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.
Shawn Pogatchnik
FOOD companies seeking to boost revenue are most likely to launch new products and services in the coming year and least likely to raise prices, according to new research.
The survey by PwC and the non-profit body Love Irish Food found most executives at small and medium-sized food enterprises are optimistic of growth in 2020.
Some 88pc of the approximately 70 executives polled said they expect to grow sales, including 34pc who expect to see more than 10pc gains in revenue next year. By contrast, 10pc expect revenues to remain the same and only 2pc foresee a decline.
When asked to choose what activities beyond organic growth would drive revenue gains next year, 22pc said they would launch new products and services, 19pc would seek operational efficiencies, 15pc would grow new markets, and only 6pc would raise prices.
“The survey highlights evidence of optimism among Irish SMEs around growth into 2020, notwithstanding a difficult trading environment,” said Love Irish Food executive director Kieran Rumley.
“There are considerable challenges in areas such as availability of skills across the board from operational to technical to management.
“This in turn highlights the need for a greater take-up of available apprenticeships in the industry.”
When asked what level of investment they intended to make in 2020 to grow their business, 63pc said under €500,000, 17pc €500,000-€1m, 6pc €1m-€3m, 10pc over €3m and only 4pc nothing.
“It’s encouraging to see that the majority of survey respondents are looking to invest in their companies in the coming year,” Mr Rumley said. “For certain food sectors, this represents a significant growth opportunity, specifically for those import substitution sectors.
“However, behind these positive signals there remains the worrying inability of Irish food producers to recover adequate costs, forcing them to continue to operate on even tighter margins.”
When asked if they had delayed investment because of Brexit-related uncertainties, 31pc said yes, 69pc no.
And the vast majority, 84pc, said they have an environmental sustainability plan in place and will use it to improve green efficiencies in 2020.
Mr Rumley said: “Food companies are taking the sustainability challenge seriously with many planning to invest in initiatives to improve the environment. This, together with the strong regional dispersion of the food industry base, contributes greatly to overall sustainability.”
Irish Independent
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