Food Drink Ireland Business Monitor
Food and drink recovery- Q4 2019 analysis and 2020 outlook
Ireland, along with the rest of the world, is experiencing an unprecedented time of uncertainty as countries attempt to slow the spread of Covid-19. The spread of the Covid-19 pandemic across Europe has put massive strain on companies’ finances and supply chains across a wide spread of industries and the effects of these pressures will have long lasting effects on the economy. Only through a collaborative effort by industry, government and households will the Irish economy be able to mitigate the negative effects of Covid-19 and then gradually recover.
Covid-19 represents a major supply shock to the Irish economy and in this sense, it is very different from previous recessions which resulted from falling demand. After the initial stage of mitigating any economic slowdown due the temporary closure of non-essential services such as restaurants or bars, a robust plan for economic recovery is needed for the food and drink industry. This crisis will damage both business and consumer confidence moving forward and there needs to be appropriate fiscal measures and in-depth industry planning in place in order to rebuild this confidence and help to ensure a full economic recovery.
FDI has welcomed the initial Government announcements of liquidity supports but has called for the introduction of a short-term export credit insurance scheme plus a range of other financing measures including greater liquidity supports and loan guarantees. Even in normal times, food and drink manufacturing has a large financing requirement. It accounts for €2.67 billion of credit advances annually which is 60% of total advances to Irish manufacturing.
Whilst the sector continues to put food and drink on Irish tables, large market outlets for our industry have been decimated. Very specific and more ambitious financing measures will be needed to aid recovery.
Over 250,000 people work in agri-food and drink and supporting services supplying the majority of produce to Ireland’s €15bn domestic grocery and food service/hospitality sector as well as €13bn of exports to overseas markets. Our farmers and food processors have continued to supply high quality food and drink to Irish consumers through grocery and convenience stores but have seen demand largely disappear in Irish food service and hospitality. Exports are experiencing huge difficulties as well, not just in food service and hospitality, but more generally as displaced product creates market turbulence. Restarting the Irish food service and hospitality sector and regaining export market positions are of critical importance to the Irish food and drink industry for the rest of 2020 and 2021.
Ibec’s proposals on supports for business liquidity are particularly relevant to the food and drink sector in light of the substantial domestic food service and hospitality customer base and the disruptions in crucial and longstanding export markets. The proposals include the following list.
1. Inject liquidity to restart domestic food service and hospitality supply chains and improve resilience of exporters:
€2bn State funded zero interest working capital fund
12-month zero interest loans on State supported schemes
ISIF commercial paper purchase programme of €2 bn.
2. Leverage state backed guarantees to increase the financing available to Irelands largest indigenous sector:
Extend the SME credit guarantee scheme to cover re-financing, portfolio cap to 50% & facility cap to €5mn
Remove facility premium on credit guarantee and provide State cover for loan interest.
3. Ensure the expected gap in supply of export credit insurance does not impact on the ability of Irish food and drink firms to export:
Introduce a new scheme covering short term export credit insurance for companies in line with the new temporary state aid framework.
With one in eight jobs in the economy linked to agri-food and drink, these measures are necessary to support the wider economy and not just the food and drink industry.