CNBC European Business magazine, July 10, 2012
In the boom years their industry was rubbished. Now farmers are being asked to clear up Ireland’s economic mess
By Jason Walsh
People say why would you bother, but there’s a quality of life in farming,” says David Johnson, having just climbed down from a large, expensive-looking John Deere tractor. “It’s especially a joy on a day like this.”
It’s 10am on one of the hottest days of the year and, standing in the field where he has been baling grass for two hours, it’s hard to disagree with him. Whether many would feel the same way ankle-deep in wet mud on a freezing January morning is another question.
Nonetheless, according to some accounts Johnson and his ilk represent the future of Ireland. Located in the rural idyll of Redcross, County Wicklow, the farm – one of three he owns – is only an hour from Dublin. Despite the absence of any visible buildings, phones will even pick up a working 3G signal here. Johnson works alone, occasionally drafting in the labour of his retired father – proof, if any is needed, of how much farming has changed in recent years.
For two decades Ireland struggled to lose its agrarian image. Farming, which was regarded as dirty, was out, while high-tech pharma was in. The wrinkle is that many successful industries, including pharma and software, aren’t really Irish at all. Though both are still growing, they are primarily foreign-owned and represent enclaves in the economy disconnected from domestic activity.
Today, though, the recession-hit nation is looking again at its agricultural base, exporting not just to traditional markets in the EU and the Middle East, but also eyeing China’s insatiable appetite for food as a potential growth area. The plan seems to be working, too: virtually alone among Irish industries, food and drink exports increased last year, nudging a record €9bn.
And for the first time in more than two decades, people are starting to notice. “We export to 160 countries,” says Michael Murphy, director of markets at Bord Bia, the state-owned company tasked with promoting food and drink exports. Almost half of these end up in the UK, a third are destined for the rest of the EU and the remaining 25% is split between the rest of the world. It’s a key growth industry in a country that has been watching its GDP slump for the past four years.
The mix of export products ranges from the traditional to the surprising: Irish beef is found on more shop shelves in Europe than meat of any other origin and a fifth of the beef used by McDonald’s in Europe hails from here. Milk, cheese and beverages such as Guinness, Baileys and whiskey make up much of the rest. What few people realise, though, is that Ireland also produces a 10th of all the baby formula consumed in the world.
The sector’s performance hasn’t gone unnoticed. In 2010 the government unveiled its ‘Food Harvest 2020′ development plan and has ambitious plans to raise export turnover to €12bn annually. “The mantra at policy level is that we are going to export our way out of recession, and the food sector will play a large part,” says Murphy.
Despite it’s cloth-cap image, farming is a major industry in Ireland. While tourist visions of rural smallholders still predominate, 120,000 people are employed directly on farms, while 60,000 work in food processing and a further 50,000 provide support services such as IT, logistics and marketing. Farming’s €1.75bn annual payroll is the largest of any manufacturing sector. All told, one in eight Irish jobs are in the industry.
“It’s as important to Ireland in terms of jobs as the car industry would be to Germany,” says Paul Kelly, director of food and drink at the Irish Business and Employers Confederation.
In addition, the economic multiplier effect is significant. It accounts for two-thirds of exports by indigenous business and, unlike Ireland’s foreign direct investment (FDI) sector, is a major purchaser of local raw materials and services. “These very deep linkages into the rest of the economy mean we have a disproportionately positive impact on the local economy,” says Kelly.
Back on the farm, Johnson is well aware of this: “I live here, I work here, the money I make goes straight back into the farm. You’re buying stuff in the local co-ops and it’s all reinvested back in.” In the adjacent field, part of his 300 acres, some of his huge, muscular animals are grazing. About 100 a year are sold for meat, the best ones fetching around €1,600.
Popular clichés about Ireland – the 40 shades of green, the Emerald Isle – didn’t come from nowhere. In fact they came from the sky: the sun beating down on Johnson’s field today is an anomaly. Ireland is wet. Very wet. Average annual rainfall is 1,000mm, twice that in some areas. It’s frequent too, with 150-225 soggy days a year. As a result, Irish agriculture has never had a problem when it comes to grass.
With the end of EU milk quotas in 2015, the country expects to turn its weather into gold. The dairy herd will increase in size and much emphasis is being put on the fact that animals are grass-fed.
For international consumers Ireland’s climate and grass-based feeding means greener milk, something economist Ciarán Fitzgerald says is of increasing importance in the market. “Grass-based production is more sustainable. It has a much lower carbon footprint. In fact it’s effectively a carbon sink,” he says. “The alternative to grass is grain. In the US I’ve seen herds of [thousands of] cows on five acres of land, all housed [in sheds] and all fed on grain and soya. It’s a very, very intensive system.”
Incredibly, this tiny country of four-and-a-half million accounts for a 10th of the world’s dairy trade. The emphasis on dairy is due to the sector’s already strong performance but new markets are being explored, with Asia of particular interest. “One company in County Donegal is flying live crabs and oysters to China several times a week,” says Murphy.
