Download Consumer Foods Council - Department of Agriculture

CONSUMER FOODS COUNCIL DRAFT SUBMISSION
THE DEPARTMENT OF AGRICULTURE, FISHERIES & FOOD
2020 STRATEGY
April 2010
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BACKGROUND
The Consumer Foods Council (CFC) welcomes the opportunity to contribute to the
Department of Agriculture, Fisheries and Food s Strategy 2020 process. The CFC the
representative body for prepared consumer foods with in Food & Drinks Industry Ireland, the
business sector within IBEC representing the interests of 150 food and beverage companies
across Ireland.
It has over 40 members within its network of associations, drawn from categories such as
processed meats, cereals, bread, convenience food, beverages, seafood, snack-food, and
confectionary, ambient and frozen.
The CFC was established within Food and Drink
Industry Ireland (FDII) in response to the steady proliferation of prepared consumer foods
companies (PCF) in the food and beverage sector over the last 15 years.
GROWTH POTENTIAL
The prepared consumer foods sector could become a wellspring of economic growth for the
food sector. It is highly innovative, focussed on value-added and with strong domestic and
export markets. The sector demonstrates huge potential for growth providing a route to
domestic and international markets for Ireland s agricultural output. The Government must
now seize the opportunity to develop an internationally competitive food sector (export and
domestic) based on food quality and safety whilst sustaining jobs, our culture and national
infrastructure.
Due to our agriculture prominence and our modern and open economy, the foods sector can
play a central role in shaping the type of Irish society that emerges from the current recession.
It s worth noting that the food and beverage sector is one of the only sectors where Irishowned firms exceed exports of those of foreign-owned firms.
For example, a Government decision now to support indigenous food suppliers would create
jobs across Ireland, increase the resilience and diversity of our food supply chain, enhance
our reputation as a sustainable food island internationally, provide economic stimulus for real
agricultural reform. Most importantly, it will create wealth more equally dispersed
throughout the Irish population, unlike the previous technology and property bubbles. In
other words, because of the food sector s linkages into every community in Ireland, it can be
used to shape the sort of Irish economy and society that benefits the Irish citizen.
A coordinated and concerted Government effort to focus our state agencies in terms of
strategy, innovation, training and marketing, on the promotion of the agri-food sector will
shape Irish society for the better for decades.
The Consumer Foods sector has grown rapidly over the last 15 years. Companies have
demonstrated sufficient dynamism to address the consumer s rapidly changing demands.
Global food demand is expected to grow by 50% by 2030 for example. With targeted
support, consumer foods companies are eminently placed to translate Ireland s agricultural
competencies with increasing and changing global food demand through innovative and highquality products.
It s essential that Government refocuses its strategy and relevant state agencies towards the
development of the food supply chain to drive sustainable indigenous-led economic growth.
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BARRIERS TO GROWTH
Currently, there are a number of barriers to growth hampering the sector s growth. These
barriers ensure Irish food companies do not operate on a level playing field vis-à-vis their
competitors. Domestic regulation acts to frustrate growth. A worrying trend has emerged
that sees Ireland adopting international and EU regulation unnecessarily rigidly, setting Irish
companies at a disadvantage. Removing these will release the sector s potential creating
employment and generating economic growth, in addition, to further cementing Ireland s
international reputation as a food island .
Barriers to growth of the consumer foods sector are:
Fragmented government approach to the food sector in general
Business costs such as energy, waste and insurance
The regulatory burden
Imbalance of buying power within the grocery sector where retailers are gatekeepers,
customers and competitors
A lack of a coherent development plan for the consumer foods sector
Susceptibility to currency volatility
A lack of commercially focussed state research for the food sector
Reduced consumer spending due in ROI due to the recession
Overdependence on the UK market and a need for market diversification
A lack of international management experience within the sector
A sector profile comprised of a small number of larger players with a preponderance
of SMEs which reduces overall export potential
Credit availability
STRATEGIC REQUIREMENTS TO ENABLE GROWTH
The Consumer Foods Sector is estimated to have exports valued at 1.5 billon, primarily to
the UK, and to account for nearly 33% of total food and drink industry employment.
However, specific definition and calculation of the sector s impact and potential is
impossible. No definitive figures are currently available. This fundamentally undermines the
creation of a coherent strategy for the sector s development.
What follows are estimated figures based on discussions with Enterprise Ireland, Bord Bia
and IBEC s Economic Policy division.
There are approximately 280 Consumer Foods companies with significant exports
according to Enterprise Ireland
The sector employs 12,000 employees approximately
The sector is a net exporter with nearly 2 billion worth of product exported mainly to
the UK
The lack of definitive statistics reflects the Government s inadequate approach to the
consumer foods sector s development.
