers for milk, the tighter contracts mean food manufacturers are being squeezed at both ends, he added.

"What we are seeing more and more is the food industry being forced to absorb rising production costs."

Mr Doherty said the Irish food and drink industry, which exported €8.6 billion worth of goods last year, should emulate the innovation found in countries such as New Zealand in order to maintain export growth at a time when margins are being squeezed.

New Zealand has successfully reinvented its food industry in recent years, developing specific products for specific markets, creating best practice dairy markets in Asia and becoming increasingly competitive in chilled lamb, Mr Doherty said.

New Zealand's lamb exports to the EU have increased 40 per cent in the last two years, and its sale in the Republic has angered the Irish Cattle and Sheep Farmers' Association, which last week warned that the "country is awash with cheaply produced, untraceable New Zealand lamb".

But the approaches adopted by the New Zealand food industry should be closely examined by Irish food manufacturers, according to Mr Doherty. "The Irish food industry has to look more and more to export markets, despite the challenges of increased competition, the strength of the euro and rising logistical costs."