Sector risks have increased after the Brexit decision, and exporters to the UK have already suffered shrinking margins due to currency volatility.
- Sector risks have increased due to the Brexit decision
- Still good growth opportunities in overseas markets
- Payments take between 30 days and 60 days on average
The export-driven food sector represents Ireland’s most important indigenous industry, employing 50,000 people directly, with 180,000 related jobs in farming and support industries. Ireland continues to be the largest net exporter of dairy ingredients, beef and lamb in the EU, and has recorded increasing demand for its products in 2014 and 2015. Ireland is the largest exporter of powdered infant formula in Europe, currently producing 15% of the total global output. Domestically, the sector benefits from the rebound of the Irish economy and growing consumer confidence.
Irish food exports amounted to EUR 10.8 billion in 2015 and are expected to grow further, reaching EUR 12 billion by 2020. Several of the world’s larger emerging economies are undergoing cultural changes, away from ‘starch-based diets’ to ‘protein based diets’, further fuelling the global demand for Irish food products.
However, the Irish food industry is highly dependent on the British market, which accounts for 40% of food exports. Therefore, exporters to the UK have already suffered shrinking margins due to the Pound Sterling depreciation in the wake of the June 2016 Brexit decision. The Irish food sector will increasingly be exposed to currency volatility and risks in relation with the decision of the UK to leave the EU.
Irish mushroom growers, who export 80% of their output to the UK, have already been negatively affected by the Pound depreciation. Many forward contracts had been negotiated with British retailers in Pound Sterling end of 2015, with the consequence that the Pound depreciation in H2 of 2016 has led to severe losses for many businesses in this segment, even including closures of several companies.
For the Irish dairy subsector the recent abolition of EU milk quotas and sharply decreasing milk prices have led to a short-term decrease in margins and delays in capital expenditure programmes. However, in the long term the lack of quotas is expected to provide new business opportunities for Irish dairy businesses.
Payment duration in the food sector ranges between 30 days and 60 days, depending on the subsector and the customer segment. Payment behaviour in this sector has been very good over the past 12 months. The number of protracted payments, non-payments and insolvency cases is still very low, but an increase cannot be ruled out in the coming months, as downside risks for Irish food exporters to the UK will probably rise in the future.
The sector still suffers from the lack of capital expenditure during the years of recession. While banks still do not provide sufficient loans to the food sector, the situation is improving. That said, Irish bank lending is still relatively conservative, and access to finance can pose problems for smaller food businesses.