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As Consumer Foods companies blend agriculture with innovation, R&D, branding, retail and
the consumer trends, a number of Government Departments and State Agencies with
competing interests and objectives affect their businesses.
The CFC believes that this disjointed approach means there is no holistic Government
strategy that ties the threads of agriculture, enterprise, food safety, environment and
innovation into a coherent development roadmap for the sector that all state agencies and
Departments work from.
This often leads to the creation of regulation by one Government Department that can
negatively impact the food sector s growth trajectory. For example, the Department of
Communications has charged the Broadcasting Authority of Ireland to amend advertising
regulation to prohibit certain food from TV broadcasting. This is to be implemented by the
Broadcasting Authority of Ireland. The Department of Health & Children and the Food
Safety Authority of Ireland have reportedly suggested that Ireland adopts the UK s approach.
This will prevent companies advertising products such as cheddar cheese, cereals,
confectionary, yoghurt and minced beef. These products and others would be classified as
unhealthy using this system. The Department of Agriculture, Fisheries and Food were not
included in initial consultations on this approach.
RECOMMENDATIONS:
The Department of Agriculture, Fisheries and Food should lead a group consisting of Bord
Bia, Enterprise Ireland, Forfas, industry representatives and the CSO to define the statistical
headings of the consumer foods sector. This definition should be used by the CSO and state
agencies to accurately gathering sector specific statistics for the consumer foods sector.
A clearing-house mechanism, co-ordinated by the Department of Taoiseach and involving
senior civil servants from DAF and DETI, senior officials from EI and members of the Agrifood industry should be established. This group should focus on co-ordinating Departmental
responses to strategic agri-food sector issues.
A central objective of this group should be to monitor and measure the implementation of a
sector development strategy across all relevant Departments and state bodies.
Where
appropriate this group should also sense-check proposed legislation and regulation that can
impact on the agri-food sector.
International consultants, working with EI, Bord Bia and members of industry should create a
sector development report for the consumer foods sector. This would outline a blueprint for
state agencies to target funding and support ambitious growth targets, matching the sector s
strengths to global consumer trends. This will identify specific categories in the PCF sector
where state-investment will generate value for money in terms of growth, exports and
employment. This blueprint should also ascertain the required resources state agencies will
require to achieve goals. Particular focus should be paid to identifying potential international
markets and seek to harness Ireland s international embassy, EI and Bord Bia networks.
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ENHANCING THE SECTOR S COMPETIVENESS
Due to the highly competitive and global nature of the Consumer Foods business, PCF
companies are acutely sensitive to increases in business costs. As Consumer Foods
companies require a solid domestic market as a platform for exports, a low-cost domestic
environment is a key success factor for the sector.
Costs must be brought down to below EU averages. Ireland has the fourth highest industrial
electricity price of the EU-27 and is 35.5 percent more expensive than the Euro zone average
Ireland is also the third most expensive country for non-hazardous landfill costs amongst the
countries benchmarked by Forfás in 2009.
Another benefit of reducing costs here makes Ireland an attractive location for international
consumer foods companies to establish marketing operations and European headquarters with
a significant benefit to the Irish economy and international reputation as a food island.
RECOMMENDATIONS
The Irish government, particularly DAF and DETI must engage intensively with the High
Level Group on Agro-Food Competitiveness and the EC Communication: A Better
Functioning Food Supply Chain in Europe to ensure the food and beverage sector s interests
are addressed.
Business lending needs to be resumed as a matter of priority to provide affordable working
capital. To achieve this, a Government backed credit guarantee scheme (widely used in most
OECD countries) must be introduced. The possibility of backing this scheme with the 3
billion credit facility announced as part of the banking restructuring should be examined.
High utility costs in Ireland are damaging the competitiveness of the consumer foods sector.
Recent energy price reductions must continue this year to ensure Irish energy costs are below
competitor economies.
The sector is heavily regulated to protect the reputation of the Irish food and drinks sector. It
is important that regulation does not result in unnecessary additional costs for Irish firms.
Identifying best practice in the application of EU legislation by other member states will help
ensure that the implementation of EU legislation in Ireland does not present a competitive
disadvantage for Irish firms. An analysis of the existing regulatory burden on food
companies should be carried out to eliminate unnecessary regulatory costs.
IRELAND S GROCERY SECTOR: POTENTIAL PLATFORM FOR SECTOR GROWTH
The Irish grocery sector is a domestic platform from which consumer foods companies can
achieve scale and build export potential. However, the sector is malfunctioning. Retailers
have unparalleled buying power with no effective legislative or regulatory counterbalance.
The immediate losers are suppliers. However, primary producers suffer the knock-on effects
of retailers ability to drive down prices and transfer the cost of risks to suppliers. Ultimately,
the consumer will suffer. Irish suppliers will be forced to shut down, destabilizing the
resilience of the food supply chain by concentrating further power with large retailer.
