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| Greencore's two-year share price movement Source: LSE UK |
The impending battle for the Greencore food group is an apposite metaphor for the challenge facing Irish business as we prepare for a future contraction of both the construction and foreign-owned sectors.
Even in the food sector, where we have natural strengths, we are faltering.
The Irish operations of the former State-owned Irish Sugar Company following the ending of sugar processing at Carlow and Mallow, have become a property play as the group's remaining food outlets are mainly based in the UK where more than 8,000 are employed.
During the Celtic Tiger period, Irish food companies remained in the doldrums as they struggled to respond to rising input costs while their prices were squeezed by supermarket giants. The UK continued as the primary export market.
Recently, I suggested that significantly ramping up our R&D spending with an emphasis on tech and biotech, in the hope that we will become a world-class knowledge economy, does not provide a credible policy antidote to inevitable trends in construction and foreign investment.
We now have a situation where one of our most successful food companies is the target of the property developer Liam Carroll, who has built up a stake of 29.99% - just short of a mandatory requirement to make a bid for the group. His focus is on a development land bank of almost 1,000 acres. Greencore itself has become a property developer with plans for big "regeneration projects" at Carlow and Mallow.
The likely outturn for the group is its break-up with the separate sale of the UK-based food companies and the property projects in Ireland.
Irish food and drinks exports in 2006, exceeded the €8 billion mark for the first time from a total of €86.8 billion.
State food agency Bord Bia said that the prepared foods category showed a growth of 10 per cent in exports in 2006 to reach €1.685 billion - less than a fifth of total food and drinks exports. Increased exports were evident in the pizza, luxury chocolate confectionery and frozen bakery sectors. The category remains very competitive leaving Irish exporters facing a number of significant challenges. Ongoing pressure from retailers to reduce costs combined with rising energy, labour and local authority charges have all impacted on profitability.
In addition, the level of competition from European suppliers on the UK and Continental European markets is further increasing the pressure on Irish exporters.
While 92% of our exports are made by foreign-owned firms, mainly American, Irish owned firms dominate the prepared foods sector. The UK-owned Northern Foods Group however is a big producer of pizzas at a 1,000 person plant in Naas, County Kildare. Another UK manufacturer in Ireland, Cadbury, announced in 2006, plans to cut 450 jobs at its plant in Dublin.
Anecdotally, from a scan of supermarket shelves, innovation in the Irish food sector appears to have been poor in recent times.
We haven't created international brands and productivity has been static over the past decade.
At home, the Irish Farmers' Association is good at bad-mouthing South American beef but across Europe, the steak house brands are Brazilian, Argentinean and Uruguayan.
At one level, there is a successful global product like the Italian chocolates Ferrero Rocher, where design of the package has likely been as important to its success as the product itself.
More often, it's a matter of anticipating everyday trends in the markets and but despite globalization, individual markets will retain their relative uniqueness.
The New York Times noted last week that the lowering of trade barriers more than a decade ago has pushed food companies to scour the globe for more exotic — or the cheapest — ingredients to compete in a more global marketplace, not unlike automakers shipping in parts from all over.
The rise in imported ingredients has been accompanied by an explosion in imported food generally: food imports more than doubled in the last decade, to $79.9 billion, according to the United States International Trade Commission.
The newspaper said that what trade commission figures show is that ingredients are streaming in from more than 100 countries, including China, India, the Philippines and countries in sub-Saharan Africa. In some cases, consumer demand for more ethnic foods in the United States is pushing companies to import harder-to-find foods from exotic locales, but in other cases the phenomenon is simply a function of the way modern processed foods are assembled. The imported ingredients include caseins and caseinates (enzymes found in milk that are used as milk protein substitutes for pizza cheeses) and gums and resins that are used as binders to, for example, give chicken nuggets a certain consistency.
The New York Times says that demand for more imported ingredients has also been propelled by the quest of chain stores and food manufacturers to offer replicable taste. “If you are Pizza Hut, you want consumers in China to be able to taste the same exact pizza in Chicago,” said Catherine Donnelley, a microbiologist at the University of Vermont’s nutrition and food science department. “That kind of uniformity requires that you modify food. You can’t make a natural cheese and expect it to melt and brown consistently.”
While there is a quest for replicable taste, there is also a parallel quest to meet local tastes.
We in Ireland have a diverse a population like many other countries but rising up the so-called "value chain" in food, is not going to be easy.
The food industry missed the Celtic Tiger boat and attracting capital when there are so many commercial property opportunities globally, will remain a challenge.
The current issue of Time Magazine is a special on food and has an article on how Swiss food giant Nestlé responds to localized taste in a globalized world.
Time says that one of Nestlé's biggest worldwide brands is Nescafé instant coffee. But there is Nescafé and Nescafé: the one you buy in Singapore is quite different from the one you'll find in Spain or Swaziland or São Paulo. In fact, the company makes about 200 different types of Nescafé, ranging from the "three-in-one" sachets on sale in parts of Asia — which contain the supposedly perfect mix of coffee, milk and sugar for local taste — to the considerably more expensive jars of freeze-dried Colombian Nescafé aimed at French coffee snobs. And it's not just the brand variants that are different: the 800-or-so components that go into Nescafé are subtly tweaked to fit national preferences.
Nestlé has the biggest research-and-development operation in the food industry, with 3,700 staffers and an annual budget of $1.4 billion.
Of course success in business is more than R&D spend.
At the end of May, the two co-founders of the of the PC industry, Bill Gates of Microsoft and Steve Jobs of Apple, who have been fierce rivals for thirty years, appeared jointly at in a public forum for the first time in twenty years.
"Bill built the first software company in the industry," Apple co-founder Jobs said. "Bill focused on software before anyone."
Gates, the Microsoft co-founder, hailed Jobs for taking big risks and developing products with "incredible taste and elegance".
"What Steve has done is quite phenomenal," Gates said in reference to Jobs' eye for design that resonates with the public . "The way he does things is just different. It's magical."
Steve Jobs said he admired Microsoft's ability to collaborate with other technology companies.
"They learned how to partner with people really well, and I think if Apple could have had a little more of that in its DNA, it would have served it extremely well," he said.
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| Steve Jobs and Bill Gates speaking at The Wall Street Journal’s D: All Things Digital conference in Carlsbad, California in May 2007. |
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