BDO IRELAND Agri Food Opportunities And Insights.2012


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BDO’s recently published AgriFood Insight document with interviews with key sector stakeholders

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BDO IRELAND Agri Food Opportunities And Insights.2012

  1. 1. Agri-food 2012Opportunities and Insights
  2. 2. BDO Agri-Food Opportunities and InsightsContents Foreword Some key statistics 2 3 BDO: Funding 4 BDO: EII Scheme 6 BDO: R&D Tax Credits 8 The view from the marketplace Glenisk 12 Green Farm Foods 14 Mr. Crumb 16 Nature’s Best 18 Pallas Foods 20 Rosderra Irish Meats 22 Outside experts looking in Geoff Meagher 26 Philip Barlow 28 Maree Gallagher 30 The view from support agencies Bord Bia 34 Enterprise Ireland 36 IBEC 38 Irish Exporters Association 40 Teagasc 42 Some thoughts from the banking sector Bank of Ireland 46 Ulster Bank 47 Our Agri-Food Team | BDO 48
  3. 3. 2 BDO: Advisers to the Agri-Food SectorForewordBy Stewart Dunne “The vision of Irish agri-food as a sustainable, dynamic and growth- oriented industry is rapidly gaining momentum.”The Irish food and drink industry has enjoyed surging levels While funding issues, naturally, are articulated throughout, ourof export growth over the last two years, and shown an contributors also stress structural concerns such as the skills shortage at certain levels of the industry and the need for greater investment inimpressive ability to win significant new business on the R&D and new product development (NPD).international stage. Nowhere is the sense of ambition moreevident than in the SME sector. On the positive side, contributors also highlight the range of non- traditional funding opportunities that exist, from leveraging R&DThe vision of Irish agri-food as a sustainable, dynamic and growth- tax credits to equity investments to trade finance products. BDO’soriented industry is rapidly gaining momentum and the industry’s unrivaled insight and expertise in the areas of funding; access to theability to offer an even spread of employment and wealth-creation R&D tax credit; and the administration of the EII Scheme, will be ofacross the island makes its success one of particular socio-economic particular interest to the industry and are covered in some detail byvalue. my colleagues within this publication. Above all, contributors stress the value of relationship building and networking as businesses seekThrough Agri-Food Opportunities and Insights our goal is to bring out the funding champions who will enable them to scale up and grow.alive both the sense of vibrancy in the industry and the diversityof perspectives that exist on how it will meet the challenges of the BDO has a longstanding commitment to understanding the needs ofcoming years. our clients and to going beyond their expectations as we meet them. The agri-food industry is a priority for us and, through this publication,There are, undoubtedly, structural and funding issues that need to I hope to give a sense of our ambitions to partner with you as you setbe addressed if we are to scale up to the growth levels set out in out your priorities for growth in the decade ahead.the Department of Agriculture, Food and the Marine’s Food Harvest2020. Through conversations with support agencies, advisers, thebanking sector and, of course, the food companies themselves, Agri-Food Opportunities and Insights gives a sense of where the industrysees itself, and what actions are necessary if we are to realise theopportunity for Ireland’s high-quality agri-food outputs. On behalf of Stewart DunneBDO I wish to extend my thanks to all who contributed their time to Lead Partner, BDO Agri-Food Teammake this document what it is.
  4. 4. Agri-Food Opportunities and Insights 3Some key STATISTICSThe value of Irish food and drink exports increased by12% in 2011 to reach €8.85bn. 25% ahead of levelsrecorded in 2009.Irish food and drink exports 2009-2011 Irish food and drink exports 2009-2011Source: Bord Bia Source: Bord BiaThe UK remains a key export market but broadening Ireland has achieved the most significantmarket reach is evident as a greater proportion of improvement in competitiveness (-12%) ofour exports go to other european countries and all the euro area markets. Changes in Harmonised Competitiveness Index, based on GDP deflator (Q2 2008-Q2 2011)Trends in Export values by region (€m)Source: Bord Bia estimatesMarket distribution of Irish foodand drink exports (%) Source: European Central BankSource: Bord Bia estimates
  5. 5. 4 BDO: Advisers to the Agri-Food SectorOur perspective on the funding op Richard Duffy, Director, Corporate Finance, BDO Agri-food teamWhat is the message to agri-food clients when they ask about to adapt, an environment in which a company has a mix of fundingfunding? sources is a more sustainable one in the long term.Given the agri-food sector’s strong growth in recent years, and projectedon-going growth, the sector has been singled out as having a central Separately, the recent announcement from the government of therole to play in aiding economic recovery. As such, the government and introduction of the loan guarantee scheme is to be welcomed. Theits agencies, the banks and investors are very favourably disposed to challenge for SMEs is to stay up-to-date in a changing landscape andfinancing/supporting companies within the sector. Against this backdrop, to be able to target the right funding sources as they develop theirthe message, on balance is a positive one for clients: while challenging to businesses and, thereafter, present a credible business case to secureobtain, funding is available. those funds available. Surprisingly, many businesses are still not aware of the range of funding opportunities that are out there.In our experience, the larger agri-food corporates encounter fewerdifficulties in sourcing finance, given their established track record with Are grants a feasible option for funding in the current environment?their funders. Where issues are more likely to emerge are in the SME Enterprise Ireland are key funders in this regard and have a range ofsector. As companies, at this level, seek to consolidate their position grant aids/support programmes that are appropriate for differentand scale up, particularly within the consumer foods area, they will stages of a company’s growth. The support and incentive programmesundoubtedly experience difficulties in accessing funds. available from Enterprise Ireland range from building a company’s cost competitiveness, export development and R&D to key managementWith that in mind, it is important to know what funding products are development and financial support to accelerate a company’s growthavailable, if they are suitable for your business; how these products can be potential.accessed; and what supporting information is required. I would also argueit’s never been more important to seek advice in respect of the above. Enterprise Ireland can provide investment on a matching funding principle. This model was initially developed for the technology sector,Are banks still the primary route to access funding for the sector? which tends to have faster scale ups. Despite the fact that agri-foodThe banks were the main source of funding up until 2008. Everyone now companies tend to grow more slowly this funding source is still very validrecognises that the days of gearing up property assets to secure cheap and accessible. How does this work? The investment from Enterpriseand readily accessible credit is over. In reality, SMEs in Ireland were too Ireland is typically for a five-year term and structured by way ofreliant on bank finance to fund growth. The pendulum has now swung in preference shares in the company.the opposite direction, with a mind-set among some clients that banksaren’t lending at all. Are companies looking more seriously at the equity route? With traditional sources now more limited, there is certainly a need forThe banks have an incredibly important role to play in funding SMEs. It is more equity finance in companies. The reality is companies are undertrue to say the quantum of finance available is more limited, the process capitalised, typically operating on tight margins, where it is increasinglymore involved and the nature of the finance changed. Having said all this, difficult to get paid on a timely basis. We are back to probably a 50:50finance is still available from the banks for well managed businesses with split between debt and equity in all future financing arrangement fora sound business plan. companies.What banking products are available? What are the equity options?For companies seeking to scale up in the agri-food sector, banks are In addition to the Enterprise Ireland schemes and the Enterpriseparticularly interested in providing invoice discounting, as a principal and Investment Incentive Schemes (EIIS), there are certainly privateform of finance, if suited to the circumstances of the business. Other individuals and companies out there who have cash resources fordebt instruments being actively marketed as a source of working capital investment within the sector. We are facilitating such investments on afunding include trade finance products. number of projects. Securing equity finance is a challenging process but we believe we are well positioned, having access to a pool of investorsThe more important point to consider is that the days of securing finance and an experienced advisory team who are supporting our clients inmainly from one principal source are over. While it can pose a challenge securing this type of finance.
