The abolition of milk quotas in 2015 presents a real opportunity for growth of the Irish dairy sector. This growth will require significant capital investment. Producers now have the opportunity to increase herds and invest in land and milking capacity.
Processors will need to install additional capacity to accommodate the increased milk supply. Processors will have to review their product mix to ensure they are achieving sustainable prices and are producing products for which there is an identifiable market. Major questions to be addressed include: what products to produce; where to sell the products; and how to enter new markets. Hence the decisions around strategy and technology have never before been more pertinent to future success.
The goal is for the food and agribusiness sector to be profitable while ensuring it can continue over the long term by managing resources, materials, skills and using appropriate technologies.
Thus, the sector needs to demonstrate efficiency in the use of resources to mitigate any risks that may jeopardise the long term success of the sector. There is likely to be increasing pressure to deliver on such an agenda. The regulatory environment will make these matters more pressing. Innovation will be central to sustaining businesses into the future.
Driving supply chain efficiencies
The supply chain represents a very significant cost to doing business. Reducing these costs is a constant challenge. Efficiencies must be found at all stages of the supply chain.
Current trends show business moving towards leaner and greener supply chains where the focus is on mitigating environmental impact through developing sustainable practices. The supply chain is rapidly evolving through innovation and technological advancements.
The supply chain must have the flexibility to scale up and down as dictated by the seasonality of the produce and demand for the products. Businesses that are behind the curve will become uncompetitive. Every business should have a clear understanding of how they measure up against industry peers. Periodically benchmarking key metrics is hugely important for business decision makers.
Access to funding
Access to funding has been significantly curtailed in recent years. Expansion, exporting and innovating will require investment. It is important that businesses have in place the correct funding structure for their particular needs.
Funding can be sourced from the business’s own reserves through retaining profits, levies and additional shareholder investment or separately through debt financing. Increasingly, companies are availing of alternative funding structures such as joint ventures, SPVs, partnerships and long term lease agreements. Capital can also be released through invoice discounting and assets disposals. Often the lack of liquidity of the equity shares constrains business investment and development, addressing this is a major consideration for management.
Managing the brand is important in differentiating and securing a position in the market. Successful brand management therefore builds the value in the business. Even for businesses upstream in the value chain, they are greatly impacted by the downstream influences of consumers and retailers.
Everyone along the supply chain / value chain needs to be cognisant of trends, preferences and consumer requirements. It is critical to understand the consumer preferences and the needs of consumers and thus position the business and brand in a way that remains relevant for consumers and customers. Therefore the brand offering needs to be aligned to ensure it meets the needs of the target customer.
Exporting to new markets
Ireland has committed to developing the food and agribusiness sector through the vision as articulated in Harvest 2020. Ireland is of strategic importance to the global food sector, particularly in dairy where Ireland accounts for 14% of global dairy export.
It is incumbent on Irish food companies to safeguard our reputation for quality and the integrity of our supply. Therefore it is important to take the necessary steps to mitigate risks to the supply chain. Food companies need to have strong governance around traceability and risk assurance around products and processes in place.
The growing middle classes in the BRIC countries (Brazil, Russia, India and China) present significant export opportunities for the Irish food and agribusiness sector. For many of the world’s largest economies security of food supply is a real issue. Meeting demand will require innovation, tailored products and an efficient supply chain. Successfully doing business in emerging markets is contingent on factors such as import duties, trade tariffs, port clearance, local taxes, bilateral trade agreements and derogations.