Irish agribusiness is in the spotlight. Production volumes across the sector are increasing, trade barriers are coming down and the world’s emerging middle classes, notably in Asia, provide exciting and innovative opportunities for export-led growth. David Meagher, KPMG’s Head of Agribusiness in Ireland, assesses the implications and opportunities for the sector in 2015.
‘Ireland is well placed to meet the challenges of a growing global population with the abolition of dairy quotas at home, but we must not become complacent’, comments Meagher. Growing production volumes alone are no silver bullet in guaranteeing future success and as new markets open up, Irish companies must develop thorough, diverse and well-grounded expansion plans.’
KPMG’s recent annual survey of agribusiness leaders in association with the Irish Farmers Journal (IFJ) shows an impressive return to confidence across the sector, with 98% of senior decision makers expecting growth in 2015 and a further 90% planning to invest in the year ahead. In contrast, just 45% of respondents expected growth when asked in 2013, a clear indication of improving prospects.
According to Meagher, ‘combined with the continued and general improvement in economic sentiment in Ireland, it is clear that the agribusiness sector is preparing to grow on a global scale. For example, the emergence of a technologically-advanced, affluent middle class in developing markets in Asia provides a potentially vast and largely untapped market for Irish exporters, in particular a requirement for high quality protein’.
The dominance of China in this context is hard to avoid. By 2050, more people will live in Asia than in the rest of the world combined, in part driven by China’s population growth, and this is driving change at an unprecedented pace. ‘The opportunity for Ireland is to develop a strong and committed presence in the region, drawing on the experience of export-orientated countries such as Brazil and New Zealand, who have been successful in Asia. However, each Asian market is quite different and presents unique challenges. These economies are highly competitive so Irish companies must be incredibly thorough in developing appropriate expansion plans,’ notes Meagher.
‘The importance of responding to diverse markets that secure sustainable growth for the sector cannot be overstated,’ says Meagher. Developing a broad spectrum of goods for export is essential, and the good news is that Ireland is in pole position. We have the right climate and ecosystem, a great combination of talented and hard-working people, and an innovative approach.’
So what are the key drivers of growth and what does growth and success look like in a changing consumer landscape? KPMG/IFJ survey data shows that 70% of senior decision makers feel that increased consumer demand will be critical; 66% cite R&D and innovation as important drivers of growth; 39% feel that dairy quota abolition will grow their business; 27% see mergers and acquisitions as offering the best growth potential, while, interestingly, 30% suggest that sustainability initiatives will not be important to future development and business growth.
In addition to exploring new markets, the United Kingdom, as Ireland’s closest neighbour and a destination for almost 55% of Irish exported goods annually, is relevant to this opportunity. With a population set to expand by 10 million over the coming decade, the importance of the UK market to Irish agribusiness remains highly significant. ‘While diversification of markets is of critical important to future growth, Irish agribusiness must not neglect traditional markets where demand is also changing and growing exponentially. This includes the UK and in particular, multiples such as Tesco - the biggest corporate buyer of Irish food in the world with €900 million in revenue generated annually,’ says Meagher.
Technology will continue to play a critical role in the food journey from farm to fork and impacts on everything from farm management to in-store selling. New technology is also driving a universal shift in consumer behaviour and with the advent of social media and the subsequent rise of mobile and wearable technologies, consumers hold more power and influence than ever before. Meagher notes: ‘New technology will continue to emerge and challenge traditional consumer purchasing models. We expect to see particular growth in wearable technologies over the coming years, opening up numerous possibilities for the food and drinks sector in general. The smart refrigerator of the future is becoming a reality and soon consumers will be ordering groceries via smartwatch devices. Urbanisation and technology is changing the way we consume food, what we eat, where we buy it and how we buy it.’
Meagher also references scaling – the age-old challenge for Irish business in almost every sector. ‘Scale is significant and the usual challenges apply in terms of getting the pace right, adapting business models to new markets, correctly and accurately predicting consumer tastes. The opportunity for Irish agribusiness with an additional one billion mouths to feed globally is immense.’
Irish agribusinesses need to get into the mind of the consumer and really deliver what consumers want. Change is happening fast and Irish agribusiness is on the cusp of something potentially great. Companies need to set themselves up to be responsive to that change and ensure they are fully equipped to tackle the challenges of internationalisation head on,’ concludes Meagher.