BDO IRELAND Agri Food Opportunities And Insights.2012

Agri-food 2012

OppOrtunitiesand insights

Agri-Food Opportunities and InsightsBDO

Foreword 2Some key statistics 3BDO: Funding 4BDO: EII Scheme 6BDO: R&D Tax Credits 8

the view from the marketplaceGlenisk 12Green Farm Foods 14Mr. Crumb 16Nature’s Best 18Pallas Foods 20Rosderra Irish Meats 22

Outside experts looking inGeoff Meagher 26Philip Barlow 28Maree Gallagher 30

the view from support agenciesBord Bia 34Enterprise Ireland 36IBEC 38Irish Exporters Association 40Teagasc 42

some thoughts from the banking sectorBank of Ireland 46Ulster Bank 47

Our Agri-Food Team | BDO 48

COntents

BDO: Advisers to the Agri-Food Sector2

The vision of Irish agri-food as a sustainable, dynamic and growth-oriented industry is rapidly gaining momentum and the industry’s ability to offer an even spread of employment and wealth-creation across the island makes its success one of particular socio-economic value.

Through Agri-Food Opportunities and Insights our goal is to bring alive both the sense of vibrancy in the industry and the diversity of perspectives that exist on how it will meet the challenges of the coming years.

There are, undoubtedly, structural and funding issues that need to be addressed if we are to scale up to the growth levels set out in the Department of Agriculture, Food and the Marine’s Food Harvest 2020. Through conversations with support agencies, advisers, the banking sector and, of course, the food companies themselves, Agri-Food Opportunities and Insights gives a sense of where the industry sees itself, and what actions are necessary if we are to realise the opportunity for Ireland’s high-quality agri-food outputs. On behalf of BDO I wish to extend my thanks to all who contributed their time to make this document what it is.

FOrewOrdBy Stewart Dunne

While funding issues, naturally, are articulated throughout, our contributors also stress structural concerns such as the skills shortage at certain levels of the industry and the need for greater investment in R&D and new product development (NPD).

On the positive side, contributors also highlight the range of non-traditional funding opportunities that exist, from leveraging R&D tax credits to equity investments to trade finance products. BDO’s unrivaled insight and expertise in the areas of funding; access to the R&D tax credit; and the administration of the EII Scheme, will be of particular interest to the industry and are covered in some detail by my colleagues within this publication. Above all, contributors stress the value of relationship building and networking as businesses seek out the funding champions who will enable them to scale up and grow.

BDO has a longstanding commitment to understanding the needs of our clients and to going beyond their expectations as we meet them. The agri-food industry is a priority for us and, through this publication, I hope to give a sense of our ambitions to partner with you as you set out your priorities for growth in the decade ahead.

Stewart DunneLead Partner, BDO Agri-Food Team [email protected]

The Irish food and drink industry has enjoyed surging levels of export growth over the last two years, and shown an impressive ability to win significant new business on the international stage. Nowhere is the sense of ambition more evident than in the SME sector.

“The vision of Irish agri-food as a sustainable, dynamic and growth-

oriented industry is rapidly gaining momentum.”

Agri-Food Opportunities and Insights 3

sOme key statistiCs

Irish food and drink exports 2009-2011

Source: Bord Bia

Source: Bord Bia estimates

Source: Bord Bia estimates

Changes in Harmonised Competitiveness Index, based on GDP deflator (Q2 2008-Q2 2011)

Source: European Central Bank

Irish food and drink exports 2009-2011

Source: Bord Bia

Market distribution of Irish food and drink exports (%)

Trends in Export values by region (€m)

The value of irish food and drink exports increased by 12% in 2011 to reach €8.85bn. 25% ahead of levels recorded in 2009.

The UK remains a key export market but broadening market reach is evident as a greater proportion of our exports go to other european countries and international markets.

ireland has achieved the most significant improvement in competitiveness (-12%) of all the euro area countries.


Our perspeCtive On the Funding Op tiOns

to adapt, an environment in which a company has a mix of funding sources is a more sustainable one in the long term.

Separately, the recent announcement from the government of the introduction of the loan guarantee scheme is to be welcomed. The challenge for SMEs is to stay up-to-date in a changing landscape and to be able to target the right funding sources as they develop their businesses and, thereafter, present a credible business case to secure those funds available. Surprisingly, many businesses are still not aware of the range of funding opportunities that are out there.

Are grants a feasible option for funding in the current environment?Enterprise Ireland are key funders in this regard and have a range of grant aids/support programmes that are appropriate for different stages of a company’s growth. The support and incentive programmes available from Enterprise Ireland range from building a company’s cost competitiveness, export development and R&D to key management development and financial support to accelerate a company’s growth potential.

Enterprise Ireland can provide investment on a matching funding principle. This model was initially developed for the technology sector, which tends to have faster scale ups. Despite the fact that agri-food companies tend to grow more slowly this funding source is still very valid and accessible. How does this work? The investment from Enterprise Ireland is typically for a five-year term and structured by way of preference shares in the company.

Are companies looking more seriously at the equity route?With traditional sources now more limited, there is certainly a need for more equity finance in companies. The reality is companies are under capitalised, typically operating on tight margins, where it is increasingly difficult to get paid on a timely basis. We are back to probably a 50:50 split between debt and equity in all future financing arrangement for companies.

What are the equity options? In addition to the Enterprise Ireland schemes and the Enterprise and Investment Incentive Schemes (EIIS), there are certainly private individuals and companies out there who have cash resources for investment within the sector. We are facilitating such investments on a number of projects. Securing equity finance is a challenging process but we believe we are well positioned, having access to a pool of investors and an experienced advisory team who are supporting our clients in securing this type of finance.

What is the message to agri-food clients when they ask about funding?Given the agri-food sector’s strong growth in recent years, and projected on-going growth, the sector has been singled out as having a central role to play in aiding economic recovery. As such, the government and its agencies, the banks and investors are very favourably disposed to financing/supporting companies within the sector. Against this backdrop, the message, on balance is a positive one for clients: while challenging to obtain, funding is available.

In our experience, the larger agri-food corporates encounter fewer difficulties in sourcing finance, given their established track record with their funders. Where issues are more likely to emerge are in the SME sector. As companies, at this level, seek to consolidate their position and scale up, particularly within the consumer foods area, they will undoubtedly experience difficulties in accessing funds.

With that in mind, it is important to know what funding products are available, if they are suitable for your business; how these products can be accessed; and what supporting information is required. I would also argue it’s never been more important to seek advice in respect of the above.

Are banks still the primary route to access funding for the sector? The banks were the main source of funding up until 2008. Everyone now recognises that the days of gearing up property assets to secure cheap and readily accessible credit is over. In reality, SMEs in Ireland were too reliant on bank finance to fund growth. The pendulum has now swung in the opposite direction, with a mind-set among some clients that banks aren’t lending at all.

The banks have an incredibly important role to play in funding SMEs. It is true to say the quantum of finance available is more limited, the process more involved and the nature of the finance changed. Having said all this, finance is still available from the banks for well managed businesses with a sound business plan.

What banking products are available? For companies seeking to scale up in the agri-food sector, banks are particularly interested in providing invoice discounting, as a principal form of finance, if suited to the circumstances of the business. Other debt instruments being actively marketed as a source of working capital funding include trade finance products.

The more important point to consider is that the days of securing finance mainly from one principal source are over. While it can pose a challenge

riChard duFFy, direCtOr, COrpOrate FinanCe, BdO agri-FOOd team

Other than financial, what benefits does an equity investor bring?Companies that operated traditionally as owner/managers can, initially, be uncomfortable about allowing a third party into that relationship, as they are reluctant to give up shareholding. However, in our experience, introducing a new partner allows an opportunity for companies to accelerate the growth of their businesses. Ultimately, for SMEs, it is about access to resources and opportunities to build scale. In addition to providing extra financing, a new investor can bring their relevant experience, new ideas and access to management skills, new customers and new markets.

Are you seeing an interest among venture capitalists (VCs) in the agri-food sector?VCs, both locally and internationally, have not traditionally been interested in the Irish agri-food sector. However, we are certainly seeing private equity houses and institutional funders outside Ireland now looking seriously at the sector here. There is unlikely to be any immediate uplift in activity, but looking to the future, I think it’s safe to predict some interesting investments will happen.

Why will they invest? Overall, VC’s interest in Ireland will be driven by a consolidation of a particular part of the agri-food sector where they will invest in a ‘consolidator’ or they will be attracted to certain companies of reasonable scale, who will have an established footprint in both Irish and overseas markets. As such, other than on an ad hoc basis, in our opinion, the SME sector is unlikely to reap the full benefit of this potential source of funding.

What sort of practical advice do you give clients about funding?One very simple and effective message is to use your adviser’s/non-executive director’s network, and your own contacts. Access to funding is about knowing what funding sources are available, getting access to people and finding the right individual at the right time.

Don’t be reluctant in taking advantage of people’s knowledge base, their relationships and their resources, as a means to access funding opportunities. Companies need ‘champions’ on their side, whatever funding route they are taking and your contacts might know just who those parties are.

You will probably need several champions along the way. They can be your adviser, your banking contact, who will need to present and support your company’s plan through a rigorous credit committee process, as well as other individuals. The funding process has many technical

Our perspeCtive On the Funding Op tiOns


elements to it but it is relationship driven at the end of the day. It is about finding support of credible people who fully believe in what you want to achieve.

We have seen plenty of anecdotal evidence of people using their networks and their advisers’ network to get the right introductions to both prospective equity and debt funders. So our advice is, as you are doing your market research and gathering data for your business plan, you need to be building your network at the same time. All of this assumes you have a business plan that is credible, has growth potential and has a capable management who can deliver the plan.

Any interesting examples of this?We had one recent example of a client within the food industry who had an innovative proposition that required in excess of €1 million funding. They had the business concept, relevant experience, and supplier and customer connections to make it happen. We helped develop, present and critique the business plan, quantify their funding requirement and negotiate on their behalf in raising the finance.

Furthermore, having assessed the opportunity, we advised it was an equity investment that was required to deliver on the opportunity. Both BDO and the company sought financial support from their respective contacts. Ultimately, the funds were secured from a private source known to both BDO and the company. The investor, fundamentally, believed in the promoter’s and the opportunity.

Had they been depending exclusively on debt funding, it is unlikely the project would have been funded at the pace been sought by the promoters, given the company’s stage of development. In our opinion, this fundraise was successful, as it was about having a pool of relevant funding partners available and matching the opportunity against these sources. We have a growing number of examples like this, which show that accessing different sources of money can work.

Any closing thoughts?It’s important to stand back and look at all the options. Now, more than ever, companies need to consider the suite of funds on offer and match the funding requirement against the funding source. Even if you see a source as only a minor contributor, you need to realise that funding from alternative sources is the new norm. In terms of the business plan, you need to invest time and use an experience adviser to support you to ensure the plan is as robust as possible. Your advisers should, importantly, have a network and access to potential funding partners. In summary in order to successfully fundraise: prepare well, be credible, seek advice.

“Perhaps the more important point is that the days of accessing finance mainly from one

principal source are over. While it can pose a challenge to adapt, an environment in which a company has a mix of funding sources is a

more sustainable one in the long term.”

emplOyment & investment inCentive sCheme – the new Bes

a 16-year track record with the BES. Over that period, we have raised and invested c. €128 million in over 140 companies with a large number of those in the food and drink sector. Our funds are managed and the investments are monitored in a very ‘hands on’ way by our full-time and experienced management team, and that approach has worked well for both companies and investors alike.

Our most recent fund, The Davy EII Fund, successfully raised over €3.2 million and we are actively targeting 4 to 6 growing companies to assess their suitability for the investment of these funds in 2012.

Do you feel enough SMEs know about EII?Surprisingly, we sometimes encounter companies and advisers that do not know the scheme is available to them or that the scale of the changes made from the old BES means they now have access to a new funding source. It depends on the company and how proactive management is in pursuing funding options. As the longest running EII scheme manager in the country, we are helping to educate the market on these recent changes and the level of awareness is growing fast.

What do you look for in a company when you are making investment decisions?In broad terms we look for companies which have the following key attributes:

Strong and capable management team –

Three-to-five year strong trading record –

Growth potential –

Positive net asset value –

Prospect for realisation of the investment after the three year EII –scheme period.

Specifically, and just as important to the above, is good business

What is the Employment and Investment Incentive Scheme (EII Scheme)?The EII Scheme was introduced by the Government to provide a source of equity funding for SMEs at a time when funding from traditional sources is limited. Essentially, it builds on, and replaces, the old Business Expansion Scheme (BES), taking the benefits of BES and extending them considerably. For private investors, the EII scheme offers attractive tax relief of up to 41% to invest in medium-term equity capital in companies.

What are the main differences between EII and BES?Firstly, the EII Scheme significantly widens the scope of companies that can raise EII funding. It’s no longer just manufacturing companies and those involved in internationally traded goods and services, as was the case with BES. EII funding is effectively available as a source of funding to all companies (some minor exceptions apply). Secondly, companies can now raise up to €10 million, whereas, under BES, the limit was €2 million. Under the new scheme, the amount that can be raised in any 12 month period has also been increased from €1.5 million to €2.5 million. Finally, the EII scheme has a shorter investment term of three years compared to five years under the BES.

What are the benefits to investors?The EII Scheme offers one of the few remaining tax reliefs and is one of the few sources of total income tax relief (which includes, for example, rental income and deposit income) and investors can avail of tax relief on investments up to €150,000 p.a. Investors can claim tax relief of 30% in the year of investment and, in addition to this, and of particular interest to the food and drink sector, where it is proven that additional jobs are created, or the company increases its R&D expenditure, an additional 11% tax relief can be claimed by the investors.

What is BDO’s role in the EII Scheme?BDO and Davy operate a joint venture to raise and provide funding to SMEs under the EII Scheme. Our joint involvement with EII builds on

andrew BOurg, direCtOr, COrpOrate investment & Business advisOry, BdO agri-FOOd team


emplOyment & investment inCentive sCheme – the new Bes

What role can an advisory firm play as a business scales up in that way?In our experience, an experienced adviser plays a key role as a business scales up. The management team are in the trenches and laying the foundations for the growth, as a result the adviser should be a bouncing board to reviewing management’s growth plans and projections to ensure that “profitable” growth is achieved, as well as ensuring that the growth will be adequately funded. Companies often make the mistake of scaling up too quickly and that can cause difficulties if they are underfunded. A good and experienced adviser will help give the visibility on where the company is at all times, making sure they are not overextending themselves and putting the core business at risk.

