Monthly Archives: January 2015

MY CONTRIBUTION TO FOOD STRATEGY 2025

I have posted to the blog over the last few days a selection of some of the answers I have submitted to the Public Consultation on the Food Strategy 2025. I have now brought the complete response together and given it its own dedicated Food Strategy 2025 page on the Agrifood Solutions Blog website so as to place it in the public domain. In a way it is a culmination of 18 months work studying Irish agri-food strategy so it has rather more depth than one might expect for a Public Consultation paper and certainly when one when respondents were given only about four weeks [including Christmas and New Year] to make submissions to the strategy establishing process.

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GRASS-FED BEEF THE AMERICAN WAY

The news that the US beef market is to open its doors to Irish beef has been widely discussed in the last week. It is news that is also accompanied by the use of the words ‘Irish’, ‘premium’ and ‘grass-fed’. Largely, but with reservations, it is seen as really good news for the Irish beef farmer; not least in the light of a difficult 2014.

The US with its large Irish-origin population should be market with real potential for Irish beef. It is also currently experiencing some of the most buoyant beef prices in its history; although that is a fact that will have not gone unnoticed by other beef producers around the World. This may not last forever so going premium is a logical step for Irish beef producers; not least when the Irish beef producer is of a somewhat smaller scale than most US beef producers or Ireland’s international competitors. Does, however, grass-fed offer the way to that premium?

One could be forgiven for thinking that so often does one hear about Ireland’s grass-fed livestock systems that they do offer some form of unique selling point. In reality it is far from the case. True the seasonal, spring-milk model that it shares to a degree with New Zealand is different. With beef it is not so clear. Yes, a great deal of beef around the world is grain-fed from beef-lots but much is fed and finished on a combination of grass and forages supplemented by cereals, corn and proteins. But just how much is grass/forage-fed and finished?

In the excitement surrounding the opening of the US market, too few people have stood back and asked just what is grass-fed beef and will being grass-fed mean access to premium-priced US markets. Even fewer seem to have actually asked the question as to whether Irish beef will actually be considered as being grass-fed. The assumption appears to be that the US market is just sitting their awaiting the first shipments of premium, grass-fed beef.

The reality is, however, that ‘grass-fed’ is already in the US market and doing rather well. Indeed, it has not gone unnoticed in Ireland that it is a market segment that is considered premium and growing rapidly. Also flagged up is that the segment is about beef reared without the use of growth hormones. Less is made of it being GM-free although, as one will see, the designation of grass-fed in the US pretty well guarantees that the cattle are reared on a GM-free diet [also there is now a new USDA non-GMO project that is approving designated non-GMO beef]. In fact, it is quiet feasible for Irish beef to be grass-fed, hormone-free and, with a little effort, GM free. So why is the author not quite so excited as others about the prospects for Irish beef in the premium US markets?

When one is enthralled with lush green, rain-fed Irish pastures it is easy to over-look that cattle are also reared on far more extensive rangeland pastures. They may grow more slowly and in more arid conditions but they will, in due time, produce grass-fed and grass-finished beef. This, one can easily forget, is the traditional way beef was raised in the American West. For some, the extensive rearing of beef on biodiverse pasture may also be the way beef should be reared. It may be a ‘heritage’ product. And it may be what grass-fed Irish beef will compete with.

One should also be aware that ‘grass-fed’ in the USA is something more than a marketing tag. It is something that the USDA and the American Grassfed Association take rather seriously as per the USDA press release below.

“WASHINGTON, Oct. 15, 2007 — The U.S. Department of Agriculture today issued a voluntary standard for grass (forage) fed marketing claims. The standard… is titled the U.S. Standard for Livestock and Meat Marketing Claim, Grass (Forage) Fed Claim for Ruminant Livestock and the Meat Products Derived from Such Livestock.

The grass fed standard states that grass and/or forage shall be the feed source consumed for the lifetime of the ruminant animal, with the exception of milk consumed prior to weaning. The diet shall be derived solely from forage and animals cannot be fed grain or grain by-products and must have continuous access to pasture during the growing season…. [The rationale behind the standards introduction being that] Increasingly, livestock and meat producers are using production or processing claims to distinguish their products in the marketplace. USDA’s Agricultural Marketing Service [AMS], through its voluntary certification and audit programs, verifies the accuracy of these claims. The proposed standard will establish the minimum requirements for those producers who choose to operate a USDA-verified program involving a grass (forage) fed claim”.

