Agri-Food: A Study for Cross-Border Cooperation

Published: September 2011

EXECUTIVE SUMMARY

InterTradeIreland has commissioned a report on the agri-food sector, the objective of which is to identify new cooperative opportunities that can deliver mutually beneficial competitiveness gains  to the industry in Ireland and Northern Ireland.

The report is published in the context of two major strategies for the industry published within the past eighteenth months. [1] Food Harvest, dealing with Ireland, outlines a vision of a sector which, by 2020, is acting intelligently to ‘achieve a competitive critical mass in the international marketplace’. Targeting consumers in new markets, demonstrating innovation, and collaborating with competitors are all part of the way forward. [2] Focus on Food, dealing with Northern Ireland, outlines similar strategic themes for enriching the food industry, namely understanding and developing the market, fostering innovation, managing and improving the supply chain, and establishing an energy and waste theme.

The opening section provides a statistical review which demonstrates the scale, productivity  and significance of the sector both within the island and on a broader international stage.

Sections two, three and four provide an analysis of the current economic environment, consumer trends, government support and international models of collaboration.

The main body of the report concludes, in sections five and six, with a detailed description of the proposed initiatives that have emerged from the study and a summary of these proposals.

Agri-food as a key component of the economy

The agri-food sector is extremely important in both Ireland and Northern Ireland. With operations that span the supply chain, a high proportion of domestically sourced raw materials and a large export market, the sector is a key component of the overall economy. As a consequence, careful planning and support must be in place to ensure that it remains highly competitive in price, quality and service.

Official statistics demonstrate the economic significance of the sector: in Ireland (2009), the agri-food sector accounted for 4.1 per cent of Gross Value Added (GVA), 4.0 per cent of exports and 3.0 per cent of total employment; [3] in Northern Ireland (2009), the sector provided 3.0 per cent of GVA, 16.3 per cent of manufacturing exports and 6.6 per cent of total employment. [4]

An examination of exported goods from the sector indicates that Great Britain is the main export  market for each jurisdiction (44 per cent from Ireland in 2010; [5] 58 per cent for Northern Ireland in 2008 [6]), while cross-border trade in food and drink accounts for approximately a third of all cross- border trade and has increased steadily over recent years, with Northern Ireland generally in surplus. [7]

In addition to the direct contribution made by the sector to the economy, agri-food supports economic development by sourcing a large proportion of raw materials and services locally. In 2009, 67 per cent of input in Ireland was locally sourced, compared with 33 per  cent for other manufacturing sectors. [8] This demonstrates the food and drinks industry’s close links with the primary agriculture sector.

Furthermore, there is a high degree of indigenous ownership within agri-food, with companies considerably more dispersed than other sectors, and therefore in a good position to provide employment and further regional development in rural areas.

Wider challenges and opportunities

On a global level, population growth, climate change, sustainability, biosecurity, the increasing demand for finite resources (water, oil), and the availability of biofuels, will potentially make the sector more vulnerable to market and price volatility. [9]

Within the sector, shifting consumer definitions of nutrition and dietary patterns, CAP reforms, changes in regulation and subsidies, and food security will possibly raise the cost base of the sector. [10]

On a regional level, there is considerable room for development in demand and distribution, offering new opportunities for food and drink companies. These include a market for increasingly sophisticated ingredients, increasing opportunities for the foodservice division, the supply of own-brand goods to retailers and an increasing demand for artisan foods with the possibility of further development through food tourism initiatives. [11]

The increasing popularity of organic goods and farmers’ markets in both Ireland and Northern Ireland demonstrate further opportunities available to small food producers who wish to find new  routes to access consumers.

Challenges posed by the current economic environment

The deterioration of the international economic environment in 2007 created a number of financial effects which have had an impact on agri-food exports from the island. The most notable challenges have included currency volatility, slower consumer spending and reduced access to credit. Exports from Ireland were initially adversely affected by the weakening of sterling against the euro.

However, a considerable proportion of the losses incurred by Ireland in 2009 were recouped in 2010, while the most recent figures for agri-food exports from Northern Ireland (2008) show an increase of 12 per cent. The weakening of sterling against the euro also presented Northern Ireland exporters with opportunities to sell in Eurozone markets.

One of the main challenges facing the sector is the uncertainty of world agricultural markets which makes planning difficult. For example agricultural commodity prices fell by 30 per cent in 2008 with further decreases in 2009, but then rose again in 2010.

While potentially damaging, such fluctuations also carry the possibility of new opportunities. According to recent reports, global demand for food is increasing in the medium to long-term. [12]

There will also be implications for the sector if WTO trade negotiations open agriculture markets,  if this involves reducing import tariffs and market supports as proposed.