  6. 6. Agri-Food Opportunities and Insights 5tions “Perhaps the more important point is that the days of accessing finance mainly from one principal source are over. While it can pose a challenge to adapt, an environment in which a company has a mix of funding sources is a more sustainable one in the long term.” Other than financial, what benefits does an equity investor bring? elements to it but it is relationship driven at the end of the day. It is Companies that operated traditionally as owner/managers can, initially, about finding support of credible people who fully believe in what you be uncomfortable about allowing a third party into that relationship, as want to achieve. they are reluctant to give up shareholding. However, in our experience, introducing a new partner allows an opportunity for companies to We have seen plenty of anecdotal evidence of people using their accelerate the growth of their businesses. Ultimately, for SMEs, it is networks and their advisers’ network to get the right introductions about access to resources and opportunities to build scale. In addition to both prospective equity and debt funders. So our advice is, as you to providing extra financing, a new investor can bring their relevant are doing your market research and gathering data for your business experience, new ideas and access to management skills, new customers plan, you need to be building your network at the same time. All of this and new markets. assumes you have a business plan that is credible, has growth potential and has a capable management who can deliver the plan. Are you seeing an interest among venture capitalists (VCs) in the agri-food sector? Any interesting examples of this? VCs, both locally and internationally, have not traditionally been We had one recent example of a client within the food industry who had interested in the Irish agri-food sector. However, we are certainly seeing an innovative proposition that required in excess of €1 million funding. private equity houses and institutional funders outside Ireland now They had the business concept, relevant experience, and supplier and looking seriously at the sector here. There is unlikely to be any immediate customer connections to make it happen. We helped develop, present uplift in activity, but looking to the future, I think it’s safe to predict some and critique the business plan, quantify their funding requirement and interesting investments will happen. negotiate on their behalf in raising the finance. Why will they invest? Furthermore, having assessed the opportunity, we advised it was an Overall, VC’s interest in Ireland will be driven by a consolidation of equity investment that was required to deliver on the opportunity. Both a particular part of the agri-food sector where they will invest in BDO and the company sought financial support from their respective a ‘consolidator’ or they will be attracted to certain companies of contacts. Ultimately, the funds were secured from a private source reasonable scale, who will have an established footprint in both Irish and known to both BDO and the company. The investor, fundamentally, overseas markets. As such, other than on an ad hoc basis, in our opinion, believed in the promoter’s and the opportunity. the SME sector is unlikely to reap the full benefit of this potential source of funding. Had they been depending exclusively on debt funding, it is unlikely the project would have been funded at the pace been sought by the What sort of practical advice do you give clients about funding? promoters, given the company’s stage of development. In our opinion, One very simple and effective message is to use your adviser’s/non- this fundraise was successful, as it was about having a pool of relevant executive director’s network, and your own contacts. Access to funding funding partners available and matching the opportunity against these is about knowing what funding sources are available, getting access to sources. We have a growing number of examples like this, which show people and finding the right individual at the right time. that accessing different sources of money can work. Don’t be reluctant in taking advantage of people’s knowledge base, Any closing thoughts? their relationships and their resources, as a means to access funding It’s important to stand back and look at all the options. Now, more than opportunities. Companies need ‘champions’ on their side, whatever ever, companies need to consider the suite of funds on offer and match funding route they are taking and your contacts might know just who the funding requirement against the funding source. Even if you see those parties are. a source as only a minor contributor, you need to realise that funding from alternative sources is the new norm. In terms of the business plan, You will probably need several champions along the way. They can be you need to invest time and use an experience adviser to support you to your adviser, your banking contact, who will need to present and support ensure the plan is as robust as possible. Your advisers should, importantly, your company’s plan through a rigorous credit committee process, have a network and access to potential funding partners. In summary in as well as other individuals. The funding process has many technical order to successfully fundraise: prepare well, be credible, seek advice.
  7. 7. 6 BDO: Advisers to the Agri-Food SectorEmployment & Investment Incentive S Andrew Bourg, Director, Corporate Investment & Business Advisory, BDO Agri-food teamWhat is the Employment and Investment Incentive Scheme (EII a 16-year track record with the BES. Over that period, we have raisedScheme)? and invested c. €128 million in over 140 companies with a large numberThe EII Scheme was introduced by the Government to provide a source of those in the food and drink sector. Our funds are managed and theof equity funding for SMEs at a time when funding from traditional investments are monitored in a very ‘hands on’ way by our full-time andsources is limited. Essentially, it builds on, and replaces, the old Business experienced management team, and that approach has worked well forExpansion Scheme (BES), taking the benefits of BES and extending them both companies and investors alike.considerably. For private investors, the EII scheme offers attractive taxrelief of up to 41% to invest in medium-term equity capital in companies. Our most recent fund, The Davy EII Fund, successfully raised over €3.2 million and we are actively targeting 4 to 6 growing companies to assessWhat are the main differences between EII and BES? their suitability for the investment of these funds in 2012.Firstly, the EII Scheme significantly widens the scope of companies thatcan raise EII funding. It’s no longer just manufacturing companies and Do you feel enough SMEs know about EII?those involved in internationally traded goods and services, as was the Surprisingly, we sometimes encounter companies and advisers thatcase with BES. EII funding is effectively available as a source of funding do not know the scheme is available to them or that the scale of theto all companies (some minor exceptions apply). Secondly, companies changes made from the old BES means they now have access to acan now raise up to €10 million, whereas, under BES, the limit was €2 new funding source. It depends on the company and how proactivemillion. Under the new scheme, the amount that can be raised in any 12 management is in pursuing funding options. As the longest running EIImonth period has also been increased from €1.5 million to €2.5 million. scheme manager in the country, we are helping to educate the marketFinally, the EII scheme has a shorter investment term of three years on these recent changes and the level of awareness is growing fast.compared to five years under the BES. What do you look for in a company when you are makingWhat are the benefits to investors? investment decisions?The EII Scheme offers one of the few remaining tax reliefs and is one of In broad terms we look for companies which have the following keythe few sources of total income tax relief (which includes, for example, attributes:rental income and deposit income) and investors can avail of tax reliefon investments up to €150,000 p.a. Investors can claim tax relief of ––  Strong and capable management team30% in the year of investment and, in addition to this, and of particular ––  Three-to-five year strong trading recordinterest to the food and drink sector, where it is proven that additional ––  Growth potentialjobs are created, or the company increases its R&D expenditure, anadditional 11% tax relief can be claimed by the investors. ––  Positive net asset value ––  rospect for realisation of the investment after the three year EII P What is BDO’s role in the EII Scheme? scheme period.BDO and Davy operate a joint venture to raise and provide funding toSMEs under the EII Scheme. Our joint involvement with EII builds on Specifically, and just as important to the above, is good business
