Food for thought over Edenderry plant’s fate
While food hit the index hard in November, accounting for 6% in the year to end November 2007, the ESRI reckon it will not be a factor next year.
It noted the increases were particularly high for cereals, bread, and dairy products, and suggested the pace of food-price increases was likely to stay elevated in the coming months.
However, the think tank said this year will see a return to “trend growth” in food prices towards the end of this year, and that the huge surge in some commodities was not a big deal.
That’s true to a point, but if food inflation keeps being ramped up by huge diversification of corn and other commodities into the biofuel furnace, and demand for dairy products stays higher than supply, some repercussions on the broader economy may be flat in the period ahead.
It was quite interesting that the dairy/consumer food group Glanbia made no reference to the possibility or otherwise of its Edenderry pig meat plant being re-opened anytime soon.
At the time it was thought the issue of bringing the plant back into production would be addressed once the group had ensured continuity of supply to clients.
But a full five months on and there was no reference by the group to the plant when it issued its very upbeat trading statement for 2007 yesterday that impressed the markets.
Glanbia has been one of the success stories of the dairy sector, having struggled for a long time to integrate the operations of Avonmore and Waterford Foods after a merger.
Pig-feed prices soared 70% in 2007, and while the impact on inflation may not be enough to exercise the ESRI, it may have done enough to persuade the powers that be in Glanbia that bringing the plant back into production no longer makes economic sense.
Work at the pig-processing plant in Edenderry, which employed 280, has been on hold since a fire.
At the time the company was forced to issue protective notice to its workforce, many of whom are non-Irish nationals.
Production at the factory was transferred to the company’s facility in Roscrea, Co Tipperary, with some staff bussed to work there.
The Irish Farmers’ Association claimed at the time that the company told local politicians that while there were no guarantees the factory would be rebuilt, 60 full-time and 160 part-time staff were redeployed in the group’s plant in Roscrea.
It is believed that no announcement will be made until the group reports its full-year results for 2007 in early March, fuelling market speculation that the decision will be negative.
The reality is that food-price inflation is determining future investment issues, and Irish food companies supplying big multiples will find it increasingly difficult to survive pressure from suppliers to keep prices down as they battle against each other for consumer loyalty.
Dairygold decided to get out of consumer foods for that very reason.
If the impact on inflation may not be a big issue the fallout for Irish food firms looks to be getting quite serious, and Dairygold’s likely exit from consumer foods in Ireland, and Glanbia’s decision on Edenderry, are connected with the rising cost of commodities.
The silver lining is that farmers are for the first time in a decade looking to better incomes thanks to higher global demand. Milk prices are up 30% in the past 12 months and cereal prices have risen by 15%.
The ESRI may be forced to revisit this issue if the price pressure hits harder than it anticipates and unions start to demand higher wages.
