When the Food Harvest 2020 report was published in 2010, the prepared consumer foods (PCF) industry was included within the overall umbrella of the value-added sector, which was given a target of 40% output growth by 2020.

One of the issues for the sector is that under this value-added umbrella, products like infant formula and full-fat milk powders (FFMP) with significant growth potential, were included in the targets for Food Harvest 2020.

As such, the export data outlined below is compiled from figures relating to products within the new PCF category definition, with goods like infant formula, FFMP and milk concentrates excluded.

“A clear definition of the PCF sector was needed to establish a baseline for measurement,” says Shane Dempsey, head of Prepared Consumer Foods at IBEC. Recognising this, the PCF council agreed a proper definition for the sector with its own growth targets.

The new growth targets outlined in the 2025 Agri-Food strategy will be analysed next week.

Exports

In 2007, PCF exports stood at more than €2.25bn, with the latest figures showing exports for 2014 were €2.2bn. While at first glance this may appear steady, there was a significant decline after 2007 due to the global recession.

In 2007, the strongest export categories included food preparations, pizzas or quiches, prepared dairy and meat products, and chocolate.

At the time, the overwhelming majority of PCF products were sold in the UK. Our reliance on our nearest neighbour as an export market was such that almost 75%, or €1.7bn worth of Irish prepared consumer food exports, were sold in the UK.

After the UK, the EU accounted for just over 15% of PCF exports with the remaining 10% destined for international markets like the US, Russia, Africa and the Middle East (see figure 3).

However, as the world fell into the midst of a financial crisis in 2008, the value of PCF exports dropped off significantly before bottoming out at their lowest value in 2009 at €1.81bn.

As the British economy struggled through the recession, the value of the pound depreciated by more than 30% against the euro. Irish exports to the UK were extremely uncompetitive as the average value of the euro against the pound stood just below £0.90, between 2008 and 2011.

According to Dempsey, the depreciation of the sterling resulted in “a fundamental restructuring of the sector as retailers and food companies reduced head count and footprint due to a loss of competitiveness”.

Since 2012, the PCF sector has recovered, with the latest figures indicating that 2014 exports stood at €2.2bn.

Exports of meat preparations have grown considerably and now account for more than a third of exports.

Dairy preparations, chocolate and prepared food also account for a significant proportion, while exports of pizzas/quiches, sugar-based products and biscuits have all declined since 2007.

In a 2009 review, Bord Bia noted that the PCF sector had “a strong dependence on the UK market with consequential currency imbalances” and recommended targeted market diversification.

The sector has somewhat lowered its dependence on the UK since then, with the share of UK exports now down to 68%. Over 17% of exports go to Europe, with almost 15% going to international markets.

PCF exports to Russia had grown to account for 9.3% of total PCF exports in 2013.

Consumer challenges

Aside from the difficulties it caused Irish exports to the UK, the financial crisis also had a significant impact on consumer shopping habits as the recession increased pressure on household budgets.

Food manufacturers were forced to adapt existing products and develop new ones to meet changed consumer shopping requirements.

In the post-recession era, consumers have never been so aware of price point but still want products that are safe, traceable, nutritious and healthy – all considerable challenges for food manufacturers.

The dominance of a small number of large retailers, who control the route to market, is also a major challenge for the sector.

Already in 2015, supermarkets in the UK have been engaged in a bitter price war, with heavy price promotion on everyday food items in a bid to win back market share. This is putting sustained pressure on food manufacturers’ margins.

To tackle these challenges, Dempsey says the sector must diversify so it is more resilient to volatilities like currency depreciation and changing consumer preferences.

As we saw in last week’s PCF article, imports have significantly increased over the past number of years but exports have only recovered to where they were in 2007. This would imply that there was a reduction in output from the sector.

The sector’s reliance on the UK is a concern as we are exposed to currency fluctuations. The more recent growth maybe distorted because of the continuing weakening in the value of the euro and these tailwinds can turn into headwinds.

It is questionable if the Food Harvest 2020 targets for the sector were ambitious enough, or even measurable. It is hoped the 2025 Agri-Food strategy will provide clarity and have the ambition to grow and add real value to the sector.