Despite the potential for future growth, the industry faces more immediate challenges in areas such as financing and cash flow; government policy/regulations; retail and market pressures/consumer trends; and cost competitiveness. [13]

Consumer and retail trends

In the current economic climate, consumers are feeling the pressure of tighter budgets and have become much more sensitive to price and value. When choosing between products, shoppers continue to place precedence on financial concerns over other influential factors, such as global warming. [14] This anxiety has affected consumer trends, but has also created opportunities in certain market areas where consumers feel they are getting good value for money.

Price awareness is apparent in the growing market share of discount brands and retailers in Ireland (8 per cent) and Northern Ireland (4.1 per cent), and consumers are opting for sales, promotions and retailers’ own-brand labels. Despite cutbacks in the foodservice sector, sales of fast food remain strong due to cost competitiveness and the inclusion of healthier options. [15]

There is however, evidence of growing demands for speciality and premium foods, indicating that consumers are still willing to pay more when they feel higher prices are justified by high quality. [16]

The market for convenience food and prepared meals is also strong, but has become more sophisticated, driven by factors including: population changes; financial uncertainty; health and  well-being; the desire for local, fresh produce; and the focus on reducing waste and energy consumption.

The desire for food that is produced locally is growing in Ireland and Northern Ireland, [17] However, the preference for buying local produce does not undermine the constant necessity to maintain and improve cost competitiveness and should not be used as an excuse for localised campaigns that may not be in the long-term interests of the industry as a whole.

International models of collaborative practice

The report studies a range of internationally recognised food clusters and networks, both regional and cross-regional:

1. Wageningen Food Valley - Netherlands;
2. Øresund Food Network - Denmark/Sweden;
3. Food Cluster Initiative – national clusters from approximately 31 EU countries and regions;
4. European Technology Platform, Food for Life – all EU and some non-EU countries;
5. Baltic Sea Region Food Cluster – Denmark, Sweden, Finland, Baltic Countries, Poland and
6. Germany; and
7. FoodSpot – Netherlands, Belgium and Germany.

Although consideration of these networks and clusters provide useful insight into the success of collaborative groups, it is evident that no singular model can be directly replicated as successful clusters must be founded upon the strengths and needs of their participating organisations or regions. However, the most successful collaborations focus heavily on R&D, innovation and technology transfer mechanisms.

Cross-border development

Reports examining the agri-food sector have highlighted a number of problem areas which cross- border development would address. [18] The benefits of cross-border development would be particularly advantageous to SMEs, which make up a large proportion of the sector’s companies in both jurisdictions. Benefits would include: targeted networking support; increased innovation through development of R&D and access to technology, support and knowledge; the development of food tourism; an improved regulatory environment; and the removal of barriers to trade created by the border.

Broad range of government support agencies

The agri-food sector is supported by a range of agencies offering a variety of programmes and services. In Northern Ireland, the main agencies are Department of Agriculture and Rural Development (DARD), Agri Food and Biosciences Institute (AFBI) and Invest NI; and in Ireland, Enterprise Ireland, Bord Bia and Teagasc. InterTradeIreland and Safefood operate on a cross-border basis, focusing on trade and business development and food safety respectively.

A limited number of initiatives function on a cross-border basis. Invest NI (INI) and Enterprise Ireland (EI), who share market intelligence and Innovation Vouchers plan to develop collaborative programmes further.

A National Competitiveness Council (NCC) report on sectoral competitiveness [19] highlighted the considerable governmental support available in Ireland and stated that further cross-border collaboration would provide greater opportunities for food and drink businesses throughout the island.

Proposed initiatives

Following consideration of the economic trends, sectoral pressures and opportunities for growth discussed above, an extensive list of proposals for cooperative action has been developed on the basis of potential to deliver mutual benefit to agri-food companies in Ireland and Northern Ireland.

These proposals are in line with governmental plans to develop a highly innovative agri-food  sector with a competitive export market, as set out in Food Harvest 2020 (Ireland) and Focus on Food (Northern Ireland).

They have been divided into the following categories: Innovation and R&D; Market Development; Cost Competitiveness; Food Safety; Energy and Waste; and Capability Development.

The proposed initiatives emerging from this research and summarised below, aim to foster cross-border cooperation in areas that can increase the competitiveness of the agri-food sector to mutual benefit.

Proposed Initiatives

Innovation and R&D

1. Take steps to increase awareness and stimulate cross-border proposals under FP7, e.g. workshops and road shows to promote the programme and provide advice to potential applicants.
2. Publicise roadmap of food sector research expertise and use to stimulate collaboration across the island in order to access EU funding streams.
3. Designate centres of excellence to share capacities and technologies across institutions; use roadmap to help define.
4. Consider cross-border application of future major inter-company/research institute R&D projects being supported by state agencies.

Marketing

1. Define and expand ‘food island’ strategy within EU rules; exploit healthy/pure/natural/safe image and sustainability advantages.
2. Review scope for regional cross-border brands to exploit natural advantages and develop food tourism.
3. Develop support systems for small artisan food producers on cross-border basis; benchmark learning to provide evidence-based interventions.
4. Conduct research on consumer trends on island-wide basis where feasible.
5. Deliver appropriate marketing support programmes from development agencies & industry bodies on a cooperative basis; include joint involvement in trade missions & access to overseas offices.

