The food and drink industry has gone through an exceptionally disruptive year. However, the true effects of the wholesale changes to the way Ireland trades in the sector are yet to be seen.
Over the last 12 months, doubt and uncertainty has descended on the future of Irish exports. The unexplained elements of Brexit will have massive repercussions on exporting businesses here as the State looks to enter new markets in a bid to ease the fallout.
The lifting of sanctions in Iran has suddenly made the Middle East a far more lucrative place to expand into. The Iranian market boasts 80 million consumers and Enterprise Ireland didn’t leave it long before embarking on a market visit earlier in the year.
Exports remain key for the sector and the latest figures from Enterprise Ireland show they are still going in the right direction, rising 10pc to €20.6bn in 2015.
However, Enterprise Ireland food unit divisional manager Michael Cantwell told the Irish Independent that Brexit remains a major challenge to the industry.
«Brexit is a challenge in terms of the uncertainty it brought, the most immediate of which was the drop in the value of sterling, which has since stabilised.
«The lack of certainty has made planning decisions difficult but investments are being made. We continue to work with our clients on a one-to-one and sectoral basis to help them become more competitive,» he said.
Closer to home, a massive deal at the tail end of the year for Irish produce firm Fyffes came as a major surprise.
The €751m bid from Japanese giant Sumitomo comes in at 37pc higher than the all-time share price high, a major win for investors.
The deal is expected to be wrapped up in the first quarter of next year, bringing the McCann family’s 60 years of ownership ties to a close.
Fyffes, which distributes around 47 million bananas across Europe every year, moved for Canadian mushroom producer Highline Produce earlier in the year for just under €100m and had planned further expansion down the line.
A quiet agm earlier in the year spoke volumes about the levels of satisfaction among shareholders who had seen a €1bn mega-merger with Chiquita fall through a couple of years before.
At the time of the deal, chairman David McCann spoke of «mixed emotions» over the sale of the business, but said it was a compelling proposition.
«Our employees, customers, suppliers and joint venture partners will benefit from Fyffes being part of an enlarged group with greater scale, reach and resources to broaden and accelerate delivery of Fyffes’ strategic objectives,» Mr McCann said earlier this month.
Elsewhere, the meteoric rise of Irish whiskey continued in 2016 as Irish Distillers, Sazerac, and Teeling all moved to boost their share of the rapidly growing sector.
Irish whiskey exports are predicted to double by 2020 and again by 2030.
In May, Irish distillers made the decision to sell Paddy whiskey to US firm Sazerac. The world’s fourth-largest Irish whiskey brand was moved on for an undisclosed fee as the Pernod Ricard subsidiary looked to focus its efforts on Jameson.
In what was the 27th year of consecutive growth, Irish Distillers shipped 5.7 million cases of Jameson. The company also closed the doors at its famous Smithfield distillery for an €11m revamp. It is due to reopen in the new year.
Irish Distillers chief executive Jean Christophe Coutures told the Irish Independent that high tax rates remained an issue during the year. «One area that has the potential to cause a challenge is that Ireland has the third-highest excise rate on spirits in Europe. It is damaging to our reputation that an American tourist can buy a bottle of Jameson in the US for almost half the price of the same bottle in Ireland, the home of Irish whiskey,» he said.
Elsewhere, Dublin-based independent company Teeling Whiskey also enjoyed a strong year of growth and will look to expand even further in 2017.
Its heritage stretches back to 1782, when Walter Teeling set up a craft distiller in the Liberties area in Dublin.
In 2016 it shipped over 750,000 – a long way from the days of Mr Teeling.
The company will continue to exploit its growth market in 2017 too.
Teeling managing director Jack Teeling said Ireland will continue to compete against larger competitors.
«Irish whiskey is competing against bigger whiskey nations such as Scotland, the US and Canada and multi-national brands with deep pockets, so that is always a challenge.
«But Irish whiskey continues to grow in popularity through increased offerings from new smaller independent producers creating a more vibrant category.
«Our main obstacle for growth will be ensuring we have enough human resources supporting our efforts in place to take advantage of the opportunities for our brands in key export markets,» he said.
Meanwhile, it was business as usual in Kilkenny-headquartered nutritional giant Glanbia.
Glanbia was right on track with earnings per share growth of between 8pc and 10pc in the first nine months of the year and is on course to do the same on a full-year basis.
The company’s sports nutrition arm also performed strongly during the year, while a turgid time for dairy farmers began to show some signs of life.
«Glanbia Performance Nutrition continued to be a strong driver of the overall business in the first nine months of 2016, with revenues increasing and recent acquisitions including thinkThin performing well in the period,» chief executive Siobhán Talbot told the Irish Independent.
«We saw some recovery in global dairy markets in the third quarter and we expect that trend to continue slowly into 2017. This will benefit our Glanbia Nutritionals business and our Joint Ventures and Associates segments directly, including our Irish dairy-processing business Glanbia Ingredients Ireland.
«Our Dairy Ireland business has had a satisfactory year in the first nine months. For Glanbia Consumer Products specifically, Christmas is clearly one of the key times for sales with around 300 pots of Avonmore Cream sold every minute during Christmas week.»
Sector-wide the food and drink industry fell on an annualised basis for the first time in over five years. However, analysts are looking towards the next year with renewed optimism.
Goodbody food and drink analyst Jason Molins said the industry moves into 2017 with a robust earnings growth outlook.
«Against this backdrop our top picks in the food space are Kerry and Applegreen, both of which, after the declines in 2016, represent attractive value given their long-term growth potential.
«In beverages, while we believe all stocks will be challenged in 2017, Britvic is our preferred pick given its more modest valuation and international growth potential,» he said.
Britvic, which makes MiWadi and Club Orange, is one of a number of companies keeping a close eye on the looming sugar tax.
Finance minister Michael Noonan announced in October’s Budget that a tax on sugary drinks is on the way and is set to be introduced in 2018.
Speaking in December, Britvic Ireland head Kevin Donnelly feared its introduction could act as a «tax on jobs».
«There needs to be intervention, but we need a balanced approach. One thing isn’t going to solve this,» Mr Donnelly said of the sugar tax.
Among the biggest deals of the year was Greencore’s move for Illinois-based Peacock Foods, a deal which shareholders voted overwhelmingly in favour of.
Patrick Coveney’s business splashed out just under €700m for the company in what was described as a «game changer».
Moving into 2017 a number of major challenges will continue to face the industry. The UK’s exit negotiations will be watched closely as its membership with the single market can decide future wholesale changes to the marketplace.
Prior to the vote Mr Coveney predicted that Britain would leave the EU. He also predicted that it would be «very, very bad for Ireland».
Six months on and we’re still none the wiser as to what it will mean for the country.
Source: Independent
Link: http://www.independent.ie/business/irish/food-and-drink-sector-ready-for-brexit-battle-35328652.html