Any closing thoughts?I would encourage any companies interested in looking to raise EII funding (be it from a fund like The Davy EII Fund or from private individuals) to get in touch with us. There are very significant benefits that this kind of equity funding can bring to food and drink companies including:

Fixed cost of finance, –

No capital repayments until 2015; –

Existing shareholders retain control of the business; –

Investment is equity not debt thereby improving the balance sheet –gearing and

It may trigger additional funding from e.g. Enterprise Ireland. –

More broadly, I would say that, in BDO, our goal is to assist companies achieve their growth plans in the areas they require assistance on, whether its funding be it EII Scheme, Enterprise Ireland or the banks, to developing and refining their KPI models, to reviewing their growth plans, it’s an exciting time to be working with the industry and we have an enormous bank of expertise to support companies as they scale up for growth to leverage the export led recovery.

planning, management and the availability of timely and reliable management information. It is critical that we can tell, with some reliability, how a company is performing and, more importantly, that the management/promoters have this information too.

Are Key Performance Indicators (KPIs) a reliable guide?Absolutely, a lot of the food and drink companies we have invested in operate a system of KPIs and those which did not, we have assisted in devising such a system. As a result management know on a weekly, or even daily basis, how they are performing so there are no surprises when the management accounts are produced. Typical KPI’s include for example production yield %, labour, raw material and wastage cost per KG of inputs, capacity utilisation and customer service levels to name a few. These “key indicators” empower the management team to take corrective action in a timely manner, if necessary.

Any interesting funding success stories? We have a number, but one example is a food company which, when we initially invested in the late 1990’s had annual turnover of c. €500,000. We followed the initial investment with 3 further BES investment rounds investing the €2 million BES limit. That company now has an annual turnover of c. €28 million, with well-known branded products in both domestic and export markets.

The business planning side of the story is very important, the company did not initially have a KPI model, but we assisted the company in implementing one and everything now gets measured. The company used the BES investments to increase production capacity, intensify its NPD, increase its marketing campaigns to build its brands in its target markets. Furthermore, the BES investment enabled the company to leverage further funding from Enterprise Ireland in its export plans, so it is tangible proof of the benefits equity funding can bring to the food and drink sector.


“Surprisingly, we sometimes encounter companies and advisers that do not know

the scheme is available to them or that the scale of the changes made from the old

BES means they now have access to a new funding source.”


researCh & develOpment tax Credit

This is not a typical interaction in most companies so it requires planning and coordination. Scientific/engineering staff are often unfamiliar, and sometimes uncomfortable, with the legal terminology of the qualification criteria. This can lead to delays and, sometimes, mistakes in the application process, which may frustrate further attempts at securing the credit.

Can the necessary expertise be brought in?At BDO we have established a multi-disciplinary team approach that targets that issue. Through the BDO International R&D Centre of Excellence, our Irish tax experts collaborate with a team of highly experienced R&D engineers/scientists to provide a full R&D tax solution for clients. We routinely assist in all aspects of the claim, for a wide variety of clients, including food and drink companies. The service covers everything from technical report preparation, financial calculation and support, to documentation support and interaction with Revenue in the case of a review. Our clients have found the BDO approach to be both very effective and efficient. Our goal is to take away, as much as possible, the stress of making the claim for the company, so its in-house staff is freed up to focus on their day-to-day work.

Could the R&D tax credit be improved?Ireland is in fierce competition with other international jurisdictions to attract foreign investment in its R&D activities and to ensure indigenous companies are not lured away to do their research elsewhere. In this regard, it is essential that the R&D tax credit remains internationally competitive. The government introduced a number of welcome measures aimed at enhancing the regime in

What is the R&D tax credit?Revenue first introduced tax relief on research and development (R&D) expenditure in 2004 and, subsequently, amended conditions relating to it over the years. Section 766 TCA 1997 provides for a tax credit of 25% of incremental expenditure by a company, or group of companies, incurred wholly and exclusively on R&D. The most recent change was in Finance Act 2012.

How can the R&D tax credit benefit food and drink companies?The main benefit is that companies are entitled to a credit of 25% of their incremental R&D expenditure. This credit is in addition to the normal corporation tax deduction for the expenditure. This means that a company can achieve an effective tax deduction of up to 37.5% on most R&D expenditure. The credit can be offset against a company’s corporation tax liability of the period. If the company does not have a corporation tax liability it can claim a cash payment of the value of the unused credit in that period from the tax authorities, subject to certain restrictions. This means the credit can represent a viable, and significant, source of funding for businesses with cashflow difficulties.

Are there any particular challenges to claiming the relief?The biggest issue that emerges among companies is lack of knowledge in terms of what activities qualify for R&D. Misconceptions on the types of activities that qualify mean that many companies routinely miss out on this valuable relief because they – incorrectly – believe that they are not carrying on R&D.

Is there some ambiguity in the application of the definition of R&D?Companies can encounter difficulties when attempting to practically apply the technical qualification requirements set out in the Act to the actual work they are carrying out. This is exacerbated by the fact that making a claim requires a multi-faceted approach. Applying for the tax credit is, naturally, viewed as a function of the finance department; however, it is necessary to engage with a company’s scientific/engineering staff to ensure the claim is appropriately prepared.

derek henry, head OF r&d tax serviCes, BdO agri-FOOd team

“There are obvious financial rewards from qualifying for the R&D tax credit regime and they have, in some cases, thrown a lifeline to companies.”

researCh & develOpment tax Credit


companies. It would be impossible to provide an exhaustive list and each case has to be reviewed in its own context to assess eligibility. However, areas where we have, in the past, found qualifying R&D activities – and often to the surprise of our clients – would include the following:

Agro-ecology areas such as: –

Organic farming

Sustainable agriculture

Alternative food systems

Plant breeding –

Soil science –

Taste/flavour profiling –

Calorie reduction projects –

Shelf-life extension projects –

Raw material sourcing projects –

Packages and/or process development –

Waste management –

Energy efficiency projects. –

How have companies used cashflow from the R&D tax credit?There are obvious financial rewards from qualifying for the R&D tax credit regime and they have, in some cases, thrown a lifeline to companies. Typically, we would see the tax credit used to fund more R&D projects within the industry. This would include, where it was deemed necessary, the hiring of suitably qualified scientific/engineering staff to support the future R&D efforts of the company. In that sense, it can certainly be seen to be a highly successful initiative by Revenue, as it reinforces the R&D efforts of companies, and provides an essential support as they scale up their businesses and deliver growth to the economy.

Finance Bill 2012. In particular, the increase in the limit on the amount of outsourced activities claimable and the relaxation of the base year are positives. That said, some of these enhancements will have only a limited impact on many companies. In particular, the qualifying conditions under which the credit can be used to reward employees are overly prescriptive, to such an extent that only a limited number of companies will qualify.

Also, while the base year relaxation is welcome, we would argue that the credit should move to a full volume-base system as opposed to the current incremental system. The incremental system is cumbersome and unfairly penalises companies who were carrying on R&D in Ireland in 2003.

What type of activities has BDO found qualify, within the food and drink sector?Food and drink is, by its nature, a highly innovative sector, with a high level of scientific and/or engineering expertise usually attached to

“The biggest issue that emerges among companies is lack of knowledge in terms of

what activities qualify for R&D. Misconceptions on the types of activities that qualify mean

that many companies routinely miss out on this valuable relief.”

10 BDO: Advisers to the Agri-Food Sector

the view FrOm the marketplaCe

11Agri-Food Opportunities and Insights

the view FrOm the marketplaCe

GleniskGreen Farm FoodsMr. CrumbNature’s BestPallas FoodsRosderra Irish Meats


glenisk

important, I’m of the belief that the judging criteria and, hence, sense of loyalty is different in export markets. You need to adapt and invest resources to manage that. There is also the fact that, the further you go from home, the more you will be judged on price.

Where do you see the opportunities for growth/scaling your business? I still see plenty of room for growth for us in Ireland and I’d like to think that we can complement continued domestic growth with targeted/bespoke products for specific overseas markets, so it’s about finding the right balance really. We built in significant spare capacity the last time we upgraded our processing facility and we have plenty of scope to grow fully into our premises. Although there are bottlenecks, by and large, I am factoring in growth of 20% year-on-year for the next number of years.

Will this require specific funding?Funding is not an issue for us, at the moment, as we are adequately resourced. However, I have had dealings with Irish banks and would be very aware of the limitations here at the moment. Needless to say, in all planning, sound financial advice is critical, i.e., you can’t build what you haven’t got or can’t get.

How important are government agencies in supporting your business? There are soft supports that we avail of and we have had positive

Tell us a little about your company? Glenisk is a family business, based in Killeigh, Co. Offaly, celebrating 25 years in business this year. Organic since the mid 1990s, we work with 50 small family farms and, in fact, use 90% of the organic milk produced on the island of Ireland. Although we have gone through many changes, I’d like to think that we remain true to our core principles.

How have the last two-to-three years been for you? We have experienced our strongest growth, ever, in the past number of years, but it has come at a cost. We have absorbed significant ‘commodity’ and input inflation, but have become more efficient and, hence, competitive as a result. We have gone through two rounds of deflation (one self imposed and one forced on us). As a result of all that, our margins have severely depleted. Fortunately, there seems to be some light appearing at the end of the tunnel and I believe that we can continue on the path of sustainable growth that we set out on.

What has changed most in your business planning in this time?I would say our mindset. Necessity is, indeed, the mother of all innovation. Everyone is wiser in hindsight, but in many respects, we could be accused of having become quite complacent during the boom times – everything seemed easier and the margins were assured. The recession has brought with it a firm dose of reality and a more realistic view that nothing worthwhile comes easily.

How has your commitment to new product development (NPD) been impacted?NPD is still at the core of our business, but it is no longer taken for granted. We put a lot more time and thought into researching our consumers. Understanding their needs and expectations is paramount. I would see myself as an observer of consumers and, of course, as one myself, I like to think I have the ability to empathise with others. I believe that if you can identify and recognise the need, you are half way to solving it. I don’t believe in copying other people’s ideas but I will certainly take inspiration from something/someone I come across – it could be as simple as a customer or a colleague articulating a problem, to an observation on an item/product to being inspired by my four-year-old daughter. We have to be more than simply organic – and NPD is central to this endeavour – as illustrated by launches of recent years, which include sugar-free baby yogurts; greek-style yogurts; granola top-cups etc.

The major opportunity for food and drink companies seems to be in exports – do you agree? It was said to me once that the domestic market should be the most profitable part of your business and that, to conquer the world, you must be king of your own country first. So, although exports are

vinCent Cleary, managing direCtOr, glenisk


self-sufficiency is reflected in the fact that we do our own distribution within Ireland in the points of central distribution. Over the years, we have never had any issues in getting our products listed among the Irish retailers. It helps that we have built up plenty of experience treading the well-worn path over our time in business. In terms of building our internal management capacity, like any small organisation, we are excellent multi-taskers. As the business has grown, we’ve hired the right people for the job. Everyone pulls their weight and I’d like to think that I lead by example.

Any closing thoughts?In the food and drinks industry, as elsewhere, some of the cleverest ideas are the simplest ones. On the other hand, in our experience, the more complicated the idea the more expensive and difficult it can be to deliver the package that is required to educate the consumer. We see ourselves as standing for an organic Ireland. It’s a simple, powerful message that consumers have engaged with and one that we feel the broader agricultural community in Ireland should be engaging with too.

experiences of the various agencies over the years. However, our family farm philosophy is about self-sufficiency and we are firm believers in doing things for ourselves rather than expecting others to do them.

Are there any business challenges specific to an organic producer? A sufficient supply of our main raw material – organic milk – is a constant challenge. We have 50 excellent farmers who supply us but, despite the fact that we pay well over the odds for our supply, the broader farming community has been slow to embrace the organic philosophy. There needs to be a significant change in mindset across Irish agriculture, particularly when you consider how organic farming fits into the green, clean image that Ireland wants to project. Our experience is proof of how organic farming helps to protect the livelihood of small, family-run farms, and keeps the countryside varied, clean and full of wildlife. There is also a very strong animal welfare and environmental story in organic production that could be channelled into how Irish agriculture is perceived, if more of the farming community came on board. Organic cows frequently live to the age of 15 and enjoy a natural environment where calves feed from the udder rather than on artificial milk substitute. Organic farming also produces less carbon emissions and so has a lesser impact on the environment.

Tell us a little about building your brand over the years?We set out our point of difference a number of years back, based on the Glenisk philosophy that healthy soils creates healthy food and allow us to raise healthy children. The model has been tweaked and continues to be tweaked but has remained pretty consistent. In terms of promotion, we would always aim to spend our limited marketing funds wisely – seeking maximum exposure at every opportunity, so as to give us the greatest possible ‘bang for our buck’. Our sense of


Tell us a little about Green Farm Foods?Green Farm Foods was established in 1991 and is based in Rathowen, Co. Westmeath. Our facility extends to 4,000 sq metres and we employ 115 people. Over the past two decades, we have continuously expanded to meet growing demand and, today, we are brand leaders in the premium sliced cooked meats category, and our products are found in Supervalu, Centra, Dunnes Stores, Tesco, Londis, Spar, Superquinn and other independent stores.

Can you talk about your move into the branded space?The Green Farm Foods brand is built on health, nutrition and taste. In July last year, we became the first Irish company to move to ‘nothing but natural’ – which means no preservatives, phosphates, and a gluten free product. Initially, we had focused more on foodservice than on retail. Margins are very tight in foodservice and so we recognised that, if we wanted to develop our business, we needed to secure better returns. From 2002 onwards, we focused all our energy and resources on retail and developed a premium product range, which we launched in 2005. We have tripled our turnover since then. Today, we are regarded as brand leaders in premium cooked meats. We also do private label, but our main focus is on our brand and we would always seek to marry the two together when we talk to retailers.

How have the last two-to-three years been for you?Retail space has become a lot tighter and the space has to be worked a lot harder. We are currently working on business plans with all our retailer customers, looking at our range and our marketing strategy. The reality is, if you don’t offer products that are selling, you won’t get on the shelves, so the pressure is really on companies to come up with very innovative products.

How is NPD prioritised in the company?We have a very busy R&D department and we have always recognised the need to apply innovation and added value to everything we do. We recognise there will be casualties along the way, but it’s about maximising returns when you get a winning product. Every product has a lifespan and, once you launch it onto the market, it will have a certain

kenneth greene, ChieF exeCutive, green Farm FOOds

green Farm FOOds

lifecycle before it is copied or goes into own label, at which point the margins start to drop. The R&D tax credits have been a big plus over the years and we have been able to offset our spend on NPD against that.

Poultry is one of the sectors where it is tough to get margin. How do you manage that?Marketing and branding are very important to us and, over the years, we have become a brand leader in the premium sector of sliced cooked meat. We source high-quality raw materials to support that. Price is certainly a huge issue and consumers dictate what they pay for a product. On the sourcing side, we increasingly source from Europe. People need to know where their food is coming from and we are very clear on that. We would source from fully integrated factories in Germany, Holland and Ireland.