  8. 8. Agri-Food Opportunities and Insights 7 SCHEME – The new bes “Surprisingly, we sometimes encounter companies and advisers that do not know the scheme is available to them or that the scale of the changes made from the old BES means they now have access to a new funding source.” planning, management and the availability of timely and What role can an advisory firm play as a business scales up in that way? reliable management information. It is critical that we can tell, In our experience, an experienced adviser plays a key role as a business with some reliability, how a company is performing and, scales up. The management team are in the trenches and laying the more importantly, that the management/promoters have this foundations for the growth, as a result the adviser should be a bouncing information too. board to reviewing management’s growth plans and projections to ensure that “profitable” growth is achieved, as well as ensuring that Are Key Performance Indicators (KPIs) a reliable guide? the growth will be adequately funded. Companies often make the Absolutely, a lot of the food and drink companies we have invested in mistake of scaling up too quickly and that can cause difficulties if they operate a system of KPIs and those which did not, we have assisted in are underfunded. A good and experienced adviser will help give the devising such a system. As a result management know on a weekly, visibility on where the company is at all times, making sure they are not or even daily basis, how they are performing so there are no surprises overextending themselves and putting the core business at risk. when the management accounts are produced. Typical KPI’s include for example production yield %, labour, raw material and wastage cost per Any closing thoughts? KG of inputs, capacity utilisation and customer service levels to name I would encourage any companies interested in looking to raise EII a few. These “key indicators” empower the management team to take funding (be it from a fund like The Davy EII Fund or from private corrective action in a timely manner, if necessary. individuals) to get in touch with us. There are very significant benefits that this kind of equity funding can bring to food and drink companies Any interesting funding success stories? including: We have a number, but one example is a food company which, when we initially invested in the late 1990’s had annual turnover of ––  Fixed cost of finance, c. €500,000. We followed the initial investment with 3 further BES ––  capital repayments until 2015; No investment rounds investing the €2 million BES limit. That company ––  Existing shareholders retain control of the business; now has an annual turnover of c. €28 million, with well-known branded products in both domestic and export markets. ––  nvestment is equity not debt thereby improving the balance sheet I gearing and The business planning side of the story is very important, the company ––  may trigger additional funding from e.g. Enterprise Ireland. It did not initially have a KPI model, but we assisted the company in implementing one and everything now gets measured. The company More broadly, I would say that, in BDO, our goal is to assist companies used the BES investments to increase production capacity, intensify its achieve their growth plans in the areas they require assistance on, NPD, increase its marketing campaigns to build its brands in its target whether its funding be it EII Scheme, Enterprise Ireland or the banks, markets. Furthermore, the BES investment enabled the company to to developing and refining their KPI models, to reviewing their growth leverage further funding from Enterprise Ireland in its export plans, so plans, it’s an exciting time to be working with the industry and we have it is tangible proof of the benefits equity funding can bring to the food an enormous bank of expertise to support companies as they scale up and drink sector. for growth to leverage the export led recovery.
  9. 9. 8 BDO: Advisers to the Agri-Food SectorResearch Development tax credit Derek Henry, Head of RD tax services, BDO Agri-food teamWhat is the RD tax credit? This is not a typical interaction in most companies so it requiresRevenue first introduced tax relief on research and development (RD) planning and coordination. Scientific/engineering staff are oftenexpenditure in 2004 and, subsequently, amended conditions relating unfamiliar, and sometimes uncomfortable, with the legal terminologyto it over the years. Section 766 TCA 1997 provides for a tax credit of of the qualification criteria. This can lead to delays and, sometimes,25% of incremental expenditure by a company, or group of companies, mistakes in the application process, which may frustrate furtherincurred wholly and exclusively on RD. The most recent change was in attempts at securing the credit.Finance Act 2012. Can the necessary expertise be brought in?How can the RD tax credit benefit food and drink companies? At BDO we have established a multi-disciplinary team approachThe main benefit is that companies are entitled to a credit of 25% of that targets that issue. Through the BDO International RD Centretheir incremental RD expenditure. This credit is in addition to the of Excellence, our Irish tax experts collaborate with a team of highlynormal corporation tax deduction for the expenditure. This means that experienced RD engineers/scientists to provide a full RD tax solutiona company can achieve an effective tax deduction of up to 37.5% on for clients. We routinely assist in all aspects of the claim, for a widemost RD expenditure. The credit can be offset against a company’s variety of clients, including food and drink companies. The service coverscorporation tax liability of the period. If the company does not have a everything from technical report preparation, financial calculation andcorporation tax liability it can claim a cash payment of the value of the support, to documentation support and interaction with Revenue in theunused credit in that period from the tax authorities, subject to certain case of a review. Our clients have found the BDO approach to be bothrestrictions. This means the credit can represent a viable, and significant, very effective and efficient. Our goal is to take away, as much as possible,source of funding for businesses with cashflow difficulties. the stress of making the claim for the company, so its in-house staff is freed up to focus on their day-to-day work.Are there any particular challenges to claiming the relief?The biggest issue that emerges among companies is lack of knowledgein terms of what activities qualify for RD. Misconceptions on the types “There are obvious financial rewards fromof activities that qualify mean that many companies routinely miss out qualifying for the RD tax credit regime andon this valuable relief because they – incorrectly – believe that they arenot carrying on RD. they have, in some cases, thrown a lifeline to companies.”Is there some ambiguity in the application of the definition of RD?Companies can encounter difficulties when attempting to practically Could the RD tax credit be improved?apply the technical qualification requirements set out in the Act to the Ireland is in fierce competition with other international jurisdictionsactual work they are carrying out. This is exacerbated by the fact that to attract foreign investment in its RD activities and to ensuremaking a claim requires a multi-faceted approach. Applying for the tax indigenous companies are not lured away to do their researchcredit is, naturally, viewed as a function of the finance department; elsewhere. In this regard, it is essential that the RD tax credithowever, it is necessary to engage with a company’s scientific/ remains internationally competitive. The government introducedengineering staff to ensure the claim is appropriately prepared. a number of welcome measures aimed at enhancing the regime in
  10. 10. Agri-Food Opportunities and Insights 9 “The biggest issue that emerges among companies is lack of knowledge in terms of what activities qualify for RD. Misconceptions on the types of activities that qualify mean that many companies routinely miss out on this valuable relief.”Finance Bill 2012. In particular, the increase in the limit on the amount companies. It would be impossible to provide an exhaustive list andof outsourced activities claimable and the relaxation of the base year each case has to be reviewed in its own context to assess eligibility.are positives. That said, some of these enhancements will have only However, areas where we have, in the past, found qualifying RDa limited impact on many companies. In particular, the qualifying activities – and often to the surprise of our clients – would includeconditions under which the credit can be used to reward employees the following:are overly prescriptive, to such an extent that only a limited numberof companies will qualify. ––  Agro-ecology areas such as:  Organic farmingAlso, while the base year relaxation is welcome, we would argue that  Sustainable agriculturethe credit should move to a full volume-base system as opposed to thecurrent incremental system. The incremental system is cumbersome  Alternative food systemsand unfairly penalises companies who were carrying on RD in Ireland ––  Plant breedingin 2003. ––  science Soil ––  Taste/flavour profilingWhat type of activities has BDO found qualify, within the food anddrink sector? ––  Calorie reduction projectsFood and drink is, by its nature, a highly innovative sector, with a high ––  Shelf-life extension projectslevel of scientific and/or engineering expertise usually attached to ––  Raw material sourcing projects ––  Packages and/or process development ––  Waste management ––  Energy efficiency projects. How have companies used cashflow from the RD tax credit? There are obvious financial rewards from qualifying for the RD tax credit regime and they have, in some cases, thrown a lifeline to companies. Typically, we would see the tax credit used to fund more RD projects within the industry. This would include, where it was deemed necessary, the hiring of suitably qualified scientific/ engineering staff to support the future RD efforts of the company. In that sense, it can certainly be seen to be a highly successful initiative by Revenue, as it reinforces the RD efforts of companies, and provides an essential support as they scale up their businesses and deliver growth to the economy.