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The EU Commission and many EU member states accept that retail concentration of market
share adversely affects competition in the market resulting in a detrimental impact on
consumers. Ireland has one of the highest levels of retail concentration in the EU at over
70%.
The UK s Office of Fair Trading in 2008 found;
that one of the features that adversely affected competition in the market was the
exercise of buyer power by certain grocery retailers with respect to their suppliers of
groceries, through the adoption of supply chain practices that transfer excessive risk
and unexpected costs to those suppliers.
The net effect of retailer buying power on suppliers is to increase their cost of doing business.
This makes their products less competitive vis-à-vis supermarket own label or imported
brands.
Due to buying power and a lack of proper regulation, suppliers are forced to:
Fund price discounting throughout the year
Absorb the cost of delayed payments of significant amounts over minor queries on
invoice
Make payments to retailers for continuing to stock a product
Give general compensation for any out of stock issues
Contribute towards year-end retailer figures (support)
Fund entirely in-store marketing initiatives with no benefits accruing to the supplier
Meet above inflation increases for display and other promotional costs
Absorb arbitrary year on year increases in LTAs
The grocery trade terms these demands as buyer income. This provides larger retailers with a
competitive advantage over suppliers, (who are their competitors via private label products)
and other retailers.
FDII welcomes the Tanaiste s announcement on the appointment of David Byrne to complete
the draft code of practice and ombudsman regulation and notes the acknowledgement that the
code shouldn t impinge on the commercial dynamics of the sector.
RECOMMENDATIONS:
It s essential that Government puts in place an effective code of practice backed up by an
Ombudsman with the power to impose penalties. The code should govern the relationship
between retailers and suppliers. It should only apply to retailers with a significant turnover,
rather than the entire retail sector to ensure the code is fit for purpose and enforceable. A code
that applies to all stakeholders within the food sector will significantly restrict the dynamics
of the market and impose huge costs on the taxpayer.
The Department of Agriculture, Fisheries and Food should ensure that any code of practice
focuses only on unfair practices that arise as a result of the abuse of retail buying power.
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The Government s final code must establish an ombudsman s office which can proactively
investigate the retailers levels of compliance. They must be empowered to investigate
retailers whilst protecting the anonymity of suppliers.
A review of Irish competition law must be undertaken in relation to the issue of dominance.
The threshold for dominance are completely inadequate to the Irish context. In a relatively
small grocery market with large retailers and a high concentration of buying power, a 35%
market share threshold is inadequate. In addition, due to the Irish population dispersion, the
impact of large retailer in a certain area can result in local dominance. Left unchecked this
can fundamentally alter the shape of towns and villages across Ireland. The social impact of
this creeping dominance threatens to alter communities across Ireland in the next 20 years.
REDUCING THE COST OF THE REGULATORY BURDEN ON CONSUMER FOODS COMPANIES
The consumer foods sector is heavily burdened by cost of compliance with national and EU
regulation. The cost of the complexity of compliance to, even, domestic regulation, is
unnecessarily high. EU regulations are increasing rapidly and are both specialised and
complex. The opportunity cost of the excessive number of prescriptive controls on the sector
is investment in branding, new product development (NPD). Regulation places large
additional costs on product development. The sector has a large number of SMEs who are
disproportionally affected by regulation. Government Departments should more closely
follow the Better Regulation guidelines as set out by the Department of Taoiseach in 2005.
This would ensure better co-ordination through more effective analysis of the impact of
proposed regulation.
The industry has been challenged by a number of food safety events over recent years most
notably the pigment recall in 2008. These incidents have demonstrated that the Irish food
industry has effective food safety control systems in place. It is also clear that the food chain
is only as secure as its weakest link and there is a need to deploy the resources of the official
agencies to ensure that they are delivering maximum protection to public health and to the
reputation of the Irish industry.
RECOMMENDATIONS:
There is a need for better quality regulation with improved regulatory impact assessments
including a proper cost benefit analysis across the sector. A detailed cost benefit analysis
should consider costs in Ireland compared to our global competitors.
There is a lack of consistency in enforcement which must be addressed to allow a level
playing pitch for all competitors.
As part of the European Union, a harmonised approach should be the preferred option for
regulation rather than the introduction of national rules.
Risk categorisation along all the food chain should be further developed so as to ensure that
the level, and intensity, of food safety controls are proportionate to the risk associated with
the food and feed being produced.
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A Food & Feed Safety Advisory Forum involving both industry and regulators should be
established to share information on emerging risks. Risks identified in international fora
should be fully taken account of and subject to regular review with industry.
Coherent communication from FSAI/ DAFF to ensure that regulations are being enforced
fairly and equally is essential. If necessary both should advocate more strongly in cases
where EHOs have interpreted the legislation incorrectly. Clear guidance must be given to
EHOs to remove interpretation variance amongst this group.