Is it difficult for SMEs to build brands and brand awareness?Consumers are very savvy when it comes to food and, when we launched, in 2005, we saw the opportunity. We did our research – on a shoestring budget – and the market was very receptive to our product. What was important to us was giving the customer a quality product and the portion sizes they wanted. You can have a great master plan and large marketing budgets but it is equally important to get the basics right and to really understand your customer well.

Are you looking at overseas markets at the moment?It’s a great time to focus on growth and our strategy, for the next two years, is to grow our exports to 45% of our business. At the moment, they are 28%. We have identified our market and set our plans in place. Recently, we took part in Bord Bia’s Marketplace and we had a successful experience there. We are primarily focused on bringing the brand to the UK but we are also looking at Holland, Germany, France and Spain.

We have been exporting for about two years and it has probably taken longer than we would have expected to build scale. If you had deep pockets you would get there quicker but it is all about building relationships and showing that you can deliver. We are still growing at home, but the domestic market remains quite tough and is very much focused on value and volume.


Is getting the funding to scale up an issue?We are planning a major expansion at the moment and we know we will get the funding but it will be over 24 months, as opposed to the 12 months we would have liked. We are privileged to be in a situation where we have reasonably good cashflow and the credibility of a few years of experience under our belt. If we were starting as a new entry, at this point, I think it would be very difficult.

What key decisions have you made that have allowed you to stay competitive?We have a very efficient factory with highly motivated staff and a great team ethic. We have also invested in automation and technology. We would monitor our KPIs on a weekly basis. We are paying higher prices in our inputs at the moment and it is difficult to pass that on, but we are talking to the market and try to negotiate pay increases if we have to.

How is the issue of discounting affecting you?What is interesting is that even buyers in Irish multiples are seeing there are no long-term benefits to the discounting. Consumers are shopping the aisles and following the discounts – so you may have a sales spike but with low margins and the consumer will be shopping elsewhere next week. That said, when we look at our facility, we need a certain amount of volume going through at all times to cover our operating costs and it is better to have that throughput than to deal with the factory floor being idle.

Any closing thoughts?I would see myself as an optimist with regard to growth in the sector, but that would be laced with a certain amount of pessimism given the overall political and economic issues, and the pressures people have to deal with in the environment of austerity.

We are fortunate to be in a business where sales are growing but, certainly, SMEs in Ireland, in general, are under a lot of pressure. We need to encourage entrepreneurs back into the economy and, for the next generation, to take out the roadblocks that are currently in the way.


Tell us a little bit about the company?Mr. Crumb began, in 1996, as a fresh breadcrumb and stuffing manufacturer. We started from scratch, on a green field site, with two people – myself and my wife in a 5,000 sq. ft factory and, in 2005, we added another 25,000 sq. ft to that. We have 64 full-time employees, rising to 80 at peak times, and our turnover is between €7m and €10m.

What’s the Mr. Crumb offering?We are a niche, artisan business and what we have tried to do, I believe with some success, is to bring artisan products to the mass market, firstly through the multiples in Ireland and now to the UK and the rest of Europe. We have a strong brand following in Ireland and we also do private label. The differentiation of our product, versus our competitors, is its quality, freshness and convenience. All our bread for crumbing is baked, for example, whereas others use damages or returns, and all our stuffings are cooked, whereas our competitors are not. We have diversified over the last number of years, into food-to-go, chilled and frozen party food, Mexican-themed products, sauces, butters and chutneys.

What has driven that diversity?We have always been very strong on new product development (NPD) and always tried to be ahead of the curve. Within six months of setting up, we had HACCP, which wasn’t a legal requirement at the time, as well as Hygiene Mark, Q Mark and ISO9002. Within 12 months we had BRC Higher Grade. We also set up an NPD kitchen, which, today, employs five people, who are constantly turning out new ideas and variations, and new lines for the business. We would dedicate 10% of our sales to R&D, which is not uncommon across Europe and the UK, but very high by Irish standards.

Has the move to exporting been relatively straightforward?We have found the UK to be very tough to crack over the years. It’s not an exaggeration to say that we spent upwards of a million in getting into the market.

Our core products, stuffing and crumb, are all about freshness, and in the UK, the market focus is on dried and long-life. It is really only in the last three years that we started to get traction. Waitrose was the first multiple to take us onboard and now we have products in Morrison’s, Asda, M&S and, just before Christmas, we launched party food into Tesco UK.

In terms of continental Europe, we have launched into Picard in France, which is seen as the frozen equivalent of Marks & Spencer there, and has approx. 900 stores. They are a key customer. Our emphasis, this year, will be on the UK and continental Europe. We have a National Accounts

Manager as well as a Sales Director in the UK market and have people working with us in the Netherlands, Germany, Spain and Italy.

Do you feel companies are getting the support needed from government agencies?Breaking into foreign markets is very costly. An SME in a tight financial credit situation, like we are all experiencing at the moment, won’t commit those resources unless they have financial support, so the agencies and, in particular Enterprise Ireland, really need to refocus on these companies.

What’s interesting is, with alcohol, you can export to any country in the world with the same product, but you cannot do the same with food. Every market is different. The UK market is quite different to Ireland and, when we moved into France, we were surprised to find consumer tastes were quite different again. Adapting to that takes time and resources. If you go on to Spain, Italy and the Netherlands, these are all different markets so there is a long lead in time to meeting their requirements. It’s also very expensive sending numerous samples out by courier for 24 hour delivery to these markets.

So SMEs will need funding support to scale up?Absolutely. It will not happen, except in a few isolated cases, unless that support is there. It’s just a big ask for SMEs to commit very scarce and tight resources to a market where they might not get a return for two or three years down the line. That’s what agencies need to be aware of.

A lot of Irish producers find it hard to get scale. There is a leap of faith involved in scaling up and there is always a danger that the business you base your planning and financing on doesn’t materialise in a given time frame. If you go back to your bank and you haven’t achieved the turnover, that’s where a problem can arise – if the bank doesn’t understand the business it may not extend any further credit to you. In fairness, we have always found our bank to be very supportive and we have been lucky in having a good relationship with them down through the years.

mr. CrumB

Bernard COyle, managing direCtOr, mr CrumB


Is the role of the financial adviser important here?It’s important that all parties around the table see the overall picture. External financial advisers can be very useful soundboards to your plans. They bring an external pair of eyes and ears and can flag issues that you might not see. Most financial planning is done in-house, but it is important to have someone external, to run your business plans past, and in that regard, we have found BDO’s expertise invaluable, particularly at seeing the bigger picture.

Are there any other logistical bottlenecks to scaling up? We have a lot of wonderful artisan companies in Ireland but the number of these that graduate to the next tier, that get to the scale where they employ 100 people, you could probably count on one hand. It always amazes me that food companies in the UK, who may set up at the same time as an Irish company, beginning from the same small base, often scale up so much quicker. One of the major problems we have is

in getting suitably qualified middle management, by that I mean NPD and technical managers, as well as purchasing, planning, production and logistics people, with experience in the food industry. This has been an issue since the late 1990s and, in fact, has actually gotten a lot worse. In Mr. Crumb, we have had posts open for up to six months for the right people and not been able to fill them, and have had to go abroad to recruit. This is common across the food industry at the moment.

The food industry is one of the most heavily policed industries in the world – up to and, in some cases, surpassing pharmaceutical standards – so you really need people who know what they are doing and we don’t have the broad base in this country to provide the pool of expertise. Unless you can tick all the boxes for the multiples, like your NPD manager, technical manager, account manager, financial controller

and so on, there is no point in looking to export to the UK or Europe. In a sense, the scaling up has to take place before you approach these markets, so it’s a chicken and egg situation.

Is the pressure to provide discounts a major issue for you?Consumers are, literally, being bombarded with offers in supermarkets right now and there is a danger of dumbing down the market. Food companies are caught, to an extent, on two sides, between rising input prices and not being able to get the return from the market. You can’t increase your margin with higher prices, so you have to try to maintain it by being smarter and more efficient.

Unfortunately, promotions won’t be going away any time soon. Retailers, particularly the discounters, are still opening shops so there is extra shelf space coming on the market but less people working and more people emigrating. That is feeding back into a war between the multiples, and special offers and promotions are a key part of their armoury.

Are food and drink companies effectively powerless in negotiations?Unfortunately, in a lot of cases, they are faced with fait accompli. What I would say is, you need to have a strong relationship with retailers, and a strong brand, to show that you are delivering best practice and are proactive in the market place, either with new products, products extensions, greener packaging or a strong environmental story. The environment is a huge issue in retail in the UK and Europe right now and is only going to get bigger. So, as manufacturers, we all need to be looking at our carbon footprint. Mr. Crumb has planted 22,000 trees to offset our carbon footprint and is planting another 16,000 trees in spring 2012. We have gotten very good feedback from the multiples across the board on that. You need to be proactively going to them, before they come to you, and say ‘this is what we have done, what we will be doing over the next 12 months and what we’ll be doing over the next 36 months’.

There is a very strong Carbon programme been driven hard by The Carbon Trust in the UK at the moment, and we are really only starting out on this road here.

Have the new R&D credits helped food companies?R&D credits are available and are a great help, but not everything is covered. Take an R&D kitchen – it’s a necessity, but it is costly and we find a lot of what we do is not eligible for R&D tax credits or funding. It’s an ongoing discussion with our Finance Office as to why we are doing so much NPD and none of it is eligible, so the basics are there, but it needs tweaking. The danger, in the current environment, is that a lot of companies will park what they see as non-essential expenditure, and we will fall further behind the UK and Europe.

Any closing thoughts?We have some great companies and a lot of terrific artisan-type companies, and what I think is wonderful about the food industry in Ireland is the great spread of employment throughout the country that they are supporting. Mr. Crumb is based in a very small village and, in terms of the micro economy, our importance is enormous. There are a lot of similar companies in other places doing the exact same, and that is fantastic, and needs to be built upon, because we need jobs like never before. Business needs to look up and concentrate more on export markets, because that’s where the big opportunities lie at the moment.

“Consumers are, literally, being bombarded with offers in supermarkets right now and there is a danger of dumbing down the market.”


nature’s Best

Tell us a little about your company?Nature’s Best is an Irish-owned chilled consumer food manufacturing company, founded in 1987. We employ 200 people and are based in Drogheda, Co. Louth. Our product range includes salad bowls, bagged leafy salads, wet salads, wet salad bar, prepared vegetables and stir fry, etc. The company’s product and production expertise is aimed primarily at larger supermarket chains that require private-label packaging and have very high quality safety, category management, service level and innovation requirements. By extending our capabilities, we are currently entering new fresh chilled convenience categories.

Owen Quinn, CFO, nature’s Best

“Agencies such as Enterprise Ireland and Bord Bia have played important supporting roles as

we have grown and expanded the business.”


financial advisers have played in this regard, ensuring that we are not missing out on any funding opportunities. As a more general comment, I think the government needs to do more to encourage more people to eat fresh Irish produced healthy quality food in Ireland and abroad.

What would you see as the challenges facing you as you plan for growth?Our cost base, in Ireland, is still an issue vis a vis the UK and the rest of Europe. The availability of funds to support long-term sustainable growth is an issue for us, as it is for a lot of companies. It is difficult for an SME to fund the development of a brand and most growth opportunities for us, both at home and abroad, will be under private supermarket label. We have no issues in terms of route to market and have always found private label to be easier to get listed than branded. With regard to developing product differentiation, which is key to growing our opportunities, we have recognised that our NPD must be synergistic with our core capabilities and follow established retail prices. That is to say, there is little point in developing products that we can’t deliver efficiently or that are outside the established price points of consumers. Our differentiation will be based on better execution and pursuit of key consumer trends, such as quality, health, nutrition, packaging (convenience, sustainability) and freshness.

What are your thoughts on branding and NPD?If your product is unique and can’t be copied or its quality can’t be matched then branding gives a smaller company greater leverage with a retailer. For us, the private label route creates more opportunities with less funding required. However, there are downsides. There is more risk attached to losing your private label business than, say, having a brand delisted with one customer. Also, in terms of investment, a private label manufacturer has a lower valuation than a branded competitor. One thing people overlook with private label is that NPD is still as important as it is to branded suppliers. We doubled the size of our innovation team from five to ten in November 2011. More broadly, one area of weakness we would see in NPD in Ireland is in food packaging, an area that is critically important to us.

Any closing thoughts?Our experience would lead us to believe that every SME should complete the Enterprise Ireland Transform 1 Year Programme with a business mentor. It will force management teams to spend a lot more time on developing a winning strategy and that is the key to winning more business at home and abroad.

How have the last two-to-three years been for you? Between June 2008 and December 2010, we saw a decline in our volume. Our market is now more competitive and is offering more value to the consumer. In 2011, we saw some recovery with a 10%+ rise in manufacturing volume growth, pointing to some recovery in the market.

What has changed most in your business planning in this time? Over the last year, we have developed a tighter delivery window, which impacts on our waste, labour, transport and other overhead costs. However, the tighter the window – from order capture to despatch – the more people that have to be applied to the process. In some cases, we have to not only crew up but also commence earlier in the day and work to an estimated order, then rework surplus stock or restart to make up the difference. In the short shelf life, fast moving consumer goods (FMCG) environment, it is vital to plan ahead and bring strategic thinking to your decision making.

The major opportunity for food and drink companies seems to be in exports – do you agree? I think this is the case, especially with longer shelf-life products, as most Irish companies offer an excellent high-quality product. With the right product, the correct shelf life and enough funding in place, we would see that a lot of Irish SMEs could scale up to be very competitive exporters, as we ourselves plan to be, in the next few years. From our own point of view, given the nature of what we produce, most of Nature’s Best opportunities are currently in the home market. However, we do have opportunities in Northern Ireland and Britain. Our approach, both domestically and in exports, is to identify gaps in the market and, using market and consumer research, target these opportunities.

Have government agencies been supportive?Agencies such as Enterprise Ireland and Bord Bia have played important supporting roles as we have grown and expanded the business.

Enterprise Ireland has invested preference shares in Nature’s Best and we have up-skilled our management team with their help also. Our executive team completed the Enterprise Ireland/IMI 1 Year Transform Programme in October 2009 and our CEO completed the Enterprise Ireland/IMD 1 Year Leadership 4 Growth Programme in December 2011. Most recently, I commenced the Enterprise Ireland/Stanford 1 Year Strategic ‘Leadership 4 CFOs’ programme, in December 2011. We are currently receiving grants and it important to stress the role our


Tell us a little bit about your company?Pallas Foods was established by the Geary family in the early 1980s and is, today, one of the leading foodservice distributors on the island of Ireland. We have been part of Sysco since March 2009 and employ approximately 500 people. We currently service over 7,000 customers and have a portfolio of more than 7,000 products. We are unique in that we offer fresh, frozen, ambient and non-food products, in addition to an extensive wine list.

