Irish food manufacturers will need to innovate and create specific products for specific world markets if they are to cope with higher raw material prices and increasingly demanding terms from the major multiples, a food industry specialist with accountants and business consultants, Mazars has stated.

Mazars partner Tommy Doherty says that there is strong anecdotal evidence that over the past two months when Irish and British retailers traditionally negotiate terms for the coming year with their suppliers, the multiples are demanding much more demanding terms from their suppliers.

“We are regularly hearing of instances where the multiples are demanding longer credit periods and higher discounts – and we have heard of one example where a multiple has pushed payments out from 30 days to 90 days and demanded a 2.5% discount on the invoice price.  This might be an extreme example, but we believe that it is part of a trend where the multiples are passing their own higher costs back up the supply chain,” said Doherty.

Add in significantly higher input costs – the price they pay to farmers for their milk alone increased by more than 50% from October 2006 to October 2007 - and food manufacturers are being squeezed at both ends. “What we are seeing more and more is the food industry being forced to absorb rising production costs”.

According to Tommy Doherty, to cope with this two-way squeeze, manufacturers are going to have to be more innovative and one country they could usefully look to emulate is New Zealand whose food manufacturers have successfully developed specific products for specific tastes in specific markets.

“The Irish food and drink industry was worth some €8.6 billion in export sales last year and is a vital element in the Irish economy – both in terms of export sales and the tens of thousands of people employed in the industry.  To maintain export growth at a time when margins are being squeezed requires more innovation by manufacturers, and they could usefully look at how the New Zealanders, despite being located way out on the Pacific rim, have successfully reinvented their own food industry in recent years”, he said.

New Zealand’s success has been its innovative approach to new markets especially but not only in Asia, where growing wealth is seeing consumers shift their eating habits from root vegetables to dairy and meat products.

 “The food industry in New Zealand developed specific measures and worked with external partners to develop new technologies and new products. They created specific products for specific markets and created best practice dairy markets in Asia. And despite being 12,000 miles away from European markets, New Zealand has become increasingly competitive for its chilled lamb and their lamb exports to the EU have increased 40% in the last two years”.

“The Irish food industry has to look more and more to export markets despite the challenges of increased competition, the strength of the euro and rising logistical costs.  It can best achieve this by moving more and more to developing premium products and developing the ‘specific’ model – specific products for specific tastes in specific markets,” Doherty stated.