Inflationary pressures impact Irish food and drink sector

Costs of Brexit, Covid and supply chain constraints are all adding up and putting pressure on Irish food and drinks businesses.

Irish food and drink businesses are experiencing inflationary pressures across most cost headings due to a combination of macro external factors including Brexit, Covid, supply chain constraints and raw material costs, according to Ibec group Food Drink Ireland (FDI).

FDI surveyed member companies in July to assess the extent and impact of input cost increases.

“Brexit has added significantly to trading costs including transport and logistics and additional administration both for trade with the UK but also for trade with the EU using the land-bridge”

The survey found that the majority of food and drink companies experienced substantial increases across a range of inputs over the last 12 months.

Macro external factors

Cost increase over last 12 months by input 20% or greater increase 10 – 20% increase 5 – 10% increase 0 – 5% increase No increase Decrease Total
Raw materials 15% 40% 26% 11% 4% 4% 100%
Energy 22% 41% 19% 11% 7% 0% 100%
Packaging 11% 44% 22% 19% 4% 0% 100%
Transport/Shipping 26% 23% 30% 15% 6% 0% 100%
Insurance 15% 15% 12% 38% 20% 0% 100%

15pc of food and drinks businesses saw an increase of more than 20pc in the cost of raw materials while 22pc saw energy costs rise by more than 20pc.

11pc of businesses saw packaging costs rise by more than 20pc, 26pc saw transport and shipping costs rise by more than 20pc and 15pc saw their insurance costs rise by more than 20pc.

Lower but still significant increases were experienced for other inputs including 37pc experiencing 5pc to 20pc cost increases for water/wastewater and 30pc experiencing 5-20pc cost increases for labour.

Respondents were very clear in the main factors they attributed the input costs to:

  • 100pc considered Brexit very relevant or relevant
  • 96pc considered Covid impacts very relevant or relevant
  • 96pc considered global supply chain constraints very relevant or relevant
  • 81pc considered domestic supply chain constraints very relevant or relevant
  • 78pc considered raw material inputs very relevant or relevant

Paul Kelly, FDI director said all businesses operating throughout the Covid pandemic have had to make significant investments to adjust operations in line with public health guidelines.

“Brexit has added significantly to trading costs including transport and logistics and additional administration both for trade with the UK but also for trade with the EU using the land-bridge.

“Transport costs have also been affected by the major driver shortage impacting that sector and for international business, the cost of freight containers has exploded since the beginning of the year.

“Food businesses are also identifying strong increases in utility costs, in particular energy and also in packaging.”

Kelly respondents expected a continuation of inflationary trends in the months ahead and that this would impact on margins and competitiveness in export markets.

He called for a range of measures to offset these impacts including:

  • A rapid roll out to the sector of funding from the Brexit Adjustment Reserve.
  • A renewed focus across Government on reducing the cost of doing business in Ireland.

By John Kennedy (john.kennedy3@boi.com)

Published: 6 August 2021

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