And from the American Grassfed Association’s website their definition of “What is grassfed?

The American Grassfed Association defines grassfed products from ruminants, including cattle, bison, goats and sheep, as those food products from animals that have eaten nothing but their mother’s milk and fresh grass or grass-type hay from birth to harvest – all their lives. They are also raised with no confinement and no antibiotics or hormones, and must be born and raised in the U.S….. The USDA defines grassfed as ruminant animals fed solely on grass and forage from weaning to harvest with no confinement during the growing season. AGA has developed a certification program and our own set of stringent grassfed standards”.

Having looked at the latter one would say that it is a standard that includes a high degree of common sense – it is aimed at making it a workable standard across the many varied climate zones of the US. As with organic it comes with an extensive set of rules and regulations and it has legally-protected logos and trademarks. The rules relate to grazing practices, grass and forage usage and specific regulatory controls over dietary supplementation.

More recently [in September 2014], the USDA went further with the Standard. To quote; “The USDA Grass Fed Program for Small and Very Small (SVS) Producers was designed as a verification tool for small and very small producers to certify that animals meet the requirements of the AMS Grass (Forage) Fed Marketing Claim Standard. For this program, USDA is targeting producers that market 49 cattle or less each year…. As part of USDA-wide efforts to create more opportunities for small-scale livestock producers, AMS designed a less costly application process for SVS producers, using the USDA Certified Grass-Fed claim as its first example”. Hence, the program will enable many more small beef producers to market their beef as USDA certified grassfed beef.

One can, therefore, be pretty confident that the AGA or the many [and expanding] number of US grassfed beef producers [or the USDA for that matter] are going to be too willing to accept a loose Irish definition of ‘grass-fed’ to be bandied about the US beef market. Having said that, the AGA website also states:

“Question: How can I be certain the product is truly grassfed? Answer: The best way to ensure that the product is truly grassfed is to look for the AGA logo on the label. Only producers who meet our strict standards can achieve certification. Current USDA labelling for grassfed can be very misleading. AGA standards and seals assure you that the product you are buying commits to the following: that the animals can only be fed grass and forage, can never be confined, never receive antibiotics or hormones, and must be born and raised in the U.S”.

Hence, one can assume that there is room to use the term ‘Irish grass-fed’ in the US beef market. One can also assume that it will be challenged in the marketplace by the AGA and others. Will Irish exporters then be able to support their use of the term ‘grass-fed’ in a way that will be accepted and recognised by the US beef consumer? It needs to be able to do so and it is a further reason why the author stresses that the Irish farming industry needs to clearly define its products and their origins and to market them in a crystal clear and holistic fashion.

Over the last few months there has become a constant theme to my writings. It is that Ireland has to start to develop farming systems and routes to market that can produce, deliver and sell premium products with origins that are transparent, documented and designated. It is the same with beef to the USA. Ireland can produce high-quality beef that is predominantly grass-fed and it will be on-farm and in-factory quality-assured, but will that be enough to reach above the 60-70% quality mark within the market place? Yes, some can be from the Aberdeen Angus or Hereford schemes that guarantee that the beef is sired by a bull from those breeds; but neither will be a unique selling point in a US market where both breeds are very well known.

To really reach the upper echelons of the US market [and other international markets for that matter] will need products with unique selling points and that is possible, but it will not be done without working out what they are and how they fit into the US beef market. In the meantime we need to be careful not to over-play the grass-fed card in a market which already has its own well-defined ideas of just what are ‘grass-fed’ livestock products, beef included.

MITIGATING POTENTIAL MARKET AND ECONOMIC RISKS

Risk is a term that has been thrown around a lot recently. It is, however, something that those in farm management have been working with since when humankind first started farming. Risk is still about farm management and not about creating new ‘financial tools’. The following is another answer to the Food Strategy 2025 and in it I have taken the opportunity to express a few thoughts about risk mitigation.

Question – What measures should be taken to mitigate or better manage potential market and economic risks?

Given the current talk about risk and price volatility one could be forgiven for thinking that these are something new to the agricultural and food industries. Far from it, farming has a very long history of risk management. It may well be as a result of greater ‘investor’ involvement from other business sectors or enhanced interest from ‘city’ financiers, but there appears to be much more talk about risk management in agriculture that there ever has been. It may also be that those selling risk management tools may be more active in promoting the idea that they have products that are relevant to and should be employed widely within the agri-food and farming sectors.

