Icsa submission on 2020 Strategy March 2010 Further Details

The low price achieved by Irish farmers is a function of:

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  overall difficulties relating to commodity prices in general,
  
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  the oligopoly style dominance of the food supply chain by large retailers,
  
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  manipulation of the supply chain by a limited number of dominant processors,
  
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  poor marketing of our key attributes and a reliance on selling at below our competitors.
  

Even though commodity prices have seen a worldwide drop in 2009, it is the case that, in relative terms, Irish farmers fare even worse. Ireland performs extremely poorly in terms of the price achieved at farm-gate level. The cattle representative price (R3) for Ireland is the worst of the EU-15, and is also lower than several of the EU-12 states (Czech republic, Slovakia, Slovenia) and is well below the EU-27 weighted average.¹

Therefore, it is our contention that the predominant focus must be on getting higher product prices, while also examining ways of delivering diversified revenue streams for farmers. Ideally, this could be part of wider economic recovery strategy in which the synergies between agriculture and other sectors such as tourism, energy and leisure could be optimised. We suggest that this strategy should be designed to complement the green smart economy approach already outlined by government and that considerable emphasis is given to ensure a unity of purpose and that the strategy is coherent and consistent.
Under such a strategy, every farm and every major farm product would have multiple market options. All ages and grades of livestock would be exported live as well as processed in Ireland. As much as possible, Irish food products would achieve the highest prices in Europe by going through premium retail channels, by being recognised and unique, by capturing and exploiting market and consumer trends regardless of how faddish such trends might appear, and by ensuring that companies were not all competing in the same crowded markets.
It would be vital that the farmer gets a better and more sustainable share of the final retail price. While we might like to hope that this would happen automatically, the reality is that the Irish farmer must have unique selling points that cannot be easily replicated by our competitors and such selling points must be a part of brand Ireland, part of our international reputation such that even Irish processors could not conceive of replacing the Irish farmer’s product with a cheaper non-Irish product. This will require a consistent branding of what Irish agriculture is about, but moreover, this will have to be backed up by the ability to verify that it is what it is, that it is certified, labelled, quality assured and that it lives up to its promise every time.
Public procurement should be carefully managed to respect EU regulations while at the same time putting in place higher standards for the food consumed in state controlled canteens. Procurement policy for example should favour a minimum amount of organic and/ or sustainably produced food. Procurement contracts should be developed to afford an opportunity for smaller scale, local processors and suppliers to compete.

In addition, to ensure that farmers have more sway, there must be an option for every animal to be exported live to multiple different markets and the regulatory framework must not just facilitate this but government should ensure that such exports are positively encouraged.

If such an approach was adopted, then key debates have to be resolved.

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  Do we want to try to compete at the bottom of the barrel as the lowest cost producer and by extension, the receiver of the lowest product prices?
  
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  Do we want to distinguish our products from the commodity products of Brazil or are we happy to compete with them?
  
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  Are we happy to continue with generic commodity promotion or do we have greater ambition to add value, to target niches, to certify and label our differences and strengths, to move up the value chain, to build brands and above all to brand Ireland?
  
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  Do we really believe that we are the clean, green food island or is that just guff?
  
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  Do we think that the problem of cattle farm incomes can be resolved by cheaper cereals and if so, what happens to our tillage farmers?
  
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  Is there any way to avoid Irish companies undercutting each other on international and domestic markets?
  
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  Are we happy to allow retailing giants to continue to abuse their dominant position?
  

8. Consumer Wants
ICSA believes that the answers to the questions raised in the last sector demand that we must build a strategy based on achieving better prices for higher quality products, destined to be sold in the best outlets to the most discerning consumers.
In order for this to happen, we need a plan to market our agri-food exports, based on a coherent and consistent understanding of what Irish food is about. In essence, we must decide on what are the consumer concerns of the 21^st century that will determine the success of the sector.

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  We need to define in a comprehensive and meaningful way what is meant by the clean, green food island, and whether or not this has any relevance to the image of our food that we would like to convey. This means making our mind up on key choices- is Ireland about family farms or industrialised farming? Is the world’s greenest dairyland now redundant? Is Ireland about cheap food or superior quality food? Do the choices we make have implications for the way we in which we develop our tourism product?
  