How have the last three years been for foodservice providers in Ireland?The past few years have been very difficult for many of our customers and, throughout the industry, we see that it is those who offer value to their customers who are continuing to perform. Consumers are more demanding and rightly so: if they are disappointed by a dining experience, whether in a deli or a Michelin-star restaurant, they will vote with their feet. As a distributor to the foodservice industry, we have seen, and experienced, significant margin pressure throughout the supply chain and this, coupled with increasing costs and rising commodity prices, has resulted in difficult conditions for both our suppliers and our customers.

How have you responded?Like all links in the supply chain, we have been driven to increase efficiency and reduce our cost base to survive. We have also worked to increase the value we offer to our customers. By offering frequent or daily deliveries in high-volume areas, across the 32 counties, we reduce the risk for our customers in holding inventory. We are in the process of introducing new technology which will reduce incidences

where we are out of stock and further increase order accuracy. Our development chefs work with our customers to develop new menus, reduce waste, implement portion control and efficiently manage inventory to assist them to develop a sustainable margin.

Are we branding Ireland strongly enough in foodservice?The opportunity for the industry centres on the perception of Ireland as a green, clean country and further regulation and metrics should be implemented to ensure this reputation can be maintained and protected. As an extension of this, Ireland should position its agri-food industry as a world leader in the protection of animal welfare. It is essential to maintain consumer confidence in the safety and quality of food produced in Ireland.

Awareness of country of origin in foodservice is much lower than in retail. Isn’t that a key issue for suppliers? It is true that consumer awareness of the origins of food is not as strong in foodservice as in retail, where Irish branding and Bord Bia quality assurance logo may be evident on the packaging. However, consumers who choose to buy Irish in a retail setting can be encouraged to do the same when eating out also. The foodservice industry needs to be encouraged to promote Irish food and Irish brands on their menus, but alongside this, there needs to be a system of certification and regulation to ensure the integrity of the menu claims.

How do we meet the challenge of cheaper imports?The challenge of competing with cheaper imports is more evident with commodity items. There will always be a demand for the cheapest

dan geary, OperatiOns direCtOr, pallas FOOds

pallas FOOds


food from certain sectors of the foodservice industry and, with the cost base for Irish producers, it is not feasible to try to compete with these producers. However, with strong promotion and branding to drive awareness, there will be an increasing willingness by consumers to pay a premium for quality Irish core ingredients.

What are the key claims Irish suppliers can make, aside from being produced in Ireland?Consumers are becoming increasingly conscious of where their food comes from and how it is produced. We would see, within foodservice, a strong appreciation for the high-quality core ingredients produced by Ireland’s agri-food sector. There is growing consumer demand for food that is traceable and safe, while being produced in a manner that is environmentally responsible and protects animal welfare. The Irish agri-food sector is ideally positioned to capitalise on these consumer demands and the foodservice industry should leverage this to promote their business and stand apart from their competitors.

Any closing thoughts?The Irish agri-food sector produces raw ingredients of a quality unsurpassed anywhere in the world and, at present, there is a growing demand from consumers for a more honest and natural dining experience. People are demonstrating a keen appreciation for quality ‘centre of plate’ ingredients and we are seeing a huge upsurge in demand for products and brands such as Hereford prime Irish beef, Slaney Valley Irish spring lamb, Silver Hill Irish duck, Glin Valley chicken and Irish farmhouse cheeses. I believe that the future of the Irish agri-food industry lies in a continued focus on maintaining the quality of the produce and, also, working towards efficiency and reducing costs.

“With strong promotion and branding to drive awareness, there will be an increasing

willingness by consumers to pay a premium for quality Irish core ingredients.”


we are seeking out tend to be large volume users and we want to sell container after container to them.

Is the international commodity price key to growth then?It’s one aspect of it, certainly, but another is flexibility. While we have 50% of the Irish market, on an international scale we are relatively small, so we can offer a flexibility that our main competitors – the Dutch and the Danes – can’t. We would argue that, rather than a commodity product, we can give a more specialised product and that gives us a competitive advantage.

Do you sell on the fact that you are Irish?We do stress the quality and traceability of Irish products and our standards of animal welfare so, yes, we do play the Irish card. It’s actually critical in the home market with the Bord Bia Quality Assurance logo.

Internationally, Ireland has a reputation for quality but that just gets you to the table, you have to be able to demonstrate that you, as a producer, offer that quality. Over the years, we have built up a strong reputation for quality and, in fact, our plant number has become a form of our brand.

Do you see exports scaling up significantly in the years ahead?The Department of Agriculture, Food and the Marine has targeted 50% growth for the sector by 2020. In 2011, 9% volume growth was achieved and, also, the price of meat went up internationally, so that, all told, the value of the pork sector has gone up by 20% over the last 12 months and the vast majority of that is exports.

However, we have had to get our cost base right to compete and get all areas of the business lean and fit for purpose. We are at a disadvantage in that a lot of the raw material for our farmer base is imported – the Irish economy is not self sufficient in animal feed supply and that is quite an expense within the supply chain.

How have you made your business more competitive?With the support of Enterprise Ireland, we have undertaken a lean

“In 2011, 9% volume growth was achieved and the price of meat went up internationally. All told, the value of the pork sector has gone

up by 20% over the last 12 months and the vast majority of that is exports.”

rOsderra irish meats

Tell us a little about the company? The original company was formed back in 1907 in Roscrea, Co. Tipperary, when a group of farmers formed a co-op to market and sell their pork. The business ended up under the ownership of Glanbia until 2008, when it was sold to the senior management team. The business wasn’t a strategic fit for Glanbia, as they were developing their expertise in cheese and nutrition. We have factories in Clara, Edenderry, Jamestown, Roscrea and Stadone and employ approximately 900 people, with turnover in excess of €250m. We are a major supplier to retail, catering and food processors in Ireland and have significant export markets in the EU, Russia, Asia, North America and South Africa.

How has your focus changed in the last three years?The export market has driven our growth over this time. You don’t have to go too far to see the number of promotions on meat in the domestic market and that has the effect of keeping prices very challenging. A key strategic decision we have made is to move away from the price-driven UK market and to reduce our dependency on it. We have successfully replaced it with markets in China, Russia and Japan. Discounting is still a factor in some of these overseas markets but, as we don’t sell directly to retailers there and don’t negotiate with them, to some degree we are insulated from that.

How have you adapted to the challenge of the home markets?Consumers here and in the UK are looking for more for less so it’s about delivering on price, but without compromising on quality. We are very particular with our bacon products and so we have to become more efficient to survive, which is what we’ve done, by getting our facilities more productive and delivering a better quality, more consistent product.

How has your business planning changed over this time? Firstly, you have to go back to the point that, as a business, we are not in the position to pick and choose exactly what we sell. You can’t produce more of different parts of the pig that you could sell for a premium, so you have to deal with all of the pig. In that sense, our business is quite different from many others, in that it is about revenue maximisation. Secondly, we are lucky in that we operate in a market which is very significant internationally and growing at a rate of 1.5% annually. With the work we have done in our facilities, we have access to the entire range of markets, globally, that provide the best opportunities. We monitor all our markets very carefully and move, to some extent opportunistically, where prices are stronger. Strategically, we have developed positions in Asia and have found having a presence on the ground to be very beneficial. We have a number of people there to get a better feel of what’s happening in the market. One issue is that we would not sell anything less than container loads, so the customers that

andrew Fleming, direCtOr, rOsderra irish meats


Would you like to extend into the retail space in these third country markets?At this point, our view is we are operating on a business-to-business model and we don’t compete with our customers in international markets. Engaging with retailers, in terms of everything from managing promotional activity, to returns, to lead times, is challenging. It can take six weeks to get product to China, so our responsiveness would make us very cautious about that type of move.

How important is R&D to a business like yours?NPD is very significant, particularly in the Irish market. Pork is a very well established product so the opportunity for massive NPD is limited. Where NPD does come in is around the edges, with different flavours, sauces, packaging and so on. We would work extensively with our customer base to come up with different variants, cures and packaging. We have put in a lot of effort in that regard.

What role do your financial advisers play?BDO played an advisory role at the time of the acquisition in 2008 and have made a contribution, primarily through their corporate finance function. We would regularly touch base for issues or advice, often in an informal way.

Is there anything specific you feel the sector is crying out for now?A pro-business banking culture is critical, as is freeing up funds for good investment projects and good business people. Pig farmers are quite different from the more traditional farmers in their business focus and don’t always get the credit for that. They get no contribution from CAP and those who have survived the challenges over the years and are still in business are serious business people. The industry is self-sufficient to a very high degree and the level of government intervention is minimal relative to other sectors. We are hopeful feed prices will come down and I would see a very strong opportunity for tillage farmers to work with the industry and to set up contract fattening enterprises on their farm to complement their base business. We will be pushing for that, in the years ahead, to grow the national herd.

Any closing thoughts?We are confident demand for pork is very strong and growing internationally. Ireland currently supplies less than 0.5% of internationally traded pork so the opportunity for growth is significant if our supply chain can deliver the raw material. We are here to grow the business and take advantage of the market opportunities that are there. There are not a lot of other industries out there that have the luxury of saying that right now.

programme, a root and branch review of all our activities, to see if we can be more efficient. That has come on top of a long culture of continuous improvement and there are a number of areas where we have made strides in recent years. Interestingly, we haven’t reduced our labour force, in fact, it has gone up by over 100 people since we bought the business in 2008. But lean isn’t about cutting staff, it’s about working smarter and producing a better and more consistent quality product.

Are you happy with the overall support the sector gets from government and agencies?If you look back, one of the critical challenges we faced, as a sector, was in December 2009, when there was an international recall of all Irish pork products because of dioxin contamination in one feed supplier. That had a devastating effect on business and could effectively have destroyed the industry. The government stepped in and put a package in place to save it and that was very successful, with the funds paid back over the following years in tax revenue etc. In addition, the swift response to the dioxin issue, one could argue, has enhanced our reputation abroad as high-quality producers with high standards.

I mentioned the Enterprise Ireland lean programme already as being particularly beneficial. With regard to Bord Bia, their support, particularly with the Bord Bia Quality Assurance logo is very important in marketing our product in Ireland and people do seek out Irish products as a result. That said, there are a raft of other logos out there that are probably confusing consumers and we need to work on that.

What about availability of funding? Do you get a sense that banks are more amenable to companies involved in food and drink exports?I think they probably are. Thankfully we haven’t had any major issues and we have seen banks we have not dealt with before show interest. The bigger issue for us is our customer base and their lack of funds, which has increased our credit risk. That’s been a challenge and we have put extra resources into managing it. That said, we have been on the ground in various markets over the years, in some cases for 20 years, so we know the markets and the distribution channels very well. We have encountered difficulties where people try to grow too quickly and we have learned to watch for the signs.

We also have to consider the challenges our suppliers face. They have had a difficult few years, driven by increased feed prices, and we will have a very significant challenge in complying with a new welfare directive on loose sow housing that comes into effect from January next year. The ability of the supply base to fund the investment needed here is critical and, to my mind, the greatest challenge facing the industry right now.


Outside experts lOOking in


Outside experts lOOking in

Geoff MeagherPhilip Barlow, BarlowMaree Gallagher, MGA


You work as a business mentor to SMEs. What knowledge do you bring from the plc sector that’s valuable to them?Even in a very large organisation, such as Glanbia, we always worked on the basis that each operation has to deliver a performance in its own right and relative to its investment. Secondly, the principle of being cost effective applies to every organisation, big or small. Thirdly, the concept of continuously meeting the needs of your customer applies to all businesses, while, finally the overall principles of sound management practices are common to all organisations.

So can SMEs meet the managerial challenge when resources are limited?There is no doubt that the skills set required in a food business are broad and comprehensive. In some cases, SMEs have to be creative in how they deal with that. The critical thing is to ensure the totality of the business’ needs is being met. Every business requires a full range of skills. In some instances, the same person may cover more than one key area, while, in other cases the expertise might be bought in on a time basis as needed.

Your background is in dairy and it’s the strongest growing sector in food and drink exports – is that how it should be?Dairying is the backbone of the Irish agri-food industry and that is driven by a number of factors, including a climate that allows Ireland produce high-quality milk on a low-cost basis. We are approaching a golden opportunity of potential major growth in the dairy industry for the first time in over 25 years, with the proposed changes in the milk quota system. I see it as an enormous time of opportunity, both at farm and processing level.

Is dairy too commodity based? Are there any opportunities to scale up our SMEs on the back of its expansion?Over the last 20-to-30 years, there have been significant developments in the area of dairy food ingredients and the development of whey processing, in particular. A significant amount of value has been added to milk through innovation and R&D in this area.

The focus on ingredients is also driven by a recognition that, as an island nation, our exports have to be, in some form, a bulk product that will be further processed elsewhere, rather than consumer-ready products which are substantially for the home market with a limited population.

As we expand milk output, the number and type of products we develop will need to be widened, with an increased level of innovation. However, we need to be realistic about the fact that practically all of the increased output will be for export markets and will need to be in a format that recognises that our production has to cross water to get to market.

As expansion occurs, there will be ongoing opportunities for niche operators to develop specific products for home consumption, with a minority potentially making it to export markets.

Would the sector benefit from a united marketing front in the international markets?It is difficult to have a united marketing front without having the processing side also united. Being realistic, it is difficult to see that happening given that, currently, a significant amount of the industry is in the hands of a couple of major plcs and co-ops. In addition, as the range of food ingredients manufactured becomes more technical, key

customers will want to deal directly with the manufacturer and not an intermediary marketing company. The customer, ultimately, wants to deal with the person who understands the product.

With regard to further industry consolidation, a report a few years ago covering this topic concluded that the cost savings were not material; the benefits, they concluded, were in the potential wider range of products. Given the international diversification of many of our Irish

geOFF meagher, management COnsultant (member of mentors.ie)

geOFF meagher

“A significant amount of value has been added to milk through

innovation and R&D.”

Geoff is former Deputy, Group Managing Director and former Group Finance Director of Glanbia plc.


dairy businesses, the capability to broaden the range of products already exists.

How do you feel the Kerrygold brand has performed over the years? I think it has performed quite well, in the context of what it is – a good product that is well marketed. But we have to recognise that it is largely butter, not a highly sophisticated product, so, in that context, it is difficult to see how the brand could be rolled out to include more sophisticated ingredient products, where the customer requires hands on technical input and support. Also, many of the new NPD developments are business-to-business and so do not require a brand.

Do you see a pressure point emerging in advance of the quota system being dismantled in 2015?Certainly, there are already many farmers who are scaling up before

2015 and are taking a gamble on a potential significant quota penalty. The question of how the scaling up will be funded also has to be addressed. This will be significant, both at farm and processing levels. The important point to stress is that this is a time of great opportunity. The key is having the right leadership in the industry so that we maximise the opportunity that, undoubtedly, is there for the taking.

