Tuesday, December 03, 2019 – 05:30 AM
By Geoff Percival
Almost a third of Irish food sector SMEs have delayed investment decisions over the past three years due to Brexit uncertainty.
Research from PwC shows that 31% of food-related SMEs have stalled investment since the 2016 Brexit referendum in the UK, with areas like production capacity, operational resources innovation and marketing particularly hit.
The research also shows that skills shortages, potential trade tariffs; operational costs such as energy, insurance and rates; volatile commodity prices and embracing the sustainability agenda are holding back company growth.
Overall, however, PwC’s latest food sector review found an optimistic outlook; with 96% of food-related SMEs having capital investment plans in place for 2020 and 88% expecting to generate revenue growth next year. Of those with spending plans, 10% said theirs would amount to in excess of €3m.
With few companies expecting to achieve price increases, margin improvements are set to be derived from advances in technology and operational efficiencies.
“The UK will exit the EU at some point and that will give rise to new opportunities for manufacturing food products in Ireland that may have been supplied from the UK,” according to PwC’s Grace McCullen.
However, while business growth is expected to continue into 2020, a softening in the wider economy is anticipated.
Only 16% of food SMEs feel that the Irish economy will grow further in 2020, with as much as 34% forecasting a decline.
PwC said the majority of food SMEs are focused on Ireland for growth and see expansion into export markets as an area for potential development.
However, a Government official has said Irish SMEs — across all sectors — have underperformed in terms of exporting, with only just over 6% currently doing any business overseas.
“We do not have enough SMEs exporting, but we are looking to get that to 9% within five years,” said Eoghan Richardson of the SME and entrepreneurship policy unit of the Department of Business, Enterprise and Innovation.
Speaking at a regional enterprise conference in Kells, Co Meath, Mr Richardson said internationalisation is one of the big issues for the SME sector, but acknowledged access to funding remains a constraint.
On the same theme, Enterprise Ireland’s regional director for the mid-east and midlands Michael Brougham said: “Companies need to consider really ambitious projects of a pan-European scale — significant global projects. And the other people who need to think about the ambition level are ourselves, the funders, because the maximum you can get at the moment is €5m.”
While smaller companies may still find it difficult accessing finance, Cork-based international dairy, ingredients and flavours business Carbery Group has landed a €78m loan from the European Investment Bank (EIB) to fund its expansion and diversification efforts.
Carbery will use the loan, which has a 12-year repayment deadline, to diversify its range of cheeses and produce mozzarella for export to a number of countries.
It marks the first time the EIB has supported investment in the Irish co-operative sector in 45 years and the first Irish investment under its dedicated agriculture financing programme.
That Carbery has secured the first ever European Investment Bank financing for an Irish agri-foods business is a vote of confidence in Carbery and Irish agriculture,” said Carbery Group chief executive Jason Hawkins.
Cost increases being experienced by firms have yet to be passed onto consumers but they will likely make their way through in time
Small and medium sized food companies in Ireland are being hit with input cost rises of almost 30%, according to research from the representative group Love Irish Food.
Companies said costs were rising across the board, but the most significant hikes were being experienced in the areas of transportation, followed by raw materials and energy prices.
The increases in transport prices related mainly to the cost of exporting goods, but the cost of transporting within Ireland also increased.
Companies reported that their insurance costs have been rising, but to a lesser extent that the other categories.
Three quarters of companies surveyed by Love Irish Food attributed the cost increases to supply chain issues arising from the pandemic.
Other key contributing factors included Brexit, and increased worldwide demand.
Those cost increases are likely to make their way through to the prices that consumers pay for their food.
However, although consumer price inflation is running at in excess of 5% in Ireland, according to the latest CSO figures, food prices increased at a more muted rate of 0.6% year-on-year in October.
The bulk of the inflation in the wider economy is accounted for by rising energy and fuel prices.
Food companies are also concerned about the impact of labour shortages across the wider economy.
Four out of five SMEs surveyed by Love Irish Food said they anticipated challenges in recruiting qualified and trained staff next year.
A similar proportion expect that retaining current staff will be a challenge.
Many companies report that they are having to prioritise core ranges of goods in an effort to offset labour problems.
“The twin challenges of rising input costs and significant labour shortages have the potential to cause serious disruption on the food and drink industry in 2022,” Kieran Rumley, Executive Director of Love Irish Food said.
“The global pandemic and Brexit have made the issues facing the sector acute, with many now having to consider range rationalisation to offset labour challenges and decrease costs,” he added.