New policy document is set to propose central role for agri-food sector in economy, writes SUZANNE LYNCH
AS LEINSTER House winds down for the summer, one major policy initiative has yet to be announced. On Monday, Taoiseach Brian Cowen and Minister for Agriculture Brendan Smith will publish a strategy document on Ireland’s agri-food industry. Strategy 2020 is the culmination of months of consultation with more than 30 agricultural sector representatives.
The aim is to formulate a long-term strategy for the sector. More ambitiously, it hopes to outline how Ireland’s agri-food sector can be a major player in the State’s economic recovery. Agriculture and economics have a somewhat uneasy relationship. Regarded as fundamentally opposed, Ireland’s agricultural sector has been viewed by its critics as an archaic system sustained by market supports and motivated by social rather than commercial concerns, one that is out of touch with free-market realities.
In truth, there is significant common ground between the two. Agriculture may not occupy the dominant position it once held in the economy, but the agri-food sector is still a significant contributor to GDP and – arguably more significantly – GNP. The agri-food sector accounts for around 8 per cent of GDP, with primary agriculture accounting for 3 per cent – well above the EU average. A defining aspect of the sector is its high dependence on exports. Over 90 per cent of Irish beef and 85 per cent of Irish dairy products are exported. In 2009, the sector’s exports were worth €7 billion, 9 per cent of Ireland’s total exports.
The Minister believes agriculture can play a central role in the recovery, particularly through its focus on exports.
“Agricultural exports have outperformed other sectors even despite the challenges of the past few years. The sector has huge potential for growth . . . particularly in terms of exports.”
His optimism is not unfounded. As Ireland tentatively edges out of recession, attention is turning to the country’s largest indigenous sector as a potential growth area. The sector has succeeded in weathering the financial storm better than most.
As the majority of Irish and global equities battled with the global downturn, food companies like Kerry Group and Glanbia have consistently outperformed. Ireland’s agri-food export industry has also held its own. While food and beverage exports in 2009 declined by 12 per cent in monetary terms – mainly due to sterling exchange rate fluctuations – the sector declined by just 3 per cent in terms of volume.
Perhaps more significant is the sector’s potential at a macro level. As Smith says, the UN forecasts that the world’s population will increase by over two billion to over nine billion by 2050, thereby contributing to a required increase in food production of 70 per cent.
But while the potential of the global food industry is not in question, the issue of whether Ireland can position itself as a serious player in this burgeoning sector is another matter.
Ireland’s agricultural industry faces major challenges. This is mainly due to seismic shifts that are set to take place in EU policy and world trade – specifically the reform of the EU Common Agricultural Policy (CAP) and the dismantling of trade barriers that is likely to arise from further WTO talks. These are set to have a dramatic effect on Ireland’s agricultural industry, particularly the beef sector.
Beef production is the dominant type of farming in Ireland, accounting for more than half of all farm enterprises. Beef exports represent 20 per cent of total food and drink exports. The sector, however, is systemically unprofitable and heavily reliant on subsidies.
Prof Alan Matthews of TCD has pointed out that the income accruing to farmers from agricultural activity now comes entirely from public policy transfers. Any change to the single farm payment would have a serious impact on the sector’s viability. So too would the inevitable liberalisation of world markets.
While the threat from South American beef production has receded somewhat due to production cutbacks and export restrictions, if allowed unrestricted access to EU markets, the threat to Irish producers would be immense, given the scale of operation and low production costs in non-EU bloc countries.
Defenders of the beef industry point to Irish beef’s status as a premium, high-quality product. And the industry has successfully focused on the high-value European market in recent years, with the share of Irish exports to the lower value and more volatile non-EU markets declining from over 50 per cent to less than 2 per cent since 2000.
Teagasc has also been encouraging better productivity and efficiency at producer level. But whether Irish beef could maintain this premium market position in the context of reduced levels of support and greater competition is a concern – the recent public anger about the high price of Irish food prices indicates the importance of price to the consumer.
In contrast, Ireland’s dairy sector is seen as the great white hope for Irish agri-business. The abolition of milk quotas in 2015 opens up huge opportunities for the sector. Ireland has enormous capacity for production, and the advantage of a low-cost grass-based system.
Despite an acceptance across the board that further rationalisation of the sector is necessary, consolidation between co-ops has been slow to take place. Nonetheless, investment in processing plants, many of which are working at under capacity levels, leave the processors in a good position to capitalise on the production opportunities, with more and more processors moving into the food ingredients market.
It is within this context that Strategy 2020 will outline Ireland’s long-term plan. It is understood that the document will contain ambitious targets, including a 40 per cent increase in dairy production. The beef sector will also play a central role, according to the Minister. He dismisses claims that beef farmers have failed to adapt or confront the long-term challenges facing the sector. “We have moved from a system where all beef was sold through intervention, to a focus on third country markets, to the situation today where virtually all our beef exports are going to the European Union.”
He believes beef will compete on quality and added-value even in the context of increased price competition. This focus on added-value products is already a feature of the industry here, with processors moving from the export of commodities to a greater focus on producing and packaging products that go directly onto European supermarket shelves. Firms like Kepak are also diversifying into convenience foods and branded products. The need for such diversification and product innovation will be a central theme of Strategy 2020. In the dairy sector, while the production of liquid milk will be the main source of growth, the area of nutritionals, ingredients and flavours, and “nutraceuticals” is rapidly expanding, as Kerry Group and Glanbia’s success demonstrates. Ireland produces 15 per cent of global infant food. It is expected that the report will recommend expansion, particularly into Asian markets. The development of new forms of cheese and further research on human nutrition ingredients is also being targeted by Teagasc.
Value-added and innovative activity is also emerging in the seafood industry, with hundreds of start-up firms looking at entering the business, again developing consumer and high-end products. While proposals for future developments in food innovation are welcome, this area is only a sub-sector. The real issue is how Ireland will adapt to the major EU policy and trade changes coming down the line. It is understood the strategies in Strategy 2020 are being proposed in the context of the present CAP situation and trade agreements. While it is impossible to know the exact outcome of forthcoming negotiations, the industry, particularly the beef sector, faces monumental challenges. Ignoring these in the document will discredit any proposals that might be suggested.
The other elephant in the room is job creation. While the Minister appears confident that the sector will lead to increased jobs, it is understood the document contains no specific figures on jobs. The reality is that greater rationalisation and increased technology inevitably means less jobs, and with the numbers working in primary agriculture declining rapidly, it would seem that the agricultural industry epitomises the paradox of the “jobless recovery” that appears to be characterising the recovery.
These realities may not be what the farming lobby likes to hear, but they are issues that need to be confronted if the industry is serious about capitalising on opportunities in the agri-food industry. As the fate of the sugar beet industry, though very different, demonstrated, in the end the market inevitably wins.
FEEDB@CK: Can Irish agriculture retain its economic influence in the absence of EU subsidies?
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