  11. 11. 10 BDO: Advisers to the Agri-Food Sector The view from the MarketPlace
  12. 12. Agri-Food Opportunities and Insights 11GleniskGreen Farm FoodsMr. CrumbNature’s BestPallas FoodsRosderra Irish Meats
  13. 13. 12 BDO: Advisers to the Agri-Food SectorGlenisk important, I’m of the belief that the judging criteria and, hence, sense of loyalty is different in export markets. You need to adapt and invest resources to manage that. There is also the fact that, the further you go from home, the more you will be judged on price. Where do you see the opportunities for growth/scaling your business? I still see plenty of room for growth for us in Ireland and I’d like to think that we can complement continued domestic growth with targeted/ Vincent Cleary, Managing Director, Glenisk bespoke products for specific overseas markets, so it’s about finding the right balance really. We built in significant spare capacity the last time we upgraded our processing facility and we have plenty of scope to growTell us a little about your company? fully into our premises. Although there are bottlenecks, by and large, I amGlenisk is a family business, based in Killeigh, Co. Offaly, celebrating factoring in growth of 20% year-on-year for the next number of years.25 years in business this year. Organic since the mid 1990s, we workwith 50 small family farms and, in fact, use 90% of the organic milk Will this require specific funding?produced on the island of Ireland. Although we have gone through many Funding is not an issue for us, at the moment, as we are adequatelychanges, I’d like to think that we remain true to our core principles. resourced. However, I have had dealings with Irish banks and would be very aware of the limitations here at the moment. Needless to say, in allHow have the last two-to-three years been for you? planning, sound financial advice is critical, i.e., you can’t build what youWe have experienced our strongest growth, ever, in the past number haven’t got or can’t get.of years, but it has come at a cost. We have absorbed significant‘commodity’ and input inflation, but have become more efficient and, How important are government agencies in supporting your business?hence, competitive as a result. We have gone through two rounds of There are soft supports that we avail of and we have had positivedeflation (one self imposed and one forced on us). As a result of all that,our margins have severely depleted. Fortunately, there seems to besome light appearing at the end of the tunnel and I believe that we cancontinue on the path of sustainable growth that we set out on.What has changed most in your business planning in this time?I would say our mindset. Necessity is, indeed, the mother of allinnovation. Everyone is wiser in hindsight, but in many respects, wecould be accused of having become quite complacent during the boomtimes – everything seemed easier and the margins were assured. Therecession has brought with it a firm dose of reality and a more realisticview that nothing worthwhile comes easily.How has your commitment to new product development (NPD)been impacted?NPD is still at the core of our business, but it is no longer taken forgranted. We put a lot more time and thought into researching ourconsumers. Understanding their needs and expectations is paramount.I would see myself as an observer of consumers and, of course, as onemyself, I like to think I have the ability to empathise with others. I believethat if you can identify and recognise the need, you are half way tosolving it. I don’t believe in copying other people’s ideas but I will certainlytake inspiration from something/someone I come across – it could beas simple as a customer or a colleague articulating a problem, to anobservation on an item/product to being inspired by my four-year-olddaughter. We have to be more than simply organic – and NPD is central tothis endeavour – as illustrated by launches of recent years, which includesugar-free baby yogurts; greek-style yogurts; granola top-cups etc.The major opportunity for food and drink companies seems to be inexports – do you agree?It was said to me once that the domestic market should be the mostprofitable part of your business and that, to conquer the world, youmust be king of your own country first. So, although exports are
  14. 14. Agri-Food Opportunities and Insights 13experiences of the various agencies over the years. However, our familyfarm philosophy is about self-sufficiency and we are firm believers indoing things for ourselves rather than expecting others to do them.Are there any business challenges specific to an organic producer?A sufficient supply of our main raw material – organic milk – is aconstant challenge. We have 50 excellent farmers who supply us but,despite the fact that we pay well over the odds for our supply, thebroader farming community has been slow to embrace the organicphilosophy. There needs to be a significant change in mindset acrossIrish agriculture, particularly when you consider how organic farmingfits into the green, clean image that Ireland wants to project. Ourexperience is proof of how organic farming helps to protect the self-sufficiency is reflected in the fact that we do our own distributionlivelihood of small, family-run farms, and keeps the countryside varied, within Ireland in the points of central distribution. Over the years, weclean and full of wildlife. There is also a very strong animal welfare and have never had any issues in getting our products listed among the Irishenvironmental story in organic production that could be channelled into retailers. It helps that we have built up plenty of experience treadinghow Irish agriculture is perceived, if more of the farming community the well-worn path over our time in business. In terms of building ourcame on board. Organic cows frequently live to the age of 15 and enjoy internal management capacity, like any small organisation, we area natural environment where calves feed from the udder rather than excellent multi-taskers. As the business has grown, we’ve hired theon artificial milk substitute. Organic farming also produces less carbon right people for the job. Everyone pulls their weight and I’d like to thinkemissions and so has a lesser impact on the environment. that I lead by example.Tell us a little about building your brand over the years? Any closing thoughts?We set out our point of difference a number of years back, based on In the food and drinks industry, as elsewhere, some of the cleverest ideasthe Glenisk philosophy that healthy soils creates healthy food and are the simplest ones. On the other hand, in our experience, the moreallow us to raise healthy children. The model has been tweaked and complicated the idea the more expensive and difficult it can be to delivercontinues to be tweaked but has remained pretty consistent. In terms the package that is required to educate the consumer. We see ourselvesof promotion, we would always aim to spend our limited marketing as standing for an organic Ireland. It’s a simple, powerful messagefunds wisely – seeking maximum exposure at every opportunity, so that consumers have engaged with and one that we feel the broaderas to give us the greatest possible ‘bang for our buck’. Our sense of agricultural community in Ireland should be engaging with too.