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  Brand Ireland needs to be developed. We are falling behind the likes of New Zealand and Australia who are actively moving to emphasise pasture based farming, low carbon foot-print and animal welfare. We need to quickly move to a labelling and certification based development of the image/ brand Ireland. The ability to accurately measure carbon footprint of key farm products is an urgent task without which we may lose ground in terms of competing for key markets.
  
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  We need to extract maximum value from our predominantly grass based, free-range production in dairy, beef and lamb in terms of marketing. For some ten years now, we know from Teagasc research that grass-fed beef is high in conjugated linoleic acids, which have important anti-cancer and heart-disease properties. In the USA, nutrition & fitness experts extol the superiority of grass fed beef and dairy products over cereal reared. Yet this information sits redundant in the National Food Centre.
  
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  We need to be cognisant of trends on GM labelling. Even the discount supermarkets (i.e. Aldi/ Lidl) are moving in this direction and the Landliebe label, developed by Friesland-Campina in Germany is based on GM free production and delivers a milk price of 40c/l to its farmers. Consumer resistance to GM remains strong in our key export markets such as Italy, France and the UK. According to the Nielson company, GM free was the fastest growing health and wellness claim among store brands in the USA in 2009.
  
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  We should not rush into growing GM crops in Ireland because this would close a lot of options in terms of green image, organic farming and may hinder efforts to promote Irish food in markets such as Italy.
  
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  The EU Commission consultation on Food Quality is indicative of the trend towards highlighting quality advantages or differentiation. The key essential is that the success of a country’s agri-food sector will be defined by the extent to which it can capture the mood of the consumer through labels, which identify its unique selling points. Marketing standards need to be established and utilised.
  
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  This means that it will be necessary to develop voluntary, credible certification systems that can verify quality, environmental, ethical and social sustainability. Success will mean reassuring consumers about animal welfare, production methods such as GM free, free range, grass fed and/or organic and all the while having impeccable food safety standards.
  
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  ICSA believes this is the critical challenge for Ireland and that we must prioritise this instead of fooling ourselves that we can somehow become even more cost-competitive. Being as cost competitive as possible is an essential, being the lowest cost producer on a global level is an impossibility. Therefore we need to follow the examples of producers in countries like France (e.g. Label Rouge) and Italy (e.g Emilia Romagna region) rather than fixating on replicating low-cost, large scale industrial scale agriculture carried out in Brazil and Argentina.
  

9. Marketing
If we can resolve how it is that the agri-food sector is going to position itself to respond to the consumer concerns of the 21^st century, then we can begin to plan how to market. We also need to decide where to market. This decision needs to take account of trends in trade and economic issues, such as currency fluctuations.
The Irish agri-food sector is highly export oriented, being over 200% self-sufficient in meat and over 1000% self –sufficient in butter. In 2008, exports from the total agri sector reached some €8.9 billion, accounting for about 10% of all exports from the economy. Moreover, these exports are of particular intrinsic benefit to the economy being largely driven by Irish based and controlled companies, having a low import content, being unaffected by the phenomenon of profit repatriation or transfer pricing and with the benefits being widely dispersed across the regions.
However, in 2009 the value of exports fell by over €1 billion. This was clearly a reflection of the global recession but it is also very much affected by the devaluation of sterling against the euro.
The strategy has been to move away from third country exports in favour of maximising penetration of the EU markets. This has been achieved to a large extent. Food and Drink exports for 2008 saw 45% go to the UK, 32% to continental Europe and 23% to international markets. The move away from international markets has been most pronounced in the beef sector where in 2009, 245,000 tons were exported to the UK, 214,000 tons to continental Europe and just 2000 tons went to international markets. (Bord Bia Review & Outlook 2009/2010).
However, within these figures are grounds for alarm. The volume of beef exports to the UK fell by 6% without a corresponding increase in continental EU exports. Overall export values for the agri-food sector is down over €1 billion in 2009. Exports from the agri-food sector were worth €6.3 billion in 1999 and the 2008 figure of €8 billion has slipped back to €7 billion for 2009, suggesting that the sector has been more static than desirable in terms of increased output and value.