Any closing thoughts?The opportunity that we now have, in terms of developing and progressing the dairy industry, is something we haven’t seen since the late 1970s and early 1980s. As a country, our knowledge of markets and diversification of products has increased substantially since then, and this will stand to Ireland as quota expansion takes place. However, significant advance planning and leadership is needed, at farm and processing levels, to deal with the major investment needed, the lead-in time for plant development and new product diversification.


consuming the product category, who your competitors are and how you will be different from them and then deliver the story you want to bring to them. Smaller companies often don’t understand how important it is to work all this detail out, often meaning, when they put the new product on the market, it doesn’t feel distinctive enough, doesn’t connect with consumers and never gets a proper chance to shine.

Your emotional connection with a consumer is delivered through the brand and it becomes the signpost for entry into this experience.

What about private label versus brand?There are very good businesses that just do private label or licensed products, and there isn’t anything wrong with that. Some SMEs will tend to do a little of both, their own branded goods and private label. While private label can build volume for your business and a relationship with a multiple, it pushes you into a price-driven business model, and that’s a very risky place to be. Price on its own is always there to be undermined by someone else. Branding allows you to build another layer on top of the functional element of your product, so that you can say ‘we’re not the cheapest, but we know that customers are willing to pay a little extra, because you trust and believe that our product is better than all the rest.’

Are there lessons from the drinks industry in terms of global branding?If you look at the Baileys, Guinness and Jameson stories, they are leveraging a certain amount of our national identity that international consumers buy in to. These brands talk about crafting their products here, over time, and there is a credibility in that with the market because of the Irish association. Ireland and quality drinks brands are believable internationally.

But the companies themselves have also been absolutely rigorous in terms of analysing their markets, audiences and competitors. The level of detail they go into, to make sure their branding is coordinated, is hugely impressive. Yet, although they operate at an enormous scale, the lessons are exactly the same for smaller companies: you have to know exactly who you are, what your audience is looking for, how to differentiate yourself from your competitors and then go and execute at the highest possible levels in all channels. Very often, when products are similar, it’s the company that executes better at point of sale that is the strategic winner.

What are your thoughts on sustainability and branding?I think we are moving past the singular idea that because something is organic, for example, retailers can charge a premium for it. Consumers don’t accept this as easily as before. What people are now looking for are products that can be seen as ‘simple and natural’, good ingredients with a brand they can trust, delivered at a very good price point. Brands will continue to position themselves in the organic space but it will remain

philip BarlOw

Do Irish food and drink companies invest enough in branding?Historically, they haven’t. It is changing somewhat, but very slowly. Marketing is beginning to be seen as a core strategic business pillar, but small businesses, in particular, tend see it as something that doesn’t need planning and will come about intuitively. But real growth and opportunity come with good planning, and brand and marketing planning must be central.

Who would you see as good role models for SMEs?Flahavan’s is an excellent example of a traditional, established company selling a very traditional product, which recognised that it needed some reinvention and repositioning. It established a core message that fitted with what consumers were looking for (a great natural healthy food) and then developed ways to deliver that for a modern lifestyle. The company has done a really good job and reaped the rewards in the marketplace.

Is the issue a skills shortage or a lack of resources to invest?There would certainly be a perception, among smaller companies, that they simply can’t afford to engage professional help, and hence they attempt homemade solutions instead. That’s a mistake. You can always find partners, in terms of brand strategy, brand identity, packaging design or marketing in general, to help you deliver in a professional way.

Companies have to understand what their message is and they have to be professional in putting it out there – these are not niceties, they are necessities if you want to get shelf space and connect with customers, you have to present yourself properly and that means developing a branded story.

Can you talk about new product development (NPD) and how branding can direct it?The important point I would stress is that NPD is very much a brand-based exercise, you can’t just treat it as an isolated R&D activity. There are two ways to look at NPD – extending a pre-existing brand or creating a new one. When companies are developing NPD, we would always advise them to establish the core brand essence and work from this point out. Once you have this core, you can build the extended or new story around the product. Some general must-have rules include – you need to know who your customers are and how/when/where they are currently

philip BarlOw, managing direCtOr, BarlOw

“While private label can build volume for your business, it pushes you into a price-driven

business model, and that’s a very risky place to be. Price on its own is always there to

be undermined by someone else.”

Dublin based Barlow is an award winning corporate identity branding consultancy with expertise in multimedia design, brand repositioning and new product development. Other areas include logo design and video production.


However, the same principles apply as in other parts of marketing: you have to know what your story is, what your brand is about and how to communicate in a way that connects with what consumers want. If you can execute this through social media channels, you can outperform your competitors – again this idea of marketing strategy coming alive in a channel of communication. But you can’t simply dip in and out of social media; you have to give it the resources to engage with it properly and you will only be as engaging as the ‘engaging’ content you publish.

Any closing thoughts?I would stress again the point that you can’t create these solutions at home. You need to bring in expertise. It’s about building partnerships that will help you execute.

Often, businesses think that marketing is just jargon and pretty pictures. But the most successful products have been able to communicate a brand message, which reflects all that is great about their product and that can build emotional connection and loyalty with their customers. Brands are the short code to the product and the story. A branded business model is proven. What the smaller business must grasp is the need to do the right thing at whatever scale they can and execute brilliantly.

niche. The mass market will look for the simple, natural message cues.

Isn’t that a particular opportunity for Ireland?It is an amazing opportunity for Irish companies and the Irish food industry. Ireland Inc. is so well aligned with delivery of this kind of product and we start so far ahead of many of our international competitors. People accept and believe that, in terms of food, Ireland understands quality, based on our agricultural background and our traditions. The next logical stage is that we are able to produce wonderful food. That’s believable and we can definitely leverage all that. The age-old challenge is how you marry that overall credibility with a particular product and really market it well. That’s where the gap lies for a lot of Irish food businesses, and the challenge.

What do you think of the opportunity social media presents?I think companies have to embrace it. Social media is breaking down the boundaries of engaging with brands and individual customers. Ten years ago, we talked about direct marketing to customers, but it was one way. Now we have channels where customers can actually constantly engage with a company’s product and feed back into it. Online communities are being built around food, which companies have to engage with.


Can you summarise these labelling requirements?The key requirements for producers are mandatory nutritional information on food packaging, such as energy value and the amounts of fat, saturates, carbohydrates, protein, sugars and salt. A minimum font size has been established for these. Information on allergens must also be highlighted on the packaging, and there will be an extension of compulsory country-of-origin labelling, which currently only applies to beef, fruits and vegetables, honey and olive oil. However, the much-debated mandatory UK ‘traffic light’ nutritional system failed to be agreed upon and is not part of the Food Information Regulation. Also, it is worth noting that, while the new rules come into force in November 2014, the industry has a further two years before the labelling becomes mandatory.

What are your concerns for the industry?Compliance with the regulations will be costly. Packaging will have to be redesigned, sourced and reprinted with all the consequent marketing, design and reproduction costs this will incur. Manufacturers may find themselves contractually bound to absorb these additional costs and, with food prices generally increasing, the ability to pass these additional costs on to consumers is limited. Even with a lead in time of three-to-five years, manufacturers should consider now how they will ensure current product lines can be made compliant and factor in the consequent packaging and labelling costs for new product ranges due to hit the shelves over the next few years.

Is there a standard legislative process for EU food laws?The legislative process is, in general, very lengthy and involved. It usually starts with the European Commission identifying priority areas for reform or regulation. Before it proposes new initiatives, it must assess the potential economic, social and environmental consequences that they may have. It does this by preparing ‘impact assessments’, which set out the advantages and disadvantages of possible policy options.

The Commission also consults interested parties, such as non-governmental organisations, local authorities and representatives of industry and society in general. Groups of experts give advice on technical issues. In this way, the Commission tries to ensure that legislative proposals correspond to the needs of those most concerned.

How do interested parties get involved in this process?Citizens, businesses and organisations can participate in the consultation procedure via the website, public consultations and national governments. National parliaments are also free to formally express their reservations if they feel that it would be better to deal with an issue at national rather than EU level.

Once the Commission has made a proposal, the European Parliament and Council review it and propose amendments. If the Council and the Parliament cannot agree on amendments, a second reading takes place. In the second reading, the Parliament and Council can again propose amendments. Parliament has the power to block the proposed legislation if it cannot agree with the Council.

If the two institutions agree on amendments, the proposed legislation can be adopted. If they cannot agree, a conciliation committee tries to find a solution. Both the Council and the Parliament can block the legislative proposal at this final reading.

EU legislation is often seen as onerous for the food industry. Do you share that view?In my work, I often hear food-business owners (FBOs) complain that a law has changed suddenly or that the Department of Agriculture, Food and the Marine is introducing new rules or more stringent controls out of the blue. The one thing I can say, with certainty, is that food law in Ireland originates in Brussels and absolutely nothing in Brussels happens quickly!

That said, I understand completely how challenging it is to keep on top of the raft of policy and legislative issues that regularly emanate from the EU. The laws are constantly developing and it can be very difficult to stay abreast of changes and proposed changes. I say this as a food lawyer whose job it is to be up to date on these issues at any given time.

So, what advice do you give FBOs to make sure they stay up to speed?There are three simple steps to ensuring that you are aware of what is happening and that your voice is heard when proposals that could adversely affect your business are being mooted: be informed, stay informed and inform others. If you spend a little time focusing on the potential challenges of EU legislation to your business, even once a year, you would be amazed how much you can find out with a little effort.

Can you give some concrete examples of how to do this?There are a number of simple, cost-effective or even free things that any business can do:

– Subscribe to the DG SANCO daily updates;

– Subscribe to the DoAgri email updates;

– Read trade association or industry emails and circulars; and,

– Nominate one person on the management team to report, once a month, on legal or regulatory issues that might have an impact on the business.

Is there any significant legislation in the pipeline at the moment?One of the most significant pieces of legislation in recent years has recently been passed. In October 2011, the EU passed the new food labelling laws, which are set to impact significantly on food products in Europe. The Food Information Regulation essentially consolidates and replaces a number of separate EU regulations and, when it comes into force, in 2014, will require food businesses in Europe to have specified labelling on their products.

maree gallagher

maree gallagher, mga Brussels


trading standards officers are very keen on prosecuting FBOs for all kinds of issues which, in other countries, including Ireland, enforcement officers would rarely concern themselves with. This is made more serious by the fact that, in the UK and Ireland, breaches of food law are criminal offences and carry penalties, which can include imprisonment and heavy fines. So being fully informed on the local regulatory environment of the countries you intend exporting to is more than just another business issue.

So what does MGA Brussels do and how can it help?What we offer in Brussels is really a hand-holding service. We are on the ground with 16-years experience in EU and Irish food law and an in-depth knowledge of how Brussels works. We offer a range of services from simply monitoring legislative proposals on the horizon, to actively advising businesses on how to connect with and influence decision makers. We aim to be the eyes, ears and voice of FBOs in Brussels and can create bespoke campaigns for businesses or sectors that have particular issues with proposed legislation.

We see our role as working alongside the trade and industry associations, not competing with them. We have the legal and technical backgrounds that they often don’t have so can provide legal and technical support when required. We also have a well-developed network of international food law experts. So, if you want to get your product on the market in China, India or the US, for example, we can help.

Aside from legislative issues, what other concerns can arise in Brussels?An occupational hazard of working with the food sector since the mid 1990s is that you develop significant experience in dealing with and managing crises. This has actually become an area we now have huge expertise in. Some of the serious challenges we have dealt with over the years have ranged from dioxin contamination to non-food-grade lubricants being used in confectionary. More day-to-day issues involve foreign-body contaminations and labelling or ingredients errors. Gathering the correct data in a timely manner to assess the risks, and knowing when and how to inform the relevant authorities are the main challenges. Keeping control of the message is also essential for an FBO as, usually, the biggest risk is to brand equity and reputation.

Any concluding thoughts?The old adage that ignorance of the law is no defence is especially important in food law. Legal compliance is very rigorously enforced throughout Europe and, indeed, globally. Having confidence that your product is fully compliant with the relevant laws means you will be able to sleep easy at night and focus on growing your sales. Knowing what is happening in Brussels is, ultimately, about making it easier to do business internationally.

At what point should FBOs get their views heard?It is possible to engage with the decision makers, at the highest levels, at virtually every stage of the process and to put your case across. Businesses should use all the avenues open to them and should invest some time exploring what avenues work best. These could include trade associations, such as IBEC and the IFA; chambers of commerce; state bodies such as Enterprise Ireland and Bord Bia; the Irish Exporters Association; local TDs and, of course, local MEPs.

Strategically, if you want to exert influence on what happens in your sector, then it makes sense to engage at the earliest stage possible. That goes back to what I said about being informed. Through member associations and lobby groups, you also need to forge relationships with businesses in other Member States who may be similarly affected by the proposed changes. A convergence of views, across a number of Member States, has a much better chance of being taken note of.

Doesn’t EU-wide legislation at least create a level playing field for exporters?Unfortunately, it isn’t quite as simple as that. One critical issue that FBOs need to consider when exporting are local laws and local enforcement policies. Just because most food law in Europe is harmonised, that doesn’t mean that interpretation and enforcement are the same in every country. For example, in Poland it is a legal requirement that all food products carry a ‘use by’ date; they don’t accept ‘best before’ dates. If you are a dairy producer looking to expand into Poland, this might cause you some problems. It will certainly cause you problems if you don’t know about it. Closer to home, in the UK,

“One of the most significant pieces of legislation in recent years has recently been passed. In October 2011, the EU passed the new food labelling laws, which are set to impact significantly on food products in Europe. ”


the view FrOm suppOrt agenCies


the view FrOm suppOrt agenCies

Bord BiaEnterprise IrelandIBECIrish Exporters AssociationTeagasc


There are a lot of expectations around agri–food at the moment. Is there a concerted plan to grow the sector?The future for Irish agri–food is mapped out in Food Harvest 2020 and it centres on the idea of smart, green and sustainable growth. We are probably unique, as an indigenous industry, in having such a clear roadmap for development. Food Harvest 2020 was published in 2010 and a number of activation groups were then set up across the sectors. There is a dairy activation group, a beef activation group, and so on. Each of these has come to the table with their own set of recommendations about how to progress the ambitions of Food Harvest 2020. In February 2011, for example, the Dairy Expansion Road Map was published. It set out 55 specific actions relating to on–farm production, efficiency in the milk processing sector, the development of market opportunities and so on.

We are now at the implementation stage of these actions. A high–level implementation committee, which is chaired by the Minister for Agriculture, Food and the Marine, meets on a regular basis and I am one of the agency chief executives who participate. The committee considers how the implementation plans are going, whether any new areas need to be explored and take account of any developments of concern.