  15. 15. 14 BDO: Advisers to the Agri-Food SectorGreen Farm foods Kenneth Greene, Chief Executive, Green Farm FoodsTell us a little about Green Farm Foods? lifecycle before it is copied or goes into own label, at which point theGreen Farm Foods was established in 1991 and is based in Rathowen, Co. margins start to drop. The RD tax credits have been a big plus over theWestmeath. Our facility extends to 4,000 sq metres and we employ 115 years and we have been able to offset our spend on NPD against that.people. Over the past two decades, we have continuously expanded tomeet growing demand and, today, we are brand leaders in the premium Poultry is one of the sectors where it is tough to get margin. How dosliced cooked meats category, and our products are found in Supervalu, you manage that?Centra, Dunnes Stores, Tesco, Londis, Spar, Superquinn and other Marketing and branding are very important to us and, over the years, weindependent stores. have become a brand leader in the premium sector of sliced cooked meat. We source high-quality raw materials to support that. Price is certainlyCan you talk about your move into the branded space? a huge issue and consumers dictate what they pay for a product. On theThe Green Farm Foods brand is built on health, nutrition and taste. In sourcing side, we increasingly source from Europe. People need to knowJuly last year, we became the first Irish company to move to ‘nothing but where their food is coming from and we are very clear on that. We wouldnatural’ – which means no preservatives, phosphates, and a gluten free source from fully integrated factories in Germany, Holland and Ireland.product. Initially, we had focused more on foodservice than on retail.Margins are very tight in foodservice and so we recognised that, if we Is it difficult for SMEs to build brands and brand awareness?wanted to develop our business, we needed to secure better returns. Consumers are very savvy when it comes to food and, when we launched,From 2002 onwards, we focused all our energy and resources on retail in 2005, we saw the opportunity. We did our research – on a shoestringand developed a premium product range, which we launched in 2005. budget – and the market was very receptive to our product. What wasWe have tripled our turnover since then. Today, we are regarded as brand important to us was giving the customer a quality product and theleaders in premium cooked meats. We also do private label, but our portion sizes they wanted. You can have a great master plan and largemain focus is on our brand and we would always seek to marry the two marketing budgets but it is equally important to get the basics right andtogether when we talk to retailers. to really understand your customer well.How have the last two-to-three years been for you? Are you looking at overseas markets at the moment?Retail space has become a lot tighter and the space has to be worked a It’s a great time to focus on growth and our strategy, for the next twolot harder. We are currently working on business plans with all our retailer years, is to grow our exports to 45% of our business. At the moment,customers, looking at our range and our marketing strategy. The reality is, they are 28%. We have identified our market and set our plans in place.if you don’t offer products that are selling, you won’t get on the shelves, Recently, we took part in Bord Bia’s Marketplace and we had a successfulso the pressure is really on companies to come up with very innovative experience there. We are primarily focused on bringing the brand to theproducts. UK but we are also looking at Holland, Germany, France and Spain.How is NPD prioritised in the company? We have been exporting for about two years and it has probablyWe have a very busy RD department and we have always recognised taken longer than we would have expected to build scale. If you hadthe need to apply innovation and added value to everything we do. deep pockets you would get there quicker but it is all about buildingWe recognise there will be casualties along the way, but it’s about relationships and showing that you can deliver. We are still growing atmaximising returns when you get a winning product. Every product has home, but the domestic market remains quite tough and is very mucha lifespan and, once you launch it onto the market, it will have a certain focused on value and volume.
  16. 16. Agri-Food Opportunities and Insights 15Is getting the funding to scale up an issue?We are planning a major expansion at the moment and we know wewill get the funding but it will be over 24 months, as opposed to the12 months we would have liked. We are privileged to be in a situationwhere we have reasonably good cashflow and the credibility of a fewyears of experience under our belt. If we were starting as a new entry, atthis point, I think it would be very difficult.What key decisions have you made that have allowed you to staycompetitive?We have a very efficient factory with highly motivated staff and a greatteam ethic. We have also invested in automation and technology. Wewould monitor our KPIs on a weekly basis. We are paying higher pricesin our inputs at the moment and it is difficult to pass that on, but we aretalking to the market and try to negotiate pay increases if we have to.How is the issue of discounting affecting you?What is interesting is that even buyers in Irish multiples are seeing thereare no long-term benefits to the discounting. Consumers are shoppingthe aisles and following the discounts – so you may have a sales spikebut with low margins and the consumer will be shopping elsewhere nextweek. That said, when we look at our facility, we need a certain amountof volume going through at all times to cover our operating costs andit is better to have that throughput than to deal with the factory floorbeing idle.Any closing thoughts?I would see myself as an optimist with regard to growth in the sector,but that would be laced with a certain amount of pessimism given theoverall political and economic issues, and the pressures people have todeal with in the environment of austerity.We are fortunate to be in a business where sales are growing but,certainly, SMEs in Ireland, in general, are under a lot of pressure.We need to encourage entrepreneurs back into the economy and, forthe next generation, to take out the roadblocks that are currentlyin the way.
  17. 17. 16 BDO: Advisers to the Agri-Food SectorMR. CRUMB Manager as well as a Sales Director in the UK market and have people working with us in the Netherlands, Germany, Spain and Italy. Do you feel companies are getting the support needed from government agencies? Breaking into foreign markets is very costly. An SME in a tight financial credit situation, like we are all experiencing at the moment, won’t commit those resources unless they have financial support, so the agencies and, in particular Enterprise Ireland, really need to refocus on Bernard Coyle, Managing Director, Mr Crumb these companies. What’s interesting is, with alcohol, you can export to any country inTell us a little bit about the company? the world with the same product, but you cannot do the same withMr. Crumb began, in 1996, as a fresh breadcrumb and stuffing food. Every market is different. The UK market is quite different tomanufacturer. We started from scratch, on a green field site, with two Ireland and, when we moved into France, we were surprised to findpeople – myself and my wife in a 5,000 sq. ft factory and, in 2005, we consumer tastes were quite different again. Adapting to that takes timeadded another 25,000 sq. ft to that. We have 64 full-time employees, and resources. If you go on to Spain, Italy and the Netherlands, theserising to 80 at peak times, and our turnover is between €7m and €10m. are all different markets so there is a long lead in time to meeting their requirements. It’s also very expensive sending numerous samples out byWhat’s the Mr. Crumb offering? courier for 24 hour delivery to these markets.We are a niche, artisan business and what we have tried to do, I believewith some success, is to bring artisan products to the mass market, firstly So SMEs will need funding support to scale up?through the multiples in Ireland and now to the UK and the rest of Europe. Absolutely. It will not happen, except in a few isolated cases, unless thatWe have a strong brand following in Ireland and we also do private label. support is there. It’s just a big ask for SMEs to commit very scarce andThe differentiation of our product, versus our competitors, is its quality, tight resources to a market where they might not get a return for two orfreshness and