One could start by saying that the oldest guiding principle of farm management is to diversify one’s food producing activities so as to minimise the risk to the food supply to the farm household. It probably goes back thousands of years. It is also a principle that was well known to our immediate forebears and was widely implemented until at the least the 1970s. It is almost certainly still a guiding principle for many in the industry today. It is encapsulated in the saying that ‘when hoof is up corn is down and vice versa’. It is about having a diversity of farm enterprises so as to reduce the risk of being exposed to adverse trading conditions relating to one particular farm product.

A similar principle applies to marketing. A diversity of market outlets [and or supply-chain trading partners] used to be considered a good idea. The diversity provided an element of guarantee that you were not exposed to one specific market or, easily forgotten, that you were not exposed to the failings of one primary supply-chain trading partner. The latter is a point that Irish beef farmers are certainly aware of given the problems that have faced due to them being locked into a very few routes to markets with few or no alternatives. For the Irish dairy farmer, just how many are locked in [by catchment area] to the success of their local processing co-operative?

For those brought up in the rarefied atmosphere of the modern business school, a multi-enterprise, multi-market business is an anathema. It is all about specialisation. Vertical integration whereby the producer seeks to have greater control of what happens up or downstream within the supply chain they operate in is just yet another anathema. It is simply far better to specialise and to benefit from thus derived supply-chain efficiencies. Somehow one suspects that this is the kind of thinking that dominates the formation of Irish agri-food industry strategy.

So what can Ireland do to mitigate against market risk?

a) Ensure that your entire supply-chain is competitive within the targeted market

This is probably the most fundamental of issues within the Irish agri-food system. From an outsiders perspective it appears that markets are being targeted without due regard for whether the primary producer within the supply chains is able to compete with their counterparts elsewhere. When prices are high this issue is well disguised. As they fall it becomes highly problematic; not least when there is a massive imbalance in trading weight within the supply chains [as in Ireland] as this transmits the price falls to the primary level. Elsewhere, farmers may own a greater proportion of the supply-chain [and the margins there within] or be of a far greater operational scale [thus benefiting from economies of scale]. In Ireland in some sectors [beef] there is little protection for the small-scale Irish farmers whilst in others the farmer may own a part of the supply-chain [but it is a part that is in itself being squeezed by more powerful, supply-chain partners who control the secondary processing and the brands].

b) Ensure that there are more not less supply-chain options for primary processors

There is a fixation in Ireland with consolidating the processing sector in the belief that this will generate economies of scale that will make the entire supply-chain more competitive. Indeed the beef processors [at least they do in the UK] like to cite this need so that they can pass on the benefits of their lower costs to the primary producer. It is, however, a low-margin-per-processed-head business so the potential gains for the primary producer may only be minimal and certainly insufficient to offset the massive scale disadvantages that Irish beef farmers have when compared to other producers supplying the global market [another example of a) above]. The question is, will even a fully consolidated processing entity in Ireland ever be able to compete on the global markets? Probably not.

If consolidation is not an option, should one be asking whether a fresh look should be taken at the structure of the processing sector? Is it time to consign the consolidation idea into history? A major problem with too few entities operating within the supply chain is that dynamism can be lost, both in terms of competition and in terms of the development of new products and markets and the evolution of new routes-to-markets. There is also an inherent risk in having too few players making the decisions for a combined processing and farming sector [not least when the farmers are locked in to supplying them by there being too few selling options available to them].

The author would suggest that the point has now been reached where [although the current structure has been successful in moving Ireland from a basic commodity producer-exporter] one has to ask if the agri-processing model has to be re-thought so as to help refocus Irish farming at the top of the international food markets.

With respect to creating new routes to market Annex B includes a recommendation that consolidation should still be sought but not at the processing level. The recommendation is that consolidation happens further downstream and with the distribution and sales activities; thus facilitating market access for more, not less, local processors.

One has mentioned on numerous occasions above that Ireland needs to first develop a strategy for rural Ireland first that includes farming, local food processing, employment and community development and environmental measures. The globalisation versus localisation argument also suggests that Ireland needs to focus on developing local products that can add value to farm produce and create local employment; thus focusing activity in the local economy [as opposed to a very sweeping focus on increasing national exports]. It is an approach that balances the family farming structure and the needs of rural Ireland with the [real] premium food markets. It does, however, need an alternative means for products to move from rural Ireland to premium international market and this is unlikely to happen by following the idea of further consolidating the processing component of the supply chains.