How does Bord Bia play a role in this roadmap?In May 2010, we invited the Harvard Business School to make a presentation at our Leadership Summit. Harvard Business School has a 50–year track record in agribusiness and we asked two of its leading figures David E Bell and Mary Shelman to cast a fresh pair of eyes over the Irish food and drink industry. Their report, Pathways for Growth, didn’t pull any punches. It pointed out that we had advantages other countries would kill for, yet we faced significant challenges. It went on to offer some very innovative and concrete steps on how to meet these challenges while exploiting emerging opportunities. There was an excellent response to the report at the Summit and we committed there and then to following up and deliver on its recommendations. Pathways for Growth is integrated within Food Harvest 2020 and now in effect represents a five–year development programme within Bord Bia, specifically focusing on the major issues of branding, education, innovation, entrepreneurship, and strategic cooperation among competitors or ‘co–opetition’.

The industry appears to have come through the worst. Are we out of the woods?There are fundamental changes taking place, in terms of global supply and demand, that we have not witnessed before and that form the basis for the current rise in prices. The days of cheap food are over,

there can be no doubt about that, and there are better days ahead for the industry, but we have to be careful not to over sell it. There will be bumps along the way. If there is one risk that I think will characterise the industry more than any other in the coming years, it will be market and price volatility, albeit around a longer-term upward trend in prices. We have already experienced it in recent years and the conditions are in place for it to continue. There is a global issue of low stocks in grains and other commodities, so the back–up that used to be there, if there were a poor harvest, has gone. We have also witnessed the increasing incidence of severe weather–related events interfering with the sowing of crops, growth, harvesting and so on. Then, of course, the volatility in commodity prices attracts the attention of hedge funds and investors, as they see the opportunity to generate returns that are perhaps less evident in their traditional areas of investment. So this is unlikely to be a short–term phenomenon, and we must be prepared for it.

What are the greatest risks from an Irish perspective? It largely depends on what sector or subsector your business is in. What is happening in commodity prices is increasingly interlinked. The growing demand for meat and dairy products around the world is a big positive but farmers then have to deal with increased grain, feed and other input costs, so increased commodity prices can also have downsides for profitability.

Moreover, firms that are taking the branded route to market, and this is particularly the case in our domestic market, are dealing with consumers who have been enduring sustained downward pressure on their disposable income for three years now. Consumers are shopping for promotions, they are shopping around and they are willing to be much more adventurous in search of a bargain. This search for value has been described as ‘the new normal’ and any company that is focused on the Irish market will be competing in this environment for some time to come.

Are the same issues present in our overseas market? Food and drink exporters to the UK market have faced real challenges over the last few years, particularly during that period when sterling depreciated by up to 30%. It is hugely difficult to adapt to change of that speed and scale. On the other hand, those who survived it, and most have, came through with improved business efficiencies, a better cost structure, and are better able to compete today. In the meantime, the depreciation of sterling resulted in an eventual increase, indeed a surge, in UK retail food prices. The price increases needed to compensate eurozone exporters were slow in coming, and so it was very difficult to adapt at the time. Companies have been able to weather the storm and while the consumer environment is still very tough, Irish exporters have proven themselves nothing if not resilient.

Are exporters looking beyond the UK in sufficient numbers?The meat and dairy sectors are highly export oriented and so have always been very globally focused. They have never confined themselves to the UK or even continental Europe. They have always been reaching beyond that. The meat industry, in particular beef and pork, would for example be very familiar with operating in markets from Russia to Asia and beyond. On the dairy side, we have dynamic organisations like the Irish Dairy Board, which truly has global reach, while companies like Kerry Group and Glanbia have significant global presence. Bord Bia has offices in Moscow and Shanghai, and we work closely with exporters, in these and other sectors, targeting these key markets.

BOrd Bia

aidan COtter, ChieF exeCutive


In the case of the beef industry, there has been a significant transformation in export focus with 97% of exports now destined for the high-value consumer markets of Europe. Russia is the principal market outside of that, with limited volumes going to other non–European destinations. Also, along with other European countries we do not have access to the Chinese, Japanese and United States markets, but there is a real prospect that these markets will open up in the next five years and that our industry will find niches within them. Such a development would optimise our export distribution in terms of establishing the broadest possible platform to deliver sustainable value back to producers.

Which of the sectors, in your opinion, will do best and which will struggle? All sectors have their own opportunities and their own challenges. In a dairy industry that is highly competitive in producing milk off grass, expansion is more or less guaranteed, because farmers have indicated their intention to expand with the abolition of quotas in 2015. Our dairy farmers are highly commercial, and although trapped in fixed quotas since 1984, they have been building efficiencies and have demonstrated their capacity to resume growth once the quotas are lifted. The challenge then is how to facilitate and manage that growth, to fund it, and also to ensure that markets can accommodate the extra production that may come over a very short period of time once quotas are lifted.

In the case of the beef sector, achieving growth will be more challenging, whether one considers a target of 20% or 40%. The national beef herd is approximately the same size as the dairy herd, but has been under a lot of pressure because of low returns. The rise in world meat prices over recent years and the growing convergence of European and global prices has however injected significant confidence into the sector and provides a positive backdrop to delivery of the Food Harvest actions for the sector.

Can we compete with South America?Interestingly, as world markets have been expanding and as commodity prices have been hardening, competition from low–priced regions has lessened. The convergence in prices has been significant and while world prices are still 75% of EU levels, not long ago this would have been between 40% and 60%. Indeed in some cases there is virtual convergence in certain beef cuts / products, enabling Irish and European exporters to look again and compete effectively outside the EU region.

Are you optimistic then that the plans for growth are fully realisable? The sector has already grown its export values by 25% over the last two years, demonstrating its capacity to exploit growing demand. There is an industry consensus and commitment to the delivery of Food Harvest 2020 and the mechanisms are in place to deliver on its recommendations.

The marketing environment has rarely been more benign to deliver on them. The world needs to increase food production by more than 40% over this and the next decade, and by 70% by 2050 to meet the needs of a growing population, and it must do this with limited land, energy and water resources while reducing greenhouse gas emissions.

Given our green credentials, we are well positioned to exploit the opportunity for growth and to do so in a sustainable way that meets growing environmental concerns.

Can sustainability be a mainstream message during a recession?Businesses across the world are not alone responding to but actively driving the sustainability agenda. They are doing so to meet existing and anticipate the growing concerns of their customers. Unilever, one of the world’s largest food manufacturers, has committed to sourcing all of its agricultural raw materials sustainably by the end of this decade. Walmart, the largest retailer has described it as the single biggest business opportunity of the 21st century and the next source of competitive advantage, while the World Economic Forum has concluded that companies that take the lead on sustainability will be market makers rather than market takers.

Sustainability, defined as the capacity of this generation to meet the needs of the present without compromising the capacity of future generations to meet theirs, is multi dimensional and will provide a key platform for competitive advantage for years to come. Consumers are increasingly aware of it even if, in the current marketplace, they are not always making choices on the basis of it. We should also be aware that consumers rely on the businesses they buy from to look after the environment on their behalf and to live up to their obligations, as they may perceive them, on the environment.

Could you give an example of sustainability in the Irish context?Bord Bia operates Quality Assurance Schemes across a range of primary production sectors. We have 32,000 farms for example that are members of our Beef Quality Assurance Scheme (BQAS) that are audited on an eighteen-month vcycle. Since May 2011, farmers in the BQAS are also now being audited on the environmental sustainability of their farms. This is essentially a carbon footprint audit and we developed the criteria in conjunction with Teagasc and the Carbon Trust in the UK. We began with a pilot programme of 200 farms in 2010 to get the calculation model accredited. We are now rolling that out among all 32,000 farms and the majority will have been covered by the end of 2012. It is a world–first for a national quality assurance programme to be able to show a commitment to carbon footprint reduction among its beef producers. It is a win–win for producers because in order to reduce one’s carbon footprint, one must become more efficient, and that of course reduces costs and increases profitability. We are currently working to incorporate new sustainability measures beyond carbon to cover water and biodiversity while extending the initiative up the value chain into beef processing and into other sectors such as dairy.

Isn’t the bigger priority, globally, to scale up production?There is a real dichotomy here that world leaders have yet to address effectively. On the one hand, we have to deal with climate change and reduce greenhouse gas emissions. On the other hand, we have to rapidly increase food production to meet global population growth, which means increased emissions. So how do you resolve the dilemma of delivering food security and addressing climate change at one and the same time? That is certainly going to be a major global issue now and for the years ahead. However, at the end of the day, Ireland has to find its own way through the dilemma by developing sustainable approaches. Our goal should be to be the most innovative, efficient and environmentally friendly — we cannot compete on cost. We have to be competitive and we have to differentiate ourselves in the marketplace. That means that innovation and sustainability, part of the smart, green growth that Food Harvest 2020 talks about, will be a key part of the solution.


What has changed most in perceptions of the sector in this time?The economic and jobs crisis has seen a return to basics and a realistic assessment of what we are good at. Over the years, our food companies have been, and continue to be, export champions for the country. There are great new opportunities to develop this further, but the industry needs to be competitive and Ireland must protect its reputation for high-quality food products and ingredients.

Where do you see opportunities for SMEs to grow/scale their business?The domestic market is flat right now and, while the UK is a very important market for Irish food exports, Enterprise Ireland encourages client companies to diversify beyond this and thereby reduce the impact of fluctuations in sterling. Roughly 35% of Ireland’s dairy exports (worth €2.6 billion) are outside the EU and dairy exports to Asia are close to €300m and increasing. The French and Asian markets are particularly important for Irish seafood exporters, for example.

What issues might prevent Irish SMEs deliver the scale to be competitive?The cost of infrastructure, the ability to raise finance in the current climate and finding people with food industry experience are all issues. The lean programme was structured to cater for a range of companies, from those who are beginning their lean journey and adding value to their manufacturing processes, right through to companies who are now ready to implement a lean culture along their value chain.

What is Enterprise Ireland’s relationship with the food and drink industry?Enterprise Ireland sees the agri-food sector as incredibly important, both in the context of the export agenda and jobs on the ground. There are 42,000 people directly employed in the industry and the impact of export growth in 2011 was a net increase of jobs. Last year also represented the lowest level of gross job losses in the sector in more than 10 years.

Because the increase in exports is predominantly due to price increases rather than volume the challenge, now, is to increase the volumes of value added products exported.

How have the last two-to-three years changed your priorities?Enterprise Ireland has always had a focus on jobs but, in 2012, jobs are a priority along with exports. Over the past two-to-three years, the focus has been to drive the lean, leadership and innovation agendas. Enterprise Ireland was an early advocate of lean as a tool to reduce

costs and to develop a sound base to grow market share. Roughly 18 food companies have participated in large-scale lean programmes since 2010. The Leadership 4 Growth programme is led by IMD in Switzerland and supported by IMI here in Ireland. In all, 27 CEOs/MDs participated in the first programme and the second programme kicked off in February 2012. The goals in leadership are to support food companies to be ambitious in their growth plans and to work with them to deliver this growth. This is an investment to develop world-class leaders in the food industry, who will scale globally and deliver on jobs and exports for Ireland.

Innovation, is always on the agenda and we have to address the fact that Ireland is behind other counties in our percentage of business expenditure on R&D. On a positive note, we have seen some of our dairy companies come together with the third level institutions to develop the Food for Health Ireland initiative to research and develop new added-value products. However, across all sectors, companies need to be constantly innovating and Enterprise Ireland has a suite of supports to drive this development in client companies.

Jenny melia. manager COnsumer FOOds, hOrtiCulture, & seaFOOd

enterprise ireland

“The economic and jobs crisis has seen a return to basics and a realistic assessment of what we

are good at. Our food companies continue to be export champions for the country. ”


Can you talk about your investment in early-stage food companies?On average, Enterprise Ireland supports three-to-four high potential start up companies each year. In fact, the budget is available to support additional investments if we can find the right projects! Typically, we would invest €250,000-300,000 but the actual figure will depend on the strength and needs of the project.

Enterprise Ireland also operates the Going Global Fund, which supports first-time exporters to investigate the size of a new market opportunity.

Have you increased cooperation with other state agencies in recent years?Enterprise Ireland works closely with Bord Bia from a sectoral perspective and a number of global sectoral teams were established to target opportunities and challenges specific to a particular sector e.g. seafood, bakery. Enterprise Ireland works closely with Teagasc on the research agenda, particularly with regard to the small companies via the Innovation Vouchers.

Any closing thoughts?Enterprise Ireland is there to support a company’s business development strategy, including its strategy around exports. There is a strong budget available in 2012 and we are very much open for business. We are actively seeking food projects with growth potential that will lead to increased jobs and exports.

Do you have expectations in terms of growth for the sector in the next few years?Expectations depend largely on the subsector in question. Marginal growth is predicted in poultry, for example, but dairy will be high growth with the abolition of quotas in 2015. Projections for beverage and seafood export growth are optimistic, though there is a supply problem with the latter that needs to be addressed.

The export targets are set out in Food Harvest 2020 and all of the agencies are mandated to deliver on this and report progress on a regular basis to the department.

What are the key supports Enterprise Ireland gives in assisting companies expanding their business? In 2011, Enterprise Ireland invested approximately €12 million in Irish food companies in the form of equity investments and grants. The main drivers were company expansion, R&D and competitiveness projects.

As well as Leadership 4 Growth, Enterprise Ireland offers extensive training to senior management teams through the Management 4 Growth Programme and the Manufacturing Management Programme. An international selling programme is also provided as well as management development tailored for CFOs. The supplier development programme, developed in partnership with Supervalu, has been particularly helpful for small food companies. Other non-financial supports would include sectoral events and networking opportunities.


The external environment, naturally, influences the industry and we have seen that in a number of ways. Internationally, fluctuations in commodity prices, which, at the moment, are benefitting the industry through high prices, mean the sector has had to manage significant price volatility in the markets they operate in. We have also seen, in recent years, fluctuations with sterling that, in 2008 and 2009, created very difficult trading conditions, particularly with over 40% of our exports going to the UK marketplace.

The combination of these forced a lot of companies to review, and change, their business models and reconfigure their cost base to cope with these external factors.

Is a lot of the recent growth built on what are volatile commodity prices?SMEs are more likely to be more involved in secondary processing and prepared consumer foods, so they don’t necessarily benefit from high commodity prices. If anything, commodity prices affect them as increased input costs, causing difficulties as they try to get cost recovery in the marketplace.

What do you feel are the biggest challenges to Irish companies scaling up?One of the big differences between Ireland and the UK is the size of the domestic market. You can achieve fairly significant scale in your home market in the UK, and a lot of European countries, before you really need to consider exports. Ireland is a small market and so scaling up typically means exporting. Also, the increased consolidation at retail level means that, in many instances, the step change required to scale up from a niche producer to larger scale transactions with the multiples is a significant one.