convenience. All our bread for crumbing is baked, for three years down the line. That’s what agencies need to be aware of.example, whereas others use damages or returns, and all our stuffingsare cooked, whereas our competitors are not. We have diversified over A lot of Irish producers find it hard to get scale. There is a leap of faiththe last number of years, into food-to-go, chilled and frozen party food, involved in scaling up and there is always a danger that the businessMexican-themed products, sauces, butters and chutneys. you base your planning and financing on doesn’t materialise in a given time frame. If you go back to your bank and you haven’t achievedWhat has driven that diversity? the turnover, that’s where a problem can arise – if the bank doesn’tWe have always been very strong on new product development (NPD) understand the business it may not extend any further credit to you. Inand always tried to be ahead of the curve. Within six months of setting fairness, we have always found our bank to be very supportive and weup, we had HACCP, which wasn’t a legal requirement at the time, as well have been lucky in having a good relationship with them down throughas Hygiene Mark, Q Mark and ISO9002. Within 12 months we had BRC the years.Higher Grade. We also set up an NPD kitchen, which, today, employsfive people, who are constantly turning out new ideas and variations,and new lines for the business. We would dedicate 10% of our sales toRD, which is not uncommon across Europe and the UK, but very highby Irish standards.Has the move to exporting been relatively straightforward?We have found the UK to be very tough to crack over the years. It’s notan exaggeration to say that we spent upwards of a million in getting intothe market.Our core products, stuffing and crumb, are all about freshness, and inthe UK, the market focus is on dried and long-life. It is really only in thelast three years that we started to get traction. Waitrose was the firstmultiple to take us onboard and now we have products in Morrison’s,Asda, MS and, just before Christmas, we launched party food intoTesco UK.In terms of continental Europe, we have launched into Picard in France,which is seen as the frozen equivalent of Marks Spencer there, and hasapprox. 900 stores. They are a key customer. Our emphasis, this year,will be on the UK and continental Europe. We have a National Accounts
  18. 18. Agri-Food Opportunities and Insights 17Is the role of the financial adviser important here? and so on, there is no point in looking to export to the UK or Europe.It’s important that all parties around the table see the overall picture. In a sense, the scaling up has to take place before you approach theseExternal financial advisers can be very useful soundboards to your markets, so it’s a chicken and egg situation.plans. They bring an external pair of eyes and ears and can flag issuesthat you might not see. Most financial planning is done in-house, but Is the pressure to provide discounts a major issue for you?it is important to have someone external, to run your business plans Consumers are, literally, being bombarded with offers in supermarketspast, and in that regard, we have found BDO’s expertise invaluable, right now and there is a danger of dumbing down the market. Foodparticularly at seeing the bigger picture. companies are caught, to an extent, on two sides, between rising input prices and not being able to get the return from the market. You can’tAre there any other logistical bottlenecks to scaling up? increase your margin with higher prices, so you have to try to maintain itWe have a lot of wonderful artisan companies in Ireland but the number by being smarter and more efficient.of these that graduate to the next tier, that get to the scale where theyemploy 100 people, you could probably count on one hand. It always Unfortunately, promotions won’t be going away any time soon.amazes me that food companies in the UK, who may set up at the Retailers, particularly the discounters, are still opening shops so theresame time as an Irish company, beginning from the same small base, is extra shelf space coming on the market but less people working andoften scale up so much quicker. One of the major problems we have is more people emigrating. That is feeding back into a war between the multiples, and special offers and promotions are a key part of their“Consumers are, literally, being bombarded armoury.with offers in supermarkets right now and there Are food and drink companies effectively powerless in negotiations?is a danger of dumbing down the market.” Unfortunately, in a lot of cases, they are faced with fait accompli. What I would say is, you need to have a strong relationship with retailers,in getting suitably qualified middle management, by that I mean NPD and a strong brand, to show that you are delivering best practice andand technical managers, as well as purchasing, planning, production and are proactive in the market place, either with new products, productslogistics people, with experience in the food industry. This has been an extensions, greener packaging or a strong environmental story. Theissue since the late 1990s and, in fact, has actually gotten a lot worse. environment is a huge issue in retail in the UK and Europe right now andIn Mr. Crumb, we have had posts open for up to six months for the right is only going to get bigger. So, as manufacturers, we all need to be lookingpeople and not been able to fill them, and have had to go abroad to at our carbon footprint. Mr. Crumb has planted 22,000 trees to offset ourrecruit. This is common across the food industry at the moment. carbon footprint and is planting another 16,000 trees in spring 2012. We have gotten very good feedback from the multiples across the board onThe food industry is one of the most heavily policed industries in the that. You need to be proactively going to them, before they come to you,world – up to and, in some cases, surpassing pharmaceutical standards and say ‘this is what we have done, what we will be doing over the next– so you really need people who know what they are doing and we don’t 12 months and what we’ll be doing over the next 36 months’.have the broad base in this country to provide the pool of expertise.Unless you can tick all the boxes for the multiples, like your NPD There is a very strong Carbon programme been driven hard by Themanager, technical manager, account manager, financial controller Carbon Trust in the UK at the moment, and we are really only starting out on this road here. Have the new RD credits helped food companies? RD credits are available and are a great help, but not everything is covered. Take an RD kitchen – it’s a necessity, but it is costly and we find a lot of what we do is not eligible for RD tax credits or funding. It’s an ongoing discussion with our Finance Office as to why we are doing so much NPD and none of it is eligible, so the basics are there, but it needs tweaking. The danger, in the current environment, is that a lot of companies will park what they see as non-essential expenditure, and we will fall further behind the UK and Europe. Any closing thoughts? We have some great companies and a lot of terrific artisan-type companies, and what I think is wonderful about the food industry in Ireland is the great spread of employment throughout the country that they are supporting. Mr. Crumb is based in a very small village and, in terms of the micro economy, our importance is enormous. There are a lot of similar companies in other places doing the exact same, and that is fantastic, and needs to be built upon, because we need jobs like never before. Business needs to look up and concentrate more on export markets, because that’s where the big opportunities lie at the moment.
  19. 19. 18 BDO: Advisers to the Agri-Food SectorNature’s Best Tell us a little about your company? Nature’s Best is an Irish-owned chilled consumer food manufacturing company, founded in 1987. We employ 200 people and are based in Drogheda, Co. Louth. Our product range includes salad bowls, bagged leafy salads, wet salads, wet salad bar, prepared vegetables and stir fry, etc. The company’s product and production expertise is aimed primarily at larger supermarket chains that require private-label packaging and have very high quality safety, category management, service level and innovation requirements. By extending our Owen Quinn, CFO, Nature’s Best capabilities, we are currently entering new fresh chilled convenience categories. “Agencies such as Enterprise Ireland and Bord Bia have played important supporting roles as we have grown and expanded the business.”