The Strategy

Ireland should develop an integrated plan to market its food and drink exports, as well as develop its tourism offering, all based on the concept of a clean, green food island. Under this strategy, Ireland would be a tourist destination of choice for walking, countryside recreations and pursuits and high end gastronomy.

The agriculture 2020 strategy should be co-ordinated with a strategy for tourism. Ireland has done poorly on tourism in the first decade of the new century with visitor numbers static. While we have concentrated on tax breaks for hotels, we now find that we have 12,000 too many bedrooms! Meanwhile, the future of airports such as Shannon are in doubt as the major airlines are rapidly withdrawing services.
In our view, the belief that we need to reduce hotel capacity is a wrong approach. Instead, the target should be to increase visitor numbers, by taking advantage of the fact that our surplus hotel capacity now means that we have very competitive rates for accommodation.
From an agriculture perspective, increased tourist numbers from target markets provides an opportunity to introduce them to Ireland- the food island. Tourists who leave Ireland with a favourable impression of our agriculture, our food and our environment form a potentially receptive export market for branded Irish food products. The approach of Austria should be studied where many farm families benefit from tourism and the combination of tourism and farming provides a very real alternative to the stresses of the Irish model for smaller holdings, of part-time farming with a job away from the farm.

Recommendations

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  Overall strategy should be to reduce dependence on the UK export market, as there is a considerable risk that the current unfavourable currency exchange rate between sterling and the euro will persist.
  
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  We need to plan for greater penetration of niche EU markets and to understand what will be required in terms of consumer needs in countries such as Italy, Scandinavia etc.
  
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  New emerging markets in Asia must be focused on. Some signs of success can be discerned from the fact that the government target for Asia of €400 million was reached two years ahead of time. The relentless economic growth of China cannot be ignored and the likelihood of an upward appreciation of the renminbi (Financial Times) means that this market will become all the more attractive.
  
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  Islamic markets cannot be ignored either. They are important in terms of sheepmeat and North African countries have been important customers for Irish cattle and beef.
  
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  Appropriate levels of funding need to be put in place not only for the state agencies such as Bord Bia but also to food companies and processors that are willing to invest in more ambitious marketing strategies that will deliver higher prices to farmers, based on developing the image and value-added of our food rather than continuing to off-load commodities at the lowest price.
  
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  The success of state bodies and private food processors in marketing and developing our export markets must be much more rigorously assessed in terms of how much it leads to better prices for farmers.
  
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  Future funding levels should be contingent on targets relating to improved farmer price being met as a result of marketing strategies successfully implemented. Instead of grant aiding rationalisation of capacity in the processing sector, a much more positive approach to grant aiding successful development of new and better markets would be more positive.
  
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  The marketing of food should be co-ordinated with tourism marketing, with a view to maximising the return from the clean, green food island image. Ireland should be seen as a destination of choice for “foodie” tourists who would then return to their own countries to act as evangelists for the quality of the food experience in Ireland, and by extension for the quality of the ingredients produced by Irish farmers.
  

Section D: Commodities and Practical Farming Issues

10. Expanding in Dairying
Dairying is realistically the only enterprise that has the prospect in the medium term of giving a full-time livelihood to a young farmer. While there is much concern about the volatility in the dairy markets, the National Farm Survey (table 10.1) shows that dairy farms earned €45,000 compared with €7,700 for suckler farms in 2008 (despite very little difference in the size of holding). When looked at on a per hectare basis (Table 10.2), the potential for dairying is far superior to other enterprises. While cereals can be profitable on big units with suitable land, dairying has been the only viable business on medium size units.
Table 10.1 Family Farm Income- All Farms (Teagasc National Farm Survey)

	2004	2006	2008
Income/Farm	€	€	€
Dairy	34,421	36,221	45,700
Suckler	7,286	8,291	7,700
Beef fattening	8,712	11,292	11,200
Sheep	10,966	11,902	9,600
Tillage	24,012	28,536	19,400