Can the current growth levels translate into more SME jobs?The sector had very positive export figures for both 2010 and 2011 but about 60-70% of that has been underpinned by rising commodity prices, with dairy and meat the main beneficiaries of that. But the expectation is that, as the measures outlined in Food Harvest 2020 continue to be implemented, we will see greater growth in export volumes across all the different categories, including prepared consumer foods. As companies add more value to their products, that should deliver value growth as well as commodity price growth. That said, it is becoming clear that a lot of the jobs growth is going to be at farm level and in ancillary services. You will get a certain amount of growth in the food and drink companies but we would see most of it happening at the agricultural level and in support services.

What steps are IBEC calling for to help scale up the industry?The development agencies – Enterprise Ireland, Bord Bia and Teagasc – have a range of programmes in place and it is vitally important that they continue to receive the support from government that is required. Both Food Harvest 2020 and Bord Bia’s Pathways for Growth have clearly outlined what needs to be done over the next number of years. It’s very important from our perspective that, where funding is required from

What is IBEC’s relationship with the food and drink industry in Ireland?IBEC represents the food and drink sector through Food and Drink Industry Ireland (FDII), which is the main representative body of the industry in Ireland. Our membership includes over 150 food, drink and non-food grocery manufacturers and suppliers in three main categories: consumer foods, beverages, dairy and meat.

Do you see yourself as an advocacy organisation or is FDII a forum for the industry?As a representative body we fulfil a number of functions for our members. We undertake an advocacy role and represent the industry at national and European level – where we provide leadership on strategic issues such as the profile of the sector, competitiveness, R&D, trade, education and any policy or business issue that affects the industry. Like any trade association, we also have a networking capability through our various Councils, committees and working groups. Finally we are service providers in terms of the information we provide to members across a range of topics including business and economic information, HR, regulatory advice etc.

The industry went under the radar during the boom years. That must have been frustrating?There was a degree of frustration certainly. Everyone in the industry recognised this was a dynamic sector, with a strong export focus, and central to that was its ability to remain both innovative and competitive. The rising cost base in Ireland was causing a lot of problems for our companies and the attention from the government and policy makers wasn’t necessarily as strong as it should have been. In that respect, the Department of Agriculture, Food and the Marine’s Food Harvest 2020 strategy, which was developed with industry, has been a very positive development.

The nature of the industry means it’s the only large-scale indigenous business sector where the entire supply chain is here, from raw ingredients to production and processing, through to sales and marketing and, new product development with corporate headquarters located here also. With its strong linkages back to the agricultural sector, the economic impact of growth is much greater than in any other sector and the benefits that can arise are, proportionately, much greater.

How has the situation changed in the last two-to-three years?Certainly, we have seen a renewed focus, nationally, on the food sector. That has been very positive, but the industry also has its own issues to deal with, particularly the difficult conditions in the domestic market.

iBeC

paul kelly, direCtOr, FOOd and drink industry ireland, iBeC

“The nature of the industry means it’s the only large-scale indigenous business sector where the entire supply chain is here.”


environment that are causing problems. We are seeing energy prices starting to rise again – that is a big concern for a sector that is an intensive energy user as is the continuing high cost of waste disposal. These are embedded costs that companies have to face in export markets.

How do you tackle the skills shortage at middle management level?At graduate level most companies require a person who is good on the science/technical end, but still has commercial nous. Generally, new graduates will be stronger on one or the other but companies need a combination of the two skill sets. Another issue is on the quality control side, where you find that people with expertise in that area are in demand in other sectors such as pharma and medical devices. However the growth prospects and the focus on innovation in the food sector have increased retention rates.

Overall though, at middle management level, companies recognise the returns from investing in training and it is a central part of their business plans.

Is the culture of discounting going to be a long term headache for companies?It’s a huge issue at the moment. The level of promotions in the Irish marketplace is at an all time high. It causes a huge margin squeeze and that tends to hit the suppliers much more than retailers. The more margins are squeezed, the less you have to invest in NPD and new markets, so it has the potential to become a vicious circle. Resolving it comes back to two things – there is a need to get the fair trading environment right, which is why its important the government implements the Groceries Sector Code of Practice, and, secondly, the government has a role to play in terms of implementing measures to boost domestic demand. We want to see consumers getting good value for money, but not to the point where the margins for many food companies are unsustainable.

Any closing thoughts?The food and drink industry is being held up as a shining light in the economy. We would be optimistic about export growth but it’s important we don’t get carried away with ourselves. What’s being proposed in Food Harvest 2020 and Pathways for Growth is extremely ambitious in some regards and the execution to date has been good. It will continue to be challenging to execute every facet of it. I think it can be achieved, but it is going to require the public and private sectors working together and most particularly policy across all of the government aligning itself with food industry needs.

government, it is provided. Another concern must be that government does not undermine this potential for growth with policy measures that are very much at variance with the expansionary policy of Food Harvest 2020.

Can you give some examples to illustrate that concern?An example would be the proposed initiative from the Department of Health, to assess the feasibility of taxing food. That’s a clear example of a lack of joined up thinking when other parts of government see the jobs potential arising from increased food exports. Similarly, there is a suggestion of a packaging tax and, obviously, food would be one of the categories most affected – increasing the cost to the consumer despite Ireland already meeting its recycling targets for packaging. These are the sorts of things that need to be addressed as a matter of urgency across all of government.

More broadly, we need to address the consumer sentiment issue. Food and drink businesses need to have a reasonable footprint in the domestic market if they are going to have the resources to properly execute an investment in developing exports overseas. Any steps the government can take to improve consumer sentiment and get people out shopping again will be very important.

Finally state support for investment in future capacity expansion and enabling technologies will be vital. With the current state aid regime coming to an end in 2013 and up for renegotiation, Ireland needs to achieve a positive outcome in negotiations with the European Commission.

What are your members saying about funding at the moment?It’s difficult at present and there are three aspects to it. One is general credit availability from the banks and the recent announcements about the loan guarantee scheme are to be welcomed. Secondly, in terms of companies scaling up, a funding gap has become clear to us, particularly in the consumer foods sector. Traditional venture capitalists don’t see the sector as being a high growth area, so we believe there is a need for a sector specific fund administered by Enterprise Ireland, to address this. Finally the state aid issue mentioned already needs to be addressed successfully.

Is the cost of doing business still a big issue here?Our relative competitiveness has improved over the past three years. Part of that has been currency related and part of it has been that unit labour productivity has increased significantly due to cost cutting and reconfiguration by companies. But there are factors in the external


2011 seemed to be shaping up as an excellent year for exporters until the eurozone crisis. How have Irish exporters been affected?The sovereign debt issues across the eurozone have certainly weakened consumer confidence globally and Irish exporters have been affected by it. The figures for 2011 showed total export sales grew by just under 5% on the same period last year, which represents a very substantial increase of €8 billion. However, earlier in the year, our projections were for overall growth in 2011 of 7%. Manufactured goods exports were most affected in the latter part of the year.

The eurozone issue was largely an unexpected turn of events and, if it continues, it could derail the export-led economic recovery we have been working so hard for. On the other hand, the weakening of exports in the last two quarters should not detract from the positive picture painted in the first half of the year.

What are your thoughts now for 2012?Prospects for growth in 2012 have, unfortunately, become much more uncertain. The International Monetary Fund is forecasting a slowdown to 3.3% in global trade, based on emerging economies growing at 6%, the US and UK growing by 2% and 0.6% respectively and the eurozone actually contracting by 0.5%. The fact that the EU and the US markets currently account for over 80% of Irish export sales dramatically illustrates the challenge. We need a sustained and targeted approach to developing sales in the emerging markets, especially in the BRIC countries. There is a real issue here that we have to address. Irish exports to BRIC markets grew by less than 5% in 2011, whereas the EU27 member states managed to increase their exports to these markets by 22.5%. Sector by sector, we would expect agri-food is going to be the strongest performer in 2012, with ICT second and life sciences third. ICT and life sciences are very specialist fields. In terms of SMEs and indigenous companies who can create jobs, agri-food is one of easier ones to see where progress will be.

We are forecasting a 3% growth in total goods and services exports for 2012, which is significantly below the 5% level of export growth needed to meet the economic and employment recovery levels implicit in the EU/IMF programme targets.

Funding is a big issue for companies who want to move into new markets. What services do you offer around this?I think that, certainly, for companies who are more mature and are looking abroad, we would be able to help by introducing them to opportunities for funding and the kind of marketing intelligence they need. We were pleased when the Minister for Finance announced, earlier in the year, that the loan guarantee scheme would be launched. It needs cabinet approval but should be in place in the first quarter of 2012. It will allow businesses to borrow to invest in new markets. There are other opportunities in invoice discounting. Bank of Ireland is active in this area and new players, such as BNP, have entered. The Employment & Investment Incentive Scheme (EIIS) replaces the BES legislation and its commencement provides a lot of funding opportunities as well.

Do you provide support for start-up companies too?Certainly. A recent study in the US showed that, over the last thirty years, virtually all new job creation came from new start-ups. The whole issue is then how to encourage more start-ups, how to fund them and how to get them into export markets as rapidly as possible.

Do you see a momentum around entrepreneurship at the moment?If you go back to early 2008, we were creating 2,800 companies a month. We are currently only creating less than 1,000 companies a month, so our rate of start-ups has dropped dramatically. This is not going to help in job creation. So there is a major challenge ahead. How do you create more start-ups, how does your company keep growing, and how you make that growth big enough, quick enough?

One issue around job creation that is very pertinent to the agri-food industry, where the UK market is so important, is currency fluctuation. The sterling depreciation, which was up to 30% at one point, created a lot of problems and, of course, there was nothing we could do to correct it with our own currency. So the lean manufacturing approach was introduced, but when you bring in the lean approach, you increase your output but you will not create any more jobs. So if sales go up, they won’t necessarily create employment in the process. Agri-food faces a major challenge in job creation as a result of that. Now, of course, if you talk to farmers, they will tell you they were already into lean anyways!

the irish expOrters assOCiatiOn

The Irish Exporters’ Association (IEA) is an all-island organisation, with offices in Belfast, Dublin, Waterford, Cork and Limerick, that represents 70% of the Irish export industry. Recent campaigns for stimulus measures to support the export industry were rewarded with the introduction of the €100m export stabilisation fund, the €250m employment subsidy scheme and measures in the 2011 Jobs Initiative.

JOhn whelan, CeO, irish expOrters assOCiatiOn


The co-operative structure has been mooted as a way creating opportunities for new companies. Do you see potential there?The co-operatives in Ireland have consistently created multinational companies, so it is obviously a good model. As they get bigger and bigger, scale becomes an issue. If you look at Fonterra in New Zealand, it has the equivalent, in dairy output, to all the co-ops in Ireland. What Irish companies quickly find, when they go out into the international markets, is that they need to deliver scale. The Irish Dairy Board is a classic example of co-ops working together to compete internationally. So, certainly, the co-operative movement has created a lot of very good businesses and there is certainly room for more to emerge, particularly in developing clusters of companies. We have the people with the skills to do that, if we can attract talent out of the larger co-ops and help them set up start-ups. Teagasc has a business incubation service – if you come up with a new concept, they will do the R&D to make it work and help you get all the approval paperwork done. They give you the template that you then take to the manufacturing stage. So the facilities are there to back up the potential and more start-ups would mean a lot more jobs. I think it may be a question of how you encourage those people with the experience to set up new operations. But, given the right planning, support and backup, I don’t see why we couldn’t see another Kerry Group emerge.

Are we missing an obvious opportunity with organic foods in Ireland?If you take Marine Harvest, it is not an Irish company but it has six facilities around Ireland and conducts its farming, processing, distribution and sales activities from here. It produces both organic and eco-label salmon that is exported to Europe and North America. It sees organic as the next big wave of growth, keeping it ahead of trend and ahead of the competition. If you look back at the early stages of organic food marketing, it was focused in the premium price range and, as recession hit, nobody wanted to pay that premium, so, more recently, organic prices have shot right down and have come into the reach of ordinary shoppers. As we come out of recession, I think it will be important to re-position organic foods again. Once people feel they have more discretionary income, they will undoubtedly want to opt for a greener, organic and more sustainable product.

What is also interesting about organic, and it is happening in a number

of different countries, is that companies have been using ‘organic’ style logos to identify produce as being from their country. So without saying ‘buy national’, they are saying this product had no air miles on it and so on. The Swiss are very good at it. It’s a way of using ‘natural’ and ‘organic’ to develop market share, as opposed to solely focusing on price. So it becomes more about retain markets and holding local interest and, in that sense, it becomes a marketing tool like any other.

If you could point to one thing that would help grow our food exports what would it be?More and more people are seeing opportunities and that is creating a lot of excitement around agri-food. The opportunity that I think is worth honing in on is what I identified earlier, supporting people who have the ability to set up their own companies, who can move fast and who will take full advantage of the opportunities. But it’s clear we will need pretty strong company models, which is where the cluster idea becomes useful. Neil McHugh is an interesting case study. He was the marketing director at Tesco and then saw an opportunity for quality frozen pizzas. He set up the Goodfella’s pizza range, entered the UK market in the early 1990s and the company has been a major player there since. Essentially, he saw what was on offer, said ‘I can do better’ and beat the competitors at their own game. He has continued to do this a number of times; always starting with small companies that he grew rapidly. Each time, his approach was to focus on quality and then automate the process. But you have to get the investment and the set-up right in the first place. If you do that, you can take on most markets.

Have you seen any signs of ‘smart government’ recently that impressed you?We were very clear that some of the actions announced by the Minister for Finance in the Jobs Initiative in May 2011 would go a long way to improving the competitiveness of many SMEs trying to expand into export markets. The employers PRSI reductions will help businesses competing with lower wage economies. The reform of R&D tax credit rules will help support R&D investment and job creation in Ireland and the commitment to a loan guarantee scheme, which we believe it should be linked to an export credit guarantee scheme, could help many credit-stretched businesses. One ‘smart’ action that we were particularly pleased with was the free movement visa between Ireland and the UK, which enables business people from non-EU countries to more easily and speedily visit Ireland after landing in the UK. One of the most annoying and commonly complained of barriers to export trade development with fast growth economies like China, India and Russia had been the added visa requirement for business people transiting from the UK to Ireland. It frequently created a barrier for companies who needed to get business clients to their promises to close sales contracts.

What would your advice be to government right now?We have made detailed recommendations in our pre-budget submission on what government can do to help enable strong export growth. In spite of the eurozone crisis, the brightest spot on our economic horizon is the strong performance of Irish exports. We believe exports of goods and services can continue to grow by an average by 5% annually over the period 2012 – 2015. We also argue that the target of a general government deficit below 3% by 2015 can be achieved. Ultimately, a growth rate in exports that is in excess of 5% will be of enormous benefit in helping to bring the deficit to below 3%, so the impetus is there for the government to take the actions that will bring this about.