  20. 20. Agri-Food Opportunities and Insights 19How have the last two-to-three years been for you? financial advisers have played in this regard, ensuring that we are notBetween June 2008 and December 2010, we saw a decline in our missing out on any funding opportunities. As a more general comment,volume. Our market is now more competitive and is offering more value I think the government needs to do more to encourage more people toto the consumer. In 2011, we saw some recovery with a 10%+ rise in eat fresh Irish produced healthy quality food in Ireland and abroad.manufacturing volume growth, pointing to some recovery in the market. What would you see as the challenges facing you as you plan forWhat has changed most in your business planning in this time? growth?Over the last year, we have developed a tighter delivery window, which Our cost base, in Ireland, is still an issue vis a vis the UK and the restimpacts on our waste, labour, transport and other overhead costs. of Europe. The availability of funds to support long-term sustainableHowever, the tighter the window – from order capture to despatch – growth is an issue for us, as it is for a lot of companies. It is difficultthe more people that have to be applied to the process. In some cases, for an SME to fund the development of a brand and most growthwe have to not only crew up but also commence earlier in the day and opportunities for us, both at home and abroad, will be under privatework to an estimated order, then rework surplus stock or restart to supermarket label. We have no issues in terms of route to market andmake up the difference. In the short shelf life, fast moving consumer have always found private label to be easier to get listed than branded.goods (FMCG) environment, it is vital to plan ahead and bring strategic With regard to developing product differentiation, which is key tothinking to your decision making. growing our opportunities, we have recognised that our NPD must be synergistic with our core capabilities and follow established retailThe major opportunity for food and drink companies seems to be prices. That is to say, there is little point in developing products that wein exports – do you agree? can’t deliver efficiently or that are outside the established price pointsI think this is the case, especially with longer shelf-life products, as of consumers. Our differentiation will be based on better executionmost Irish companies offer an excellent high-quality product. With the and pursuit of key consumer trends, such as quality, health, nutrition,right product, the correct shelf life and enough funding in place, we packaging (convenience, sustainability) and freshness.would see that a lot of Irish SMEs could scale up to be very competitiveexporters, as we ourselves plan to be, in the next few years. From What are your thoughts on branding and NPD?our own point of view, given the nature of what we produce, most If your product is unique and can’t be copied or its quality can’t beof Nature’s Best opportunities are currently in the home market. matched then branding gives a smaller company greater leverage withHowever, we do have opportunities in Northern Ireland and Britain. a retailer. For us, the private label route creates more opportunitiesOur approach, both domestically and in exports, is to identify gaps with less funding required. However, there are downsides. Therein the market and, using market and consumer research, target these is more risk attached to losing your private label business than,opportunities. say, having a brand delisted with one customer. Also, in terms of investment, a private label manufacturer has a lower valuation than aHave government agencies been supportive? branded competitor. One thing people overlook with private label isAgencies such as Enterprise Ireland and Bord Bia have played important that NPD is still as important as it is to branded suppliers. We doubledsupporting roles as we have grown and expanded the business. the size of our innovation team from five to ten in November 2011. More broadly, one area of weakness we would see in NPD in Ireland isEnterprise Ireland has invested preference shares in Nature’s Best and in food packaging, an area that is critically important to us.we have up-skilled our management team with their help also. Ourexecutive team completed the Enterprise Ireland/IMI 1 Year Transform Any closing thoughts?Programme in October 2009 and our CEO completed the Enterprise Our experience would lead us to believe that every SME shouldIreland/IMD 1 Year Leadership 4 Growth Programme in December complete the Enterprise Ireland Transform 1 Year Programme with a2011. Most recently, I commenced the Enterprise Ireland/Stanford 1 business mentor. It will force management teams to spend a lot moreYear Strategic ‘Leadership 4 CFOs’ programme, in December 2011. We time on developing a winning strategy and that is the key to winningare currently receiving grants and it important to stress the role our more business at home and abroad.
  21. 21. 20 BDO: Advisers to the Agri-Food SectorPallas Foods Dan Geary, Operations Director, Pallas FoodsTell us a little bit about your company? where we are out of stock and further increase order accuracy. OurPallas Foods was established by the Geary family in the early 1980s development chefs work with our customers to develop new menus,and is, today, one of the leading foodservice distributors on the island reduce waste, implement portion control and efficiently manageof Ireland. We have been part of Sysco since March 2009 and employ inventory to assist them to develop a sustainable margin.approximately 500 people. We currently service over 7,000 customersand have a portfolio of more than 7,000 products. We are unique Are we branding Ireland strongly enough in foodservice?in that we offer fresh, frozen, ambient and non-food products, in The opportunity for the industry centres on the perception of Irelandaddition to an extensive wine list. as a green, clean country and further regulation and metrics should be implemented to ensure this reputation can be maintained andHow have the last three years been for foodservice providers in protected. As an extension of this, Ireland should position its agri-foodIreland? industry as a world leader in the protection of animal welfare. It isThe past few years have been very difficult for many of our customers essential to maintain consumer confidence in the safety and quality ofand, throughout the industry, we see that it is those who offer value food produced in their customers who are continuing to perform. Consumers aremore demanding and rightly so: if they are disappointed by a dining Awareness of country of origin in foodservice is much lower thanexperience, whether in a deli or a Michelin-star restaurant, they will in retail. Isn’t that a key issue for suppliers?vote with their feet. As a distributor to the foodservice industry, we It is true that consumer awareness of the origins of food is not ashave seen, and experienced, significant margin pressure throughout strong in foodservice as in retail, where Irish branding and Bord Biathe supply chain and this, coupled with increasing costs and rising quality assurance logo may be evident on the packaging. However,commodity prices, has resulted in difficult conditions for both our consumers who choose to buy Irish in a retail setting can besuppliers and our customers. encouraged to do the same when eating out also. The foodservice industry needs to be encouraged to promote Irish food and IrishHow have you responded? brands on their menus, but alongside this, there needs to be aLike all links in the supply chain, we have been driven to increase system of certification and regulation to ensure the integrity ofefficiency and reduce our cost base to survive. We have also worked the menu increase the value we offer to our customers. By offering frequentor daily deliveries in high-volume areas, across the 32 counties, we How do we meet the challenge of cheaper imports?reduce the risk for our customers in holding inventory. We are in the The challenge of competing with cheaper imports is more evident withprocess of introducing new technology which will reduce incidences commodity items. There will always be a demand for the cheapest
  22. 22. Agri-Food Opportunities and Insights 21 “With strong promotion and branding to drive awareness, there will be an increasing willingness by consumers to pay a premium for quality Irish core ingredients.”food from certain sectors of the foodservice industry and, with thecost base for Irish producers, it is not feasible to try to compete withthese producers. However, with strong promotion and branding to driveawareness, there will be an increasing willingness by consumers to pay apremium for quality Irish core ingredients.What are the key claims Irish suppliers can make, aside from beingproduced in Ireland?Consumers are becoming increasingly conscious of where their foodcomes from and how it is produced. We would see, within foodservice,a strong appreciation for the high-quality core ingredients producedby Ireland’s agri-food sector. There is growing consumer demand forfood that is traceable and safe, while being produced in a manner thatis environmentally responsible and protects animal welfare. The Irishagri-food sector is ideally positioned to capitalise on these consumerdemands and the foodservice industry should leverage this to promotetheir business and stand apart from their competitors.Any closing thoughts?The Irish agri-food sector produces raw ingredients of a qualityunsurpassed anywhere in the world and, at present, there is a growingdemand from consumers for a more honest and natural diningexperience. People are demonstrating a keen appreciation for quality‘centre of plate’ ingredients and we are seeing a huge upsurge in demandfor products and brands such as Hereford prime Irish beef, SlaneyValley Irish spring lamb, Silver Hill Irish duck, Glin Valley chicken andIrish farmhouse cheeses. I believe that the future of the Irish agri-foodindustry lies in a continued focus on maintaining the quality of theproduce and, also, working towards efficiency and reducing costs.
