Ciaran Fitzgerald: Will the government support Irish agri-business in the long-term?

Brexit, post Covid-19 public health issues, climate change compliance and an economic recession mean plenty of challenges for the Irish economy. Are we all in it for the long haul?

Farming and food production are the ultimate in long-term businesses.

This is not just because of the multiannual life cycle in the case of livestock and dairy farms but also because of the relatively high cost of investment in land and in processing facilities against a low long-time rate of return.

One of the drivers of this long-term low rate of return on investment in the agri-food sector is the price and income volatility unique to farming and food processing, due to variable climate impacts and surges in supply and demand and ultimately the absence of selling power at producer and processing level.

Changing consumer demand

Clearly, we live in times of great global uncertainty and in the agri-food sector – a time of increasing volatility and increasing sophistication of evolving consumer demand .

Consumer demand mega trends, in reality, require increasing investment in on-farm compliance / regulation thus adding cost, while also requiring substantial investment in value-added processing capability, flexibility and market diversification capability which, likewise, adds cost.

And while there is much talk about new ways of doing business and business model resets, there is absolutely no sign that dominant food retailers will respond to this ‘paradigm shift’ by reflecting increased producer / processor regulatory costs in their pricing policy, and in particular no sign of them ceasing and desisting from selling below cost or using fresh products or emerging brands as loss leaders.

What Irish farmers and food processors need to know in order to maintain and sustain the substantial investments required to meet the evolving global requirements of sustainable food production, is that above all, the Irish government understands the unique economic impact of the Irish agri-sector and is also in the business of long-term industrial development and sustained Irish economy growth.

Challenges for agri-business

The very real concern frankly, of the Irish agri-business sector ‘from farm to fork’ is not simply the enormity of the challenges represented by the combined impacts of:

The Covid-19 pandemic;
The impending Brexit of Ireland’s nearest neighbour and biggest trading partner from the EU;
The huge challenge of balancing Irish agriculture’s unique economic impact while improving regulatory and environmental compliance.

The core concern is the re-emergence of lazy thinking that suggests, as in the years from 2004 to 2008, that Irish agriculture is a ‘sunset industry’ and should be ignored or even constrained!

The driving force behind this ideological antipathy to the agri-sector at that time, supported by the same mainstream media that now scream about climate change, was a proposition that the unrivalled certainty of global economic development meant inevitably that Ireland should get out of agri-food production and leave it to countries such as Brazil, who had a natural economic advantage to become the low-cost food basket of the world.

Unfortunately, this deeply flawed simplistic ideology was not properly challenged and as a result, Irish governments in this period supported a World Trade Organisation (WTO) Doha trade deal that would have totally undermined the Irish beef sector and severely impacted the dairy sector until the Doha round talks collapsed in 2007/2008.

Ban on below cost selling

In 2006 the Irish government abolished the ‘Groceries Order’, which had banned below-cost selling and the requirement that food suppliers would pay hello money to supermarket retailers, in the name of embracing free markets and consumer choice.

Interestingly, one of the main pieces of evidence supporting abolition of the Groceries Order was that in 2002 to 2005, Irish grocery prices were 20% higher than average in the EU. Eurostat figures for 2019 show that this is still the case.

My point here is not just that any of us can be wrong about the evolution of future events, but that unfortunately governments can be swayed by media promotion of the prevailing ideology of the day and be persuaded to undermine or fail to protect substantial long-term economic impacts and in particular, long-term economic investment.

Irish policy for agri-business

In this context the success of Ireland’s aggressive and impressive inward investment policy provides a strong point of reference.

The key pillars of this success in my opinion are longevity and substance of support.

The policy of focusing on incentivising multinational companies to set up business in Ireland pre-dates joining the EU in the 1970s.

Indeed it can be argued that the broad framework of this ‘open economy – open for business approach’ was developed under the stewardship of TK Whitaker in the 1960s.

Ireland’s unique selling point (USP) is therefore:

Not just the insight / realisation that encouraging global, and in particular US-based, companies to set up here has worked;
Nor that the parallel insight that inward investment support was much more likely to be successful than attempting to replicate emerging trends by funding Irish ‘copycat’ enterprises through protective import tariffs;
The overwhelming reason for the success of this major pillar of Irelands industrial development policy is that it has remained in place over a 60 year period despite many changes of government and EU policy challenges, thus giving clarity and security to long-term investment and job creation.

The Irish agri-food sector, perhaps even more so than the multinational inward investment companies, is in it for the long-term.

Moreover, as the chart below – which measures Irish economy spend by economic sector – shows, spending by the food and drink sector is approximately five times the level of Irish economy expenditure any of the multinational sectors.