Irish food and drink sector has appetite for disruption

After a difficult H1 Ireland’s food and drink sector is showing evidence of strong optimism on prospects for the future, says Bank of Ireland’s Roisin O’Shea.

Despite a challenging H1 for the food and drink sector, the industry has performed well and is only slightly behind (-1pc January to May) last year.

In her latest H1 review of the Irish Food and Drink sector, Bank of Ireland head of Food & Drink sector Roisin O’Shea said that by the start of 2021 the majority of businesses in the sector had adapted well to the challenges of Covid-19. However, plans to refocus on foodservice sales took a back seat as lockdown continued through to quarter 2 at home and abroad.

“Sustainability is top of mind in the sector – the main focus to date has been around packaging – however increasingly businesses will need to be able to demonstrate a broad climate plan in their engagement with customers”

Progress of the vaccine rollout helped to drive some pipeline to fill export markets in Q2.

Impact on exports

O’Shea reported that the impact on imports and availability of key production inputs has been more pronounced than the impact on exports.

While dairy continues to dominate Ireland’s export profile, there were strong recoveries by Covid-19 affected sectors such as seafood and whiskey.

Looking to H2, all eyes are on the UK’s plans to implement full border controls in January 2022, which will be phased in with Export Health Certificates and pre-boarding notification needed for animal products starting in October 2021. There are fears in the UK around how the shortage of HGV drivers and the impact of Covid-19 on food availability and how these new border controls will exacerbate shortages.

The pandemic has brought sustainability challenges to the fore. Staying ahead on sustainability credentials is seen as a risk by 60pc of Food and Drink Businesses9 surveyed by Bord Bia with 80pc considering it an investment rather than a cost. The focus at present is very much around the twin pillars of carbon and packaging waste reduction, however potential impacts extend to all areas of the food chain including responsible sourcing and biodiversity improvement.

Another area of focus is on new legislation to be tabled in the UK next year around sugars and salts in food that will require manufacturers to calculate a nutrient score for their products.

From an EU perspective, major manufacturers have signed up for a voluntary code (EU Code of Conduct on Responsible Food Business and Marketing Practices) that aims to increase the availability and affordability of healthy food. However, O’Shea warns the code however falls short of defining what a healthy diet means in an EU context and does not cover restrictions on promotions in the same way as the proposed UK legislation.

Adapting to disruption

In conversation with ThinkBusiness, O’Shea said that the food and drink sector adapted well to the disruption of Covid.

“The acceleration of the vaccine rollout has helped with the reopening of the foodservice sector, at home and abroad. The export figures to May show a significant uplift in categories such as seafood and alcohol which had been significantly affected by the shutdown.”

She said that product categories that were associated with retail and with home cooking and that had a long shelf life performed well during Covid. “For example, our mushroom industry had a strong year during Covid and continues to do well. In the latest data, we have seen a strong recovery in sectors such as whiskey and seafood that were very focused on the out of home market.

“Overall exports have performed well (-1% ytd) and industry sentiment is very positive as regards to future prospects.”

At the heart of the matter for food and drinks businesses will be the durability of the supply chain. “We have seen businesses take a very cautious approach to stockholding with a mentality moving to ‘just in case’ instead of ‘just in time’. We know that both Covid and Brexit have caused delays in the supply chain, resulting in businesses carrying more stock. Due the rules of origin clause and customs formalities in the Brexit deal, Britain can no longer act as Ireland’s warehouse. These factors have put pressure on warehouse space and we have seen a number of food businesses invest in warehouse capacity as a result.

“Higher stock holdings have also put pressure on working capital and businesses have turned to flexible sources of finance such as invoice discounting to ensure liquidity.”

Sustainable future

Looking to H2, O’Shea advises firms to reflect on how they’ve rolled with the changes in H1 and fine-tune accordingly.

“Due to Covid and Brexit, many food businesses were focused on adapting in the short term to the new trading reality. Going into H2 2021, I think it’s important to step back and take time to review the organisational learnings as a result of Covid – what elements of adaptation should be retained and what should be discarded.

“Forecasting is a significant challenge as business moves from retail to foodservice, so retaining adaptability and flexibility in the supply chain is important and worth a premium. Brexit has also created significant structural change in the marketplace and food businesses should start to plan for the longer term to take advantages of some of the opportunities it has thrown up.

“Sustainability is top of mind in the sector – the main focus to date has been around packaging – however increasingly businesses will need to be able to demonstrate a broad climate plan in their engagement with customers.

“This will require analysis and careful ongoing data management for their full supply chain and they need to ensure that they are bringing the ‘climate challenge’ lens to any significant decision making processes.

“Finally, we are in a period of significant cost inflation which may lead to consumer price increases or shrinkflation, investment in research to ensure the right strategy for margin recovery for their customers and consumers will be important.”

John Kennedy
Award-winning editor John Kennedy is one of Ireland's most experienced business and technology journalists.