This year’s ifac Food and Agribusiness report once again takes the pulse of businesses reliant on farming – either for sales or supplies – and finds that the sector is both optimistic, but also realistic about the pressure it is coming under as economic circumstances change.
Looking at the challenges facing the sector, there appear to be many in 2023 – in fact the report contains the word “challenges” almost 40 times – with inflation, cash flow problems, recruitment and evaporating farm incomes all cited as areas of concern.
The effects of increasing costs can be seen in the financial information on the sector, which shows 63% of businesses increased turnover during the previous 12 months, while only 34% saw an increase in net profit over the period.
It is no wonder then that businesses are doing whatever they can to control spending, with 82% of respondents saying they are pursuing cost savings to deal with inflationary pressure. Half of businesses are implementing price increases as they try to pass the higher costs on to their customers. Much of the rise in turnover during the year has been driven by those price increases, rather than growth in volumes of product sold.
David Leydon, head of food and agribusiness at ifac, said that among the “multiple demands on business owners and leaders” is the “slowdown of the growth in primary agriculture expansion, especially dairying”. He says that the recently announced derogation change and the end of rapid expansion in the sector, will result in a smaller market for suppliers to the dairy sector.
The report is far from all bad news, however. Almost half of businesses surveyed see exporting to new markets as their route to growth, while almost the same proportion see innovating new product or service launches as the way to expand. On the export side, companies see the European Union and the UK as their top destinations. North America is a target for about one in five businesses.
The report contains several case studies which make interesting reading. From Tipperary-based ice-cream producer Boulabán farm, to Pearson Milking Technology, which celebrate its 75th year in business this year, to agritech startup StrongBó, there are common strands in the lessons learned and the advice given. One of the main messages is that any business, at any stage, will always benefit from expert advice. The roles of local enterprise boards, LEADER funding and Enterprise Ireland, as well as sound financial advice, were all highlighted as important to the ongoing success of the companies talked to.
The rise of the importance of environmental, social and governance issues is clearly illustrated by the 87% of businesses actively addressing climate challenges through measures such as sustainable packaging, waste management and investing in energy solutions, such as solar power.
For companies that are looking to raise capital through bank borrowing or from investors, having an ESG policy in place is becoming increasingly important. Banks have their own ESG targets, which means it is easier for them to lend to companies which can show their work in the space. Similarly, investors will often have a mandate to only invest in companies which can show a certain standard of ESG.
This year has been very difficult for Ireland’s food and agri-business sectors, as input price increases squeezed profits. Record-high grocery prices have a silver lining for food businesses, however, as consumers are rediscovering their appreciation for locally produced food and drink – a move which ifac CEO John Donoghue says is helped by the remote working options and behaviour shifts in the wake of the global pandemic.
It does seem, from reading the report, that the biggest challenges are yet to come for many agri-businesses as farming output – particularly in dairying – seems to have already peaked, while farmer spending power has collapsed this year. The ICMSA recently put the fall in dairy farmer incomes for 2023 at approximately €2bn. Losing that spending can only have negative knock-on effects for businesses that sell into that space.
Chart of the week
Oil hit another fresh high for the year this week, as OPEC forecasts strong demand growth, while major suppliers continued to curtail production.