SUPPORT IRISH CONSUMER FOODS COMPANIES IN BUILDING BRAND RECOGNITION
Strong brands are a key characteristic of consumer foods companies. Significant investment
is required to build recognition and trust amongst consumers, particularly in foreign markets.
It s vital that consumer foods companies are supported in building brands and establishing
trust with consumers.
Consumer foods companies recognise the importance of providing the consumer with
accurate information. Using product labels to inform consumers about the contents and
appropriate usage of a given product is a highly effective and targeted communication
strategy.
Due to concerns about obesity and marketing to children, food and beverage companies have
dramatically changed how they market and advertise their products. Most of these changes
have been as a result of the introduction of voluntary self-regulatory advertising and
marketing codes, combined with the codes of the Broadcasting Commission of Ireland.
Taken together, these voluntary and statutory codes put in place some of the toughest
restrictions on advertising in the world. The results have been unequivocal, with a dramatic
drop in the rate of advertising for foods and drinks that are high in fat, sugar and/or salt
(HFSS) during children s programming on indigenous broadcast media observed over the
past six years. Advertising for HFSS products now accounts for as little as 7% of all ads
shown during children s programming on indigenous broadcast media.
RECOMMENDATIONS:
A science-based approach to regulation of advertising of food in general and to children in
particular is required in Ireland. An ill-conceived advertising regulation in Ireland is likely to
be ineffective in tackling obesity, cause an increase the cost of advertising, put Irish
companies at a disadvantage and deplete revenue for broadcasters and advertisers alike.
Current indications that the Broadcasting Authority of Ireland will adopt the Ofcom s nutrient
profile model to classify food are worrying. This model will classify food products as
healthy or unhealthy
this has the potential to negative impact on certain consumer s
perception of products. For example, dairy products such as cheese will be banned from
advertising if this system is adopted. The BAI and relevant authorities must engage with
industry to create a regulatory model suitable to the Irish context and population health
profile.
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Country of Origin labelling should not be imposed on consumer foods products due to the
complexity of sourcing of ingredients from multiple international locations. A harmonised
EU-wide approach to COU should be sought by DAF.
The Department of Agriculture, Fisheries and Food should seek to influence Government and
EU policy to ensure that GDA labelling is adopted across the EU.
Bord Bia should be tasked with establishing research partnerships with relevant sectors of
Ireland s third level institutions to expand the scope and scale of its research into consumer
trends, product innovations and brand development.
DRIVING R&D AND INNOVATION IN THE SECTOR
Innovation in products, packaging, processing and food safety are critical in developing trust
in consumer foods brands and represent a real route to competitive advantage. More
industry involvement in the creation of state-sponsored research agenda is to be welcomed.
Focussing third level institutions research resources on food related research through
incentives is an essential step in positioning the agri-food sector within the SMART
economy.
Recent trends such as the phenomenal interest in health and wellness, a strong focus on value
and increasing awareness of origin, nutrition labeling and sustainability provide opportunities
for innovative companies. However, adverse economic conditions, including the retail
environment, dissuade consumer foods companies from significant investment in innovation.
RECOMMENDATIONS
More consumer focussed initiatives, embedded in the sector development strategy, to support
companies in idea generation, validation and concept testing are required across more
consumer foods categories are required.
The Department of Agriculture, Fisheries and Food must make a strong economic case for
continued funding of food and drink sector R&D in light of budgetary constraints and the
consolidation of all SSTI funding through the Department of Enterprise, Trade and
Innovation.
The approach to public research should be updated to place Ireland at the cutting edge of
applicable research, ensuring that researchers and industry work side by side to the benefit of
Ireland Inc while achieving value for money for funding providers. Significant funding
should be allocated to industry-directed collaborative research in commercially focused areas.
With both consumers and regulators seeking an ongoing rebalancing of nutrient profiles in
the foods being produced, government support must be provided to companies in overcoming
inherent technical hurdles.
Enterprise Ireland s movement to create a Leadership for Growth programme for the food
sector is to be welcomed in relation to increasing the levels of international experience and
ambition in the sector.
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CONCLUSIONS
Ireland has to the potential to become a global leader in consumer foods. Companies within
the sector are export-focussed, innovative and dynamic.
However, a number of challenges face the sector acting as barriers to growth. These have the
potential to significantly limit the sector s growth trajectory.
Key among these is the lack of a coherent sector development strategy. This is a symptom of
the myriad agencies and departments with responsibility for aspects of the food industry. This
submission calls on the Department to help coordinate a joined up interdepartmental
mechanism to address the entirety of the sector. Building on this, state agencies EI and Bord
Bia, in conjunction with industry and international experts, a sector development strategy
should be created to provide Government with a coordination framework for the consumer
foods sector.
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