Editorial: using technology to get closer to the consumer

This week, in association with KPMG, we publish our annual AgriBusiness report. The focus this year is the level of innovation taking place across the agri-food sector and the role of new technologies in disrupting traditional agriculture.

As Ireland advances its export ambitions beyond Europe, it will be critical that the agri-food industry has a full understanding of how new disruptive technologies not only change how we engage with the consumer but also what consumers perceive as value when making food choices.

Speaking at our breakfast briefing to mark the launch of this year’s report, CEO of Kerry Group Edmond Scanlon identified the trend towards consumers being prepared to pay a premium for products that not only taste great, but are perceived as natural, authentic and produced to high food safety standards. It is an area in which the Kerry Group has been hugely successful, with its taste and nutrition business now contributing over 85% of the group profits.

While Irish food exports can demonstrate an ability to deliver across all three of the key premium points demanded by the more affluent consumer, Scanlon identified the need to be more innovative in how we tell our message to the consumer.

One of the standout learnings from last week’s trade mission to China was that mobile technology is revolutionising how Chinese consumers engage in the retail space. Food choices are no longer made by comparing the product offering on the retail shelf but instead using a social media app linked to an almost instant delivery service.

This shift towards an environment where an increasing percentage of food choices are influenced by social media and where transactions are made online presents obvious challenges to how we have traditionally tried to engage consumers. However, with these challenges come the opportunity for primary food producers – with the industry – to form a deeper relationship with the consumer beyond simply the price point.

We should not limit our ambition in this regard – there is no reason why when considering purchasing Irish meat or dairy products, that a Chinese or EU consumer cannot get an interactive insight into our natural grass-based production system along with the nutritional and environmental benefits it delivers.

Of course, the impact of disruptive technologies goes beyond how consumers are purchasing food. The rise of plant-based technologies is having a major impact on the product ranges available.

Also addressing our briefing, Ian Proudfoot, global head of agribusiness with KPMG, outlined a potential scenario where cow’s milk in time could have competition on the shelf with 10 other “milk” products ranging from buffalo to plant-based options.

Interestingly, KPMG suggest the best defence to such a trend is not to try to legislate against these products, as their growing presence in the market reflects consumer demand. Instead, both speakers encouraged a strategy of using new technologies to get closer to the consumer by show-casing the story behind our agri-food exports and demonstrating their natural health benefits, traceability and safety for consumers.

Meanwhile, although new technologies can be disruptive, their development is key to driving innovation. Over the years, innovation in the agri-food sector has taken many different forms. The pioneering of the co-op movement by Sir Horace Plunkett was every bit as innovative in 1894 as the development of autonomous tractors or drone technology in today’s environment.

At farm level, the drive to innovate can be challenged on a number of fronts. The lag phase between investing in innovation and receiving a dividend is difficult in an environment where operating margins are squeezed. As a result, the bulk of innovation coming on to farms has been developed outside the farm gate and therefore the dividend primarily harvested by input suppliers or those further up the supply chain.

The role of organisations such as Teagasc and ICBF is critical in driving innovation on farms, whether it be the continuous delivery of independent and farmer-focused research or in identifying animals with superior genetics across a range of traits. It is important that this model is protected in an environment where there is a growing realisation as to the value of farmers’ data.

Perhaps it is time to go back to the future and in the same vain as Sir Horace Plunkett looked at the co-op model – not with the aim of adding value to farmers’ output but this time setting up a data co-op that gives farmers ownership and control of their aggregated information and allows them harvest any value created.

There have been further musings from the UK on its trading relationship with the EU27 post-Brexit. The notion that it may remain aligned to a customs union with the present trading practices appeals to Irish farmers and agri-food industry.

However, in the face of internal opposition to anything less than a clean break from the EU, the UK minister responsible for farming, Michael Gove, suggested any “backstop” arrangement would only be temporary.

The uncertainty of our future trading relationship with Britain is serious, as we are just 10 months away from the scheduled UK departure. There is a prevailing view in industry that something will be worked out and that a hard Brexit won’t be allowed to happen. This is a dangerous assumption. The issue of the UK leaving the EU has long since ceased being an economic discussion and has moved on to an issue of sovereignty.

Ireland and the other 26 EU countries cannot have the UK decide on a trade policy where an influx of cheaper imports would displace Irish produce in UK supermarkets and catering trade. However, once outside the EU, that is the UK’s decision alone and Ireland and the rest of the EU needs to be prepared.

The Government has put superficial contingency plans in place – at most. All the research in the world and opening of new markets, welcome though they are, will not provide an alternative to the UK as a main export market. With UK-EU negotiations faltering, it is time for Ireland to put its own backstop in place and do so in conjunction with the EU. Ireland has to take the lead on this, simply because no other EU member state nor any other sector has the exposure to Brexit that Irish agriculture has.

Ireland has to take the lead in putting in place contingency plans for a worst-case scenario and enlist the assistance of the EU to restore its traditional support measures. This may not prove popular with the WTO but they will be necessary to address a once-in-a-lifetime issue which will affect the industry for at least a decade. Part of the solution also has to be controlling market access to the EU for sensitive products – particularly beef – in any trade discussions.

A Mercosur deal again looks imminent and we also learned this week that a first formal round of discussions with Australia and New Zealand will take place in Brussels in July. Both are among the top beef and sheepmeat exporters in the world and market access to the EU with a favourable tariff will be a priority for them.

With the threat of Brexit and its impact on Ireland, now is the time for the EU to step back from allowing greater market access and put in place measures in preparation for the worst-case Brexit.

This week, Odile Evans and Pat O’Toole report on family farm income figures for 2017. While positive to see a significant increase of 32%, the reality is that the rising tide did not lift all ships – the increase alone on dairy farms was twice that of the family farm income delivered across almost all other sectors.

The divide in income generating capacity of the dairy sector versus all other sectors is now well established and clearly points to further growth. It is important that farmers continue to plan ahead in this regard and ensure all the pillars, from labour availability to environmental controls, are put in place to ensure the sector is protected.

The upcoming CAP reform and increased flexibility at member state level promised by European Commissioner for Agriculture Phil Hogan provide an opportunity to shape the direction of the lower income sectors.

As Darren Carty reports, one of the country’s most efficient and productive sheep farmers has failed to achieve a gross margin of €1,000/ha compared to an average of €2,856/ha in dairying, albeit with a higher fixed cost system. The discussion on maintaining a diverse agricultural sector – or not – should happen in advance of CAP discussions with future payments shaped around delivering the desired outcome.