  23. 23. 22 BDO: Advisers to the Agri-Food SectorRosderra Irish Meats Andrew Fleming, Director, Rosderra Irish MeatsTell us a little about the company? we are seeking out tend to be large volume users and we want to sellThe original company was formed back in 1907 in Roscrea, Co. container after container to them.Tipperary, when a group of farmers formed a co-op to market andsell their pork. The business ended up under the ownership of Glanbia Is the international commodity price key to growth then?until 2008, when it was sold to the senior management team. The It’s one aspect of it, certainly, but another is flexibility. While we havebusiness wasn’t a strategic fit for Glanbia, as they were developing 50% of the Irish market, on an international scale we are relativelytheir expertise in cheese and nutrition. We have factories in Clara, small, so we can offer a flexibility that our main competitors – the DutchEdenderry, Jamestown, Roscrea and Stadone and employ approximately and the Danes – can’t. We would argue that, rather than a commodity900 people, with turnover in excess of €250m. We are a major supplier product, we can give a more specialised product and that gives us ato retail, catering and food processors in Ireland and have significant competitive advantage.export markets in the EU, Russia, Asia, North America and South Africa. Do you sell on the fact that you are Irish?How has your focus changed in the last three years? We do stress the quality and traceability of Irish products and ourThe export market has driven our growth over this time. You don’t have standards of animal welfare so, yes, we do play the Irish card. It’s actuallyto go too far to see the number of promotions on meat in the domestic critical in the home market with the Bord Bia Quality Assurance and that has the effect of keeping prices very challenging. A keystrategic decision we have made is to move away from the price-drivenUK market and to reduce our dependency on it. We have successfully “In 2011, 9% volume growth was achievedreplaced it with markets in China, Russia and Japan. Discounting is stilla factor in some of these overseas markets but, as we don’t sell directly and the price of meat went up retailers there and don’t negotiate with them, to some degree we are All told, the value of the pork sector has goneinsulated from that. up by 20% over the last 12 months and theHow have you adapted to the challenge of the home markets? vast majority of that is exports.”Consumers here and in the UK are looking for more for less so it’s aboutdelivering on price, but without compromising on quality. We are veryparticular with our bacon products and so we have to become more Internationally, Ireland has a reputation for quality but that just gets youefficient to survive, which is what we’ve done, by getting our facilities to the table, you have to be able to demonstrate that you, as a producer,more productive and delivering a better quality, more consistent product. offer that quality. Over the years, we have built up a strong reputation for quality and, in fact, our plant number has become a form of our brand.How has your business planning changed over this time?Firstly, you have to go back to the point that, as a business, we are not in Do you see exports scaling up significantly in the years ahead?the position to pick and choose exactly what we sell. You can’t produce The Department of Agriculture, Food and the Marine has targeted 50%more of different parts of the pig that you could sell for a premium, so growth for the sector by 2020. In 2011, 9% volume growth was achievedyou have to deal with all of the pig. In that sense, our business is quite and, also, the price of meat went up internationally, so that, all told, thedifferent from many others, in that it is about revenue maximisation. value of the pork sector has gone up by 20% over the last 12 monthsSecondly, we are lucky in that we operate in a market which is very and the vast majority of that is exports.significant internationally and growing at a rate of 1.5% annually.With the work we have done in our facilities, we have access to the However, we have had to get our cost base right to compete and get allentire range of markets, globally, that provide the best opportunities. areas of the business lean and fit for purpose. We are at a disadvantageWe monitor all our markets very carefully and move, to some extent in that a lot of the raw material for our farmer base is imported – theopportunistically, where prices are stronger. Strategically, we have Irish economy is not self sufficient in animal feed supply and that isdeveloped positions in Asia and have found having a presence on the quite an expense within the supply chain.ground to be very beneficial. We have a number of people there to geta better feel of what’s happening in the market. One issue is that we How have you made your business more competitive?would not sell anything less than container loads, so the customers that With the support of Enterprise Ireland, we have undertaken a lean
  24. 24. Agri-Food Opportunities and Insights 23programme, a root and branch review of all our activities, to see if we can Would you like to extend into the retail space in these third countrybe more efficient. That has come on top of a long culture of continuous markets?improvement and there are a number of areas where we have made At this point, our view is we are operating on a business-to-businessstrides in recent years. Interestingly, we haven’t reduced our labour force, model and we don’t compete with our customers in internationalin fact, it has gone up by over 100 people since we bought the business markets. Engaging with retailers, in terms of everything from managingin 2008. But lean isn’t about cutting staff, it’s about working smarter and promotional activity, to returns, to lead times, is challenging. It can takeproducing a better and more consistent quality product. six weeks to get product to China, so our responsiveness would make us very cautious about that type of move.Are you happy with the overall support the sector gets fromgovernment and agencies? How important is RD to a business like yours?If you look back, one of the critical challenges we faced, as a sector, NPD is very significant, particularly in the Irish market. Pork is a verywas in December 2009, when there was an international recall of well established product so the opportunity for massive NPD is limited.all Irish pork products because of dioxin contamination in one feed Where NPD does come in is around the edges, with different flavours,supplier. That had a devastating effect on business and could effectively sauces, packaging and so on. We would work extensively with ourhave destroyed the industry. The government stepped in and put a customer base to come up with different variants, cures and packaging.package in place to save it and that was very successful, with the funds We have put in a lot of effort in that regard.paid back over the following years in tax revenue etc. In addition, theswift response to the dioxin issue, one could argue, has enhanced our What role do your financial advisers play?reputation abroad as high-quality producers with high standards. BDO played an advisory role at the time of the acquisition in 2008 and have made a contribution, primarily through their corporate financeI mentioned the Enterprise Ireland lean programme already as function. We would regularly touch base for issues or advice, often inbeing particularly beneficial. With regard to Bord Bia, their support, an informal way.particularly with the Bord Bia Quality Assurance logo is very importantin marketing our product in Ireland and people do seek out Irish Is there anything specific you feel the sector is crying out for now?products as a result. That said, there are a raft of other logos out there A pro-business banking culture is critical, as is freeing up funds forthat are probably confusing consumers and we need to work on that. good investment projects and good business people. Pig farmers are quite different from the more traditional farmers in theirWhat about availability of funding? Do you get a sense that banks business focus and don’t always get the credit for that. They get noare more amenable to companies involved in food and drink exports? contribution from CAP and those who have survived the challengesI think they probably are. Thankfully we haven’t had any major issues over the years and are still in business are serious business people.and we have seen banks we have not dealt with before show interest. The industry is self-sufficient to a very high degree and the level ofThe bigger issue for us is our customer base and their lack of funds, government intervention is minimal relative to other sectors. We arewhich has increased our credit risk. That’s been a challenge and we hopeful feed prices will come down and I would see a very stronghave put extra resources into managing it. That said, we have been opportunity for tillage farmers to work with the industry and to set upon the ground in various markets over the years, in some cases for 20 contract fattening enterprises on their farm to complement their baseyears, so we know the markets and the distribution channels very well. business. We will be pushing for that, in the years ahead, to grow theWe have encountered difficulties where people try to grow too quickly national herd.and we have learned to watch for the signs. Any closing thoughts?We also have to consider the challenges our suppliers face. They have We are confident demand for pork is very strong and growinghad a difficult few years, driven by increased feed prices, and we will internationally. Ireland currently supplies less than 0.5% ofhave a very significant challenge in complying with a new welfare internationally traded pork so the opportunity for growth is significantdirective on loose sow housing that comes into effect from January if our supply chain can deliver the raw material. We are here to grownext year. The ability of the supply base to fund the investment needed the business and take advantage of the market opportunities that arehere is critical and, to my mind, the greatest challenge facing the there. There are not a lot of other industries out there that have theindustry right now. luxury of saying that right now.
  25. 25. 24 BDO: Advisers to the Agri-Food Sector outside experts looking in
  26. 26. Agri-Food Opportunities and Insights 25Geoff MeagherPhilip Barlow, BarlowMaree Gallagher, MGA