Irish food and beverage producers set to benefit from new EU regime

Irish food and beverage producers set to benefit from new EU regime

Producers of Christmas seasonings, thickeners, bulking agents, sweeteners and flavours formulated by the big food producers such as Glanbia, Ornua and Kerry Foods, were not the target of the new EU regulation released at the end of December.

No, it is the likes of McDonald’s, who buy their ingredients from them, and also the likes of Tesco and Aldi, who are in the crosshairs of the commission.

These giant food chains are increasingly squeezing the smaller producers, making it very difficult for them to grow and scale up to a more competitive size across Europe.

As has been the case so often in the past, the EU has come to the rescue of the smaller food producer and has banned unfair trading practices by supermarket chains and major food wholesalers as well as retailers.

The intention is to stop major supermarkets using their size to bully smaller business in the supply chain.

The move by Brussels comes at a particularly important time for Irish producers who rely heavily on the UK market and are anxious to move away from a Brexit-torn British market.

The perception that the big supermarket chains across Europe would squeeze the smaller supplier in Ireland for upfront hello money, to ensure shelf space, or last minute order cancellations, late payments and threats of retaliation, has been quoted as a prime blocker to entering the markets.

Taking food and beverage exporters on a recent fact-finding mission around supermarkets in the Berlin and Paris regions, was an eye opener for many of the small Irish producers.

The eye-catching packaging, very competitive retail pricing, and vast range of competing products, showed just how difficult the task of entering into these European markets can be.

However, one product caught all our attention. The distinctive packaging of the Flahavan’s porridge oats range was to be seen in a number of French and German stores.

Now, this is not a large multinational, but a small Irish family business started in 1785, which has managed — with iconic packaging and a recipe that appeals to Irish, British and European tasks alike — to expand from humble beginnings into international markets, selling extensively into Europe, the US, Canada, Asia and the Middle East.

There are many Irish products that have, at least, the same potential for export sales into Europe, but brand development will be essential, which does not come cheap.

Flahavan’s built a new plant in 2015 to expand its range into granola and flapjack products. However, not many will have the tenacity to wait 230 years to get market recognition.

Whereas the new EU measures will be helpful in setting a common European framework and granting a minimum level of protection for producers with a turnover of less than €350m, it is not a panacea for lost sales in the British market.

It takes time and money to build up a new market, get to know the buyers and put in place a reliable transport arrangement.

The Brexit Barometer survey of Irish food exporters, carried out by Bord Bia, found that over 32% of respondent companies believe there are viable alternative markets to the UK in other European countries.

However, there seemed to be a lack of awareness that these potential new markets come at a cost.

Like it or not, exporting to other parts of Europe will be more complex, with higher risks than trading into the UK.

Transportation costs are a significant part of the cost of getting food and beverage products into any market.

With limited direct transport to mainland Europe and using the UK as a land bridge to get there, a hard Brexit could cripple the transport route to the market, even for those already in European markets.

Transport costs are very sensitive to volume and type of product. Products such as yoghurts that have temperature requirements and eggs, cheese, meats with shelf life constraint, will push up transportation costs.

The faraway hills look greener, but getting there will require investment and realistic management.

The promise of added state aid in the Government’s recent plan for a hard Brexit could be a key ingredient in getting to those hills.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership.

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