Rowena Dwyer, chief economist at the Irish Farmers’ Association, adds: “There is a foothold in high-quality products such as infant formula and whey-based products, as well as pig-meat opportunities.”
Asia’s growing wealth also means more opportunities within Europe.”When people talk about China and the increased global demand, that won’t be where we’re selling everything,” says Dwyer. “Products from places like New Zealand and Australia could be diverted to China, creating higher demand in Europe in turn.” Europeans are more likely to buy from their neighbours, in other words, when there are fewer non-EU foodstuffs on the shelves.
It’s not all bread and roses, of course. Beef farming, for instance, is subsidised under the EU Common Agricultural Policy (CAP). In fact Ireland, along with Greece, is one of the two largest per capita beneficiaries under the programme – another club, along with the EU bailouts, the country may not want to admit to sitting beside Greece in.
Across much of the EU the recession is biting, especially in Italy and Spain, and demand has fallen in tandem. The focus for Ireland’s beef exports, traditionally sold to North Africa and the Middle East, has shifted towards the EU in recent years because of higher prices (it’s now found in 70 European store chains) but with consumption down and competition up, the future is unclear.
Some aspects of the industry remain resolutely traditional and arguably inefficient, making international competition challenging. In truth, Irish farming is a patchwork of small family operations and there is no appetite for change on this front. This is in stark contrast to some of the country’s competitors (such as Brazil, with its massive herds of beef cattle and low labour costs), yet for Ireland the family farm is sacroscant, even today.
From his economist’s standpoint, Fitzgerald defends the CAP supports, particularly in light of beef production declining across the EU as a whole. “It’s a legitimate subsidy,” he says. “Lots of industries get subsidies, but you get export benefits. We have a very large pharmaceutical industry, which has high barriers to entry in the form of patents. That’s fine, but you have to recognise it is a form of indirect subsidy. Everybody’s doing it – it’s just more explicit in agriculture.”
Brazilian meat producers have benefited from massive low-interest government loans, he points out. “The way they got to where they are is [via] pump-priming.”
CAP negotiations currently underway will, to a large degree, determine the future of Irish agriculture, says Dwyer from the Irish Farmers’ Association. “It is still a huge support for Irish agriculture. We’ve got a 12-month period where decisions on the budget are being made and that will have an impact on the structure of farming in Ireland.”
The nature of the food industry means that few Irish brands are known to consumers. The presence of multinational food companies such as Kraft, Abbott, Danone, Wyeth and Nestlé means many Irish food products are not necessarily identified as such on supermarket shelves.
That said, local brands do have some footprint internationally. Those that are most familiar include Kerrygold dairy products and processed foods such as Goodfellas frozen pizzas. Guinness and Baileys fare best in this regard, along with Jameson and Tullamore Dew whiskeys.
This relative invisibility means that even Irish consumers are rarely aware of the industry’s size and strength, but to Fitzgerald’s mind the problem runs deeper. He says that previous Irish governments have neglected the industry in a rush to make the country appear more modern. “It wasn’t benign neglect. There was a deluded view about the economic footprint of FDI. A 2002 industrial policy report, Ahead of the Curve, dismissed agri-food in favour of banking, pharmaceuticals, ICT and biomedical.”
Fitzgerald turns the traditional view of economic progress, from farming through industry and into services, on its head. “Part of it is the way economics is taught. People assume that as economies mature they move away from agriculture and manufacturing toward services, but that’s only a theoretical view.”
It’s not hard to discern a certain amount of irritation in his argument, and it’s a feeling shared by many Irish people. The Ireland that strove hard to escape the penury of rural handscrabble may not be in danger of sliding back into it, but the confidence that Ireland enjoyed in the 1990s and 2000s has all but evaporated. Leave the streets of Dublin and you will find ‘ghost estates’: unfinished housing developments with few or no residents and little prospect of ever being completed.
Unemployment, which was 4.6% in 2007, is now 14.3%. Emigration has returned to historic levels with 1,000 people leaving every week, property prices have slumped by a staggering 70% from their peak and a biting austerity programme has led to pay cuts and tax hikes. It would be the ultimate irony if Ireland’s rural industry plugged the chasm left by banking and property.
As well as investment in the industry, Fitzgerald wants to see other support, such as pressure being applied to the domestic supermarket monopolies. Taking farming seriously, he says, will create real growth. “We were sold this false vision of what growth looked like and we neglected agriculture. Despite that it has survived, but there’s a way to go in terms of positive support for the industry.”
For him, the argument is simple: farming must be seen as a big contributor to getting the country back on track. “The opportunities are solid, the world demand is solid, as long as people are prepared to look at these things in-depth.”
For David Johnson, money is almost beside the point. What matters more is the farming life. “The money is where the whole country has gone wrong,” he says. “I grew up in the 70s; my summer holidays were spent out stacking bails. We’re the garden of Europe and, potentially, the world.”
But what about when prices are lower and farms aren’t profitable? Johnson is sanguine.”You still get a quality of life. Even when things aren’t going right.” Standing under the endless summer sky, his words make a lot of sense.