“Irish companies quickly find, when they go out into the international markets, is that they

need scale to compete and scale to deliver”


How do you assist specifically in the NPD area?We provide product development support and expertise, as well as access to pilot scale production facilities to produce and test market a product. Additionally, we provide laboratory test supports such as testing for product safety and consumer information on use-by or best-before dates, testing for nutritional and labelling purposes and also sensory testing of products for consumer acceptance purposes.

As part of our product development supports, we establish linkages between food entrepreneurs and our food research scientists for updates on new knowledge and technologies in food production. Examples would include research into new or improved healthy foods and processing technologies.

Companies come to us at different stages of their product development. In some cases, they have a concept, and want to know what the technical issues are in producing the product; sometimes they have some of the development work done, and need help in terms of validating the process; or they may come to us because they

Can you talk about Teagasc’s engagement with agri-food companies?Teagasc is the Irish Agriculture and Food Development Authority working under the authority of the Department of Agriculture, Food and the Marine. The mission of Teagasc is ‘to support science-based innovation in the agri-food sector and broader bio economy so as to underpin profitability, competitiveness, and sustainability’.

Teagasc has a total staff of just over 1,000 located nationwide, of which almost 200 work with the food processing sector. Our main food programme operates from research centres at Ashtown in Dublin and Moorepark in Cork.

Can you give us a general overview of the work the food research team does?The work of the food programme is to provide R&D for the food processing sector and also for broader food-sector stakeholders.

The programme covers a number of core research or knowledge generation areas and also a knowledge and technology transfer-to-industry function. The core research areas are in food biosciences, food chemistry and technology, and food safety. Additionally, a Food Industry Development provides technology development support for food businesses and supports research technology transfer to stakeholders. The food programme has extensive linkages through its work programme with other food research and education institutes both in Ireland and internationally.

What kind of SME companies does Teagasc work with?Teagasc carries out R&D work with all sectors and sizes of food companies from those operating in international markets to SMEs and start-up businesses. The majority of food production companies in Ireland are classified as SMEs, as is the case in many other countries.

These companies produce a wide range of products for a range of markets, local, regional and also export. Their outputs include meat, dairy, bakery, food horticulture and prepared food, utilising these ingredients. The companies we work with are located in every county in Ireland and are an important component of the local employment and food supply chain.

teagasC

“There is an enormous level of positivity in the agriculture and food sector right now. Food is a mature industry but also a very dynamic one.”

pat daly, head OF FOOd industry develOpment, teagasC


Ireland has an established record in exporting food worldwide and there are good opportunities to create sustainable employment growth in the sector.

So NPD is crucial to developing the food business?Yes. It is necessary for all businesses to continually innovate in all aspects of activity but especially in consumer products. The general major trend we would see in NPD is businesses trying to better understand consumer needs, particularly in the health aspects of food products, while simultaneously producing safe, good-value products.

Any closing thoughts?Without a doubt, food is a business people want to be in. We find that the people coming to us are very optimistic about the sector. They recognise it is a competitive area but they are prepared to invest enormous personal resources and energy into growing their business. There are challenges but there are also plenty of supports available now for existing and new entrants to the sector.

have a problem with a product and need our help to find a solution.

What other services do you provide to SMEs?We provide a range of technical training courses and seminars for food SMEs, typically on emerging legislation, updates on retailer and customer requirements, new processing technologies and also for information on outputs from our food research programme.

Companies also make contact with us for technical information such as reviews of literature, sourcing suppliers of ingredients, packaging or equipment. We work very closely with other regional and national food development agencies, in particular, with Enterprise Ireland and Bord Bia, in providing support for food SMEs.

Do you get a sense of optimism in your engagement with companies?There is an enormous level of positivity in the agriculture and food sector right now. Food is a mature industry but also a very dynamic one with ever-changing consumer needs, an increasing world population to be fed and rapidly developing economies and markets.


sOme thOughts FrOm the Banking seCtOr


sOme thOughts FrOm the Banking seCtOr

Bank of IrelandUlster Bank

Bank OF ireland

including the purchase of machinery and land, upgrading housing and other facilities, the construction of farming buildings and for purchasing stock. We have experienced strong demand for the fund to date and plan to extend the fund in the next 12 months.

Do you provide particular support for scaling up and expanding into new markets? Our proposition offering covers all stages of the business life cycle, from start-up to established international operators. The type of support required at the various stages varies significantly and Bank of Ireland is committed to understanding the aspirations of businesses at every stage and to providing the right financial products to support them during their journey. An example of a product that supports companies expanding into new markets is invoice discounting, whereby a business can use their existing debtor book to raise funding required to expand. In 2011, €3.3bn of sales discounted by Bank of Ireland Commercial Finance (BICF) were exports and 41% of BICF’s loan book is in the agri-food sector.

Do you have any advice on maximising the opportunity to obtain funds? A clear and up-to-date business plan is the most important ingredient for a successful meeting with your bank. The plan should outline such key items as: what your market is; unique selling points; experience in the sector; projections and key assumptions used in producing projections; sensitivity analysis on projections (and contingency plans on the back of this analysis); funding requirements; projected cashflows; and competitor analysis.

A clear business plan will show that the proposed project is well thought out and researched and that financial needs are clearly identified. It is also important that plans are in place to deal with the impact of not achieving projected results. This kind of information will be very important in the assessment process.

What are the recurring issues that hinder businesses obtaining finance?The lack of a clear and well thought out business plan is a key issue. This is the case when insufficient information is provided to enable a bank to understand the business and what level of financial support is required. We are committed to supporting all viable businesses, but to assess overall viability we do require a minimum level of information on the business activities and the business outlook for the future.

Any closing thoughts?Undoubtedly, there are significant opportunities for the Agri-food sector in Ireland, based on our ability to increase agricultural output in a cost effective manner, but also by building on our International reputation for quality food produce. This is a key sector for Bank of Ireland and we are committed to providing the necessary financial support to capitalise on the opportunities that exist. We also encourage agri-food operators to gather information on external supports, including grants available to them from bodies such as Enterprise Ireland.

For any farm/food producers looking to expand and grow their business, we encourage them to contact their local Bank of Ireland branch, and we will work with them to play our part as they grow.

How important is the agri-food sector to you?Agriculture is the single largest sector in Bank of Ireland business banking and represents one third of our overall customer base. It is also Ireland’s largest indigenous industry, which employs over 150,000 direct and indirect employees. Given that the Irish economy is our core market, we are fully committed to providing ongoing support to the sector.

Do you share the general optimism on the prospects for Irish agri-food?Outlook for the sector remains positive. There are a number of contributing factors to the Irish success story. These include a strong reputation for quality food and agri outputs, rising demand for Irish exports and growth opportunities identified in the Food Harvest 2020 report.

Can you give us a picture of current applications and approvals for credit in the sector? In recent months, we have seen a general increase in the amount of loans approved for those operating in the primary industries of agriculture, forestry and fishing, compared to twelve months ago. This is as a result of a number of factors, including an increase in land transactions, particularly in the dairy sector, as well as a higher level of applications coming through from agri-food business owners who are looking to expand. We are committed to ensuring that the appropriate funding is in place to support all viable agri-food enterprises, to allow them to participate and avail of such growth opportunities. Approval levels for agri-food applications remain high at over 80% of all applications received. We encourage all agri-food producers who require funding to come to the bank, discuss their plans and make a formal application to us.

What products are on offer for your customers?We offer a range of financial products to support agri businesses, from day-to-day banking (business current accounts and online banking), borrowing products (term debt, invoice discounting, equipment finance, trade finance etc.), deposit and investment solutions, and products for internationally trading businesses, including currency hedging products to minimise risk.

Tell us about the Agri-Farm Investment Fund?Last year, Bank of Ireland launched a €200m Agri-Farm Investment Fund dedicated to supporting the financial needs of the sector. The fund is still open and available to new and existing customers in agri-related businesses, ranging from farmers to food businesses. The new fund is available for investment for a wide variety of purposes,

derek mCdermOtt, head OF asset & COmmerCial FinanCe, Bank OF ireland


ulster Bank

So there is not enough awareness of alternative funding products?I think, truthfully, there is a general lack of knowledge among SMEs of international trade finance products, outside the typical letter of credit and documentary collection products. I think businesses would be genuinely surprised by the variety of products that are available and how competitive they can be.

Do you have any examples of how trade finance is working in this sector?We are currently working with an SME that is selling products into an overseas markets, with sales likely to increase significantly over a two-year period. We have a product called Receivables Purchased Product, which is somewhat similar to invoice discounting but, instead of looking at the risk of the SME, we can sometimes transfer the risk to the large corporate buyer in that market, because we have a presence there through the RBS network. So our customer is now in the situation where he can grow his business knowing he has a funding option that is outside the traditional product offering.

How do you assess new SMEs for funding?If it’s a new business, before we get into the numbers, we need to know who the management is, who the owners are and what their background and achievements are. Then, they need to demonstrate that the can deliver their business plan and forecasts in the time frames set out, while complying with all of the terms and conditions as set out in their banking covenants.

Can the banks play a role in upscaling business knowledge?Ulster Bank has worked with several public and private bodies within the last two years in an effort to show companies the benefits of trading internationally.

Several of these events had themes such as ‘finding new markets’ or ‘cashflow for exporters’. These events were attended by companies in both the SME and corporate sectors.

Would you have any concerns that export growth levels are predicated on strong commodity prices?Commodity prices are volatile, that’s the nature of the food business. What we have seen, in a lot of the sectors over last five years, is the significant organic investment by Irish businesses resulting in leaner, more efficient operations, allowing them better manage future volatile market conditions and business risks, including fluctuating commodity prices.

Any closing thoughts?One thing I would suggest that people don’t often think of is the requirement to build a relationship with your bank in advance of seeking bank facilities. From our own perspective, we are only too happy to meet with companies, even if there is not an immediate banking opportunity. It allows us to get to know the management team and have a better understanding of the company in advance of any discussions on financing options.

Is there sufficient funding available for the food and drink SME sector?Given the competitive advantages, expertise and positive outlook within the Irish food and drink sector, domestic and international banks are keen to expand their presence in the Irish market. We have seen, in recent transactions, strong appetite from a number of banks, leading to competitive pricing for prospective clients. In our view, SMEs should have a variety of financing options within the current Irish banking market.

What are your own goals in the sector?Naturally, we approach every deal on a case-by-case basis but we are eager to expand our already considerable presence in the Irish agri-food sector, and we are mandated to grow our book in this sector in 2012 and beyond. We find, in competing with the other banks for business, that any deals we have won in the last 12 months have been hard won, given the positive credit appetite from banks.

What does Ulster Bank, in particular, bring to the table?One of our major positives is that we have an international network, with operations in 37 countries. This means we can offer different kinds of trade finance and funding products that are not always available through other banks. Whether it is Asia, the Middle East, the US or Europe, we have the networks and can offer many extra services on the basis of that.

Are there more creative solutions to be looked at other than simple bank loans?Banks are looking for a level of detail in business planning, with regard to the provision of banking facilities. They need, and expect, a detailed knowledge of the business, irrespective of its size. That said, when SMEs look for funding, some tend not to consider other working capital options outside the traditional facility offerings of overdrafts and invoice discounting. Very often, trade finance products can be a cheaper source of working capital funding than those traditional offerings and far easier for banks to provide facilities for. SMEs tend to think of them as corporate products, but, I would say, from our experience, that’s absolutely not the case.

gerry ennis, head OF glOBal trade, ulster Bank

“We have seen, in recent transactions, strong appetite from a number of banks, leading to competitive pricing for prospective clients.”



BdOOur agri-FOOd team

You get the impression that they do go out of their way to try and facilitate their client. So I think client service seems to be a priority with themBDO client from the food service sector

BDO has built up a wealth of experience and has a strong track record in advising clients across the agri-food industry.

BDO’s agri-food team provide our clients with an integrated multi-discipline offering. From strategic advice, operational reviews, to mergers and acquisitions to restructuring businesses, we help businesses looking to grow, consolidate & achieve their goals. Through our EII and BES funds we have been at the forefront of investment in agri-food companies over the last 16 years while providing strategic advice and support to these businesses.

We offer pragmatic and tailored solutions.

Our agri-food team provide the following services:

Independent business reviews –

Forecasting & budget planning –

Business plans –

Operational reviews –

Due diligence –

Strategic advice –

Valuations –

MBO – s/MBIs/LBOS

M&A/Disposals –

Restructuring/Refinancing –

BES and EII funding –

Private equity –

R&D –

BDO has that small feel that makes you comfortable. It has that personal touch that you wouldn’t get with one of the Big FourBDO client from the consumer foods sector

Stewart DunneLead Partner,BDO Agri-Food Team,[email protected]+353 1 470 0141

Richard Duffydirector,Corporate finance,[email protected]+353 1 470 0513

Andrew BourgDirector,Corporate Investment & Business Advisory,[email protected]+353 1 470 0434

Derek Henrydirector,Head of r&d tax services,[email protected]+353 1 470 0211

Contact UsFor further information contact a member of our agri-food advisory team:

BDO have been advising Irish businesses for 30 years. The BDO approach is unlike other accounting organisations. We're different because we have the flexible personal characteristics of a local firm, together with the specific expertise, world wide network and strength of the large scale global players.

BDO is a member firm of the BDO global network with over 110 member firms.Our membership of the BDO global network affords us global reach and a consistency of service delivery to the highest standard on cross-border assignments.

A Unique FocusOur expertise and understanding of the Irish market and growth-oriented businesses differentiates us from our competitors. We use our knowledge to bring a fresh approach and insight to all our client assignments.

Our areas of expertiseAt BDO we believe that the best advice comes from experts with knowledge in areas relevant to our clients. We have partner-led specialist teams advising in:

Audit –

Tax –

Advisory –

Risk –

Corporate Finance & Recovery –

Consulting Services –

EII Scheme –

Shareholder Advisory Services –

Outsourcing –

Corporate Secretarial –

– Payroll Services

We also have expert sectoral teams with audit, tax and advisory experts offering unique knowledge and credentials in:

Agri-food –

Retail –

Professional services –

Technology, Media & Telecoms (TMT). –

Healthcare –

Hotel, leisure, tourism –

Financial services –

Green energy –

We will continue to tailor our services to the needs of Irish business. To this end we have established a comprehensive client listening programme, using face to face interviews to gather real feedback on our service levels and our understanding. That is why we can say with confidence that what matters to our clients shapes our service to them.All client quotations are from BDO clients taken from BDO’s client feedback programme.

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This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO to discuss these matters in the context of your particular circumstances. BDO, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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Contents and Data included in this document should not be replicated without prior written consent from BDO. All rights reserved.

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Documents

BDO IRELAND Agri Food Opportunities And Insights.2012