Food Safety

1. Strengthen cross-border collaboration in food safety – training & procedures, contingency planning & rehearsal, traceability and systems (e.g. food residue data base) etc.
2. Develop risk-based sampling strategy with results sharing between millers and compounders, in liaison with regulatory authorities on linkages with statutory sampling.
3. Extend Food & Feed Safety Advisory Forum to have an island-wide role.
4. Investigate feasibility of food testing reference labs on island to reduce dependence on overseas labs.

Energy/Waste

1. Develop cross-border strategy to reduce agri-food carbon footprint.
2. Map waste streams in key food industry subsectors and define initiatives to address.
3. Implement best practice energy/waste/carbon footprint reduction company support programmes by agencies on a cooperative basis.

Cost Competitiveness 

1. Support mechanisms to share capacity in key primary subsectors to achieve internationally competitive scale.
2. Support SME collaboration in procurement, waste, energy, lab testing, logistics, HR, IT, etc; provide scale to encourage services to set up on island.
3. Support the development of schemes to provide SME access to GB and other central markets through shared logistics, channel partners, ‘piggy-back’ with established suppliers, etc.
4. Develop cross-border competitiveness/lean business support programme, building on EI & INI models.

Capability Development

1. Extend proposed EGFSN industry/agency/third level institute forum to address skills, training & development needs of food sector to have a cross-border remit.
2. Continue the development of strategic leadership programme for CEOs/senior management open to suitable food companies from both jurisdictions (similar to EI’s Leadership 4 Growth programme in IT sector).
3. Investigate the development of a cross-border graduate placement programme (incorporate/extend INI Knowledge Transfer Partnership, EI Graduate Placement & IBEC Market Orientation Programme).
4. Coordinate promotion of food as key industry in both jurisdictions to attract quality people from education.

Clearly, further work and discussion between relevant agencies and industry representatives is necessary area that should be prioritised each of the 24 proposals action development.
in terms of mutually effective outcomes. However, the promotional branding of food to exploit ‘off-island’ markets offers clear opportunities for branding Safety and food promotion in non-competitive markets, and is an area for cooperative action that should be prioritised. The fundamental importance R&D and innovation, particularly that which is industrially relevant, to sustained industrial competitiveness is acknowledged in the economic
strategies of both jurisdictions and is another obvious priority for cooperation. 

Furthermore, Food Safety is a critical issue for the industry and a matter which, as has been shown by the dioxins incident, easily transcends borders. Given the progress made to date on Food Safety and the benefits flowing from this cooperation, Food Safety is another area that should be prioritised for further work and action development.

While Market Development, Innovation and Food Safety are three areas of strategic importance, an area of immediate concern for the industry and indeed for industry more generally across the island, is the rising cost of energy. Cooperative discussions to meet this shared challenge could lead to innovative, effective and efficient solutions for the sector.

References

[1] Department of Agriculture, Food and Fisheries (DAFF), Food Harvest 2020: A Vision for Irish agri-food and fisheries (July 2010); Industry Advisory Panel, Focus on Food: A PartnershipStrategy for the Food Industry in Northern Ireland (May 2010).

[2] The forthcoming strategy for 2011-2013 from Enterprise Ireland includes a section on the development of the food industry which is aligned with Food Harvest.

[3] DAFF, Fact Sheet on Irish Agriculture (June 2011).

[4] Department of Agriculture and Rural Development (DARD), Northern Ireland Agri-Food Sector, Key Statistics (July 2011).

[5] Bord Bia, Performance and Prospects 2010-2011 (2011).

[6] DARD Time Series Data (accessed 2010).

[7] InterTradeIreland, A Gravity Model Approach to Estimating the Expected Volume of North-South Trade (2009).

[8] Forfás, Annual Business Survey of Economic Impact 2009 (2010).

[9] Bord Bia, The Future Landscape of Global Food and Drink (2008).

[10] Food Strategy Implementation Partnership, Vision 2020 (2006).

[11] Department of Agriculture and Food, Agrivision 2015 (2004).

[12] ‘World Food’, Financial Times Special Report, 15 October 2010.

[13] Agri Aware, The Irish Agri & Food Industry: Bigger, Brighter, Tougher (September 2009).

[14] Bord Bia, Feeling the Pinch (2008).

[15] Information from Euromonitor International.

[16] Bord Bia, Feeling the Pinch (2008).

[17] Bord Bia, Periscope Consumer Report (2009).

[18] Irish Central Border Area Network (ICBAN), Study of Food Sector in INTERREG Eligible Area (2008); British-Irish Intergovernmental Council, Study on the All-Island Economy (2006).

[19] National Competitiveness Council, Driving Export Growth (2009).