So what can Ireland do to mitigate against economic risk?

a) Limiting routes to market means limiting options for farm diversification

Operating a diverse farming business that sells various products is a classic risk reduction strategy. In Ireland it is, however, limited by the lack of available routes to markets. With its small population [especially in rural areas] the options for income from local sales is limited. The problem is that agri-food strategy is too focused on expanding the single enterprise farm and in a way that it is a raw material supplier to a major processor. In such a scenario the farm business is fully exposed to the risks associated with the marketing decisions of their supply-chain partner. If the latter decides to compete in the global markets and to expose its suppliers to competition from far stronger farming entities elsewhere in the World there is nothing the individual farmer can do about it. They are fully exposed to the vagaries, speculations and volatilities of global markets. This is what has and is happening in Ireland and there is very little that the individual farmer can do to reduce this imposed risk exposure. They need options in terms of different routes to markets but they are not being offered them [indeed the agri-food strategy is to limit them] and this is going to have serious consequences in the coming months for Ireland’s dairy farmers [as has happened to the country’s beef farmers]. It is simply a result of placing too many eggs in too few baskets.

b) Shorten and control supply-chains to get closer to the final retail consumer

Another way to reduce economic risk is to shorten supply chains and to get closer to the final consumer. It works even better if one can retain ownership of the supply-chain itself [either directly or as a socially-owned entity]. Apart from the potential for enhancing the proportion of the supply-chain margins being received by the primary producer, it also distances the business from exposure to global markets. The development of farm shops is an example of how farms can mitigate against economic risk. As a solution it is, however, limited in Ireland due to the size of the rural population and the scarcity of rural towns. There are nevertheless alternative solutions to more closely connect Irish farmers with [preferably issues-aware, premium paying] consumers. These need to be more fully explored so as to enable farmers and local processors to access far wider markets. Yes, there are initiatives in place but they are too often constrained by support being limited to food businesses that can [or want to] scale up significantly. Again, it is too much about increasing exports and too little about local, rural economic development.

c) Committing farm expenditure in ways to mitigating against economic risk

There is a school of thought that suggests that economic risk can be mitigated against by using financial ‘tools’ that can hedge against market downturns. In the current times of falling milk prices much is being said about how the volatility on prices [that is apparently a characteristic of global markets] can be minimized for the farmer. This is, of course, happening at a point in time that coincides with the end of EU milk quotas but, in part, that is coincidental, although one would expect that the market is factoring in an expected milk supply increase in the spring of 2015.

The author has spent a lot of time in countries where, farm income fluctuations are great due to drought-created crop failures. This may not equate to price volatility but it has the same impact on farm incomes. Invariable the government is called upon to mitigate the impact and, nearly as invariably, someone starts talking about creating a crop assurance package so the farmers pay a premium and the financial markets then pay income compensation.

Hence, is the creation of financial instruments the way to go? Firstly, money cannot compensate for a food supply loss [or a fodder supply loss in times of a widespread supply failure]. Secondly, someone has to pay for the creation of the financial tool and for the cost of running the risk mitigation programme. The cost will include administration costs plus whatever the market will require to provide what is, in effect, income protection. It will probably not be cheap and will likely eat significantly into dairy farm incomes and, more so, profits. The use of financial tools to support what is volatility within normal trading conditions is not common in the EU and that is for a reason. It is more common with crop assurance in the USA but one hears varying comments on its success.

Using farm expenditure to mitigate against risks created by a dairy farm being placed in a competitive position against farm more powerful ‘rivals’ and in a situation where they are the primary producers in a supply-chain that places products into a highly volatile global market is questionable. One would suggest that there are other ways to mitigate against such market risk but that will means some change in strategic focus in the Irish dairy sector.

In the drought conditions mentioned above, the long-term solution is to focus investment on irrigation rather than crop assurance. What is irrigation other than a risk mitigation tool? Within the EU there is the use of, say, hail insurance in the high-value cropping sectors, but otherwise risk mitigation is about capital investment and employing husbandry practices that reduce risk. Simple examples are land drainage on the capital side and the regularised use of pesticides on the annual cost side. Making silage instead of hay has its origins in risk mitigation.

In an environment where farm management is already playing a major risk management role, is there the need to take on the further costs of financial risk management tools? And one should remember that even forward selling and long-term price fixing contracts are such; and they will all have a significant cost that transfers funds from the farming industry to the financial industry. The author for one would certainly prefer to see the industry in Ireland develop other market and economic risk mitigation tools first; not least because the scale of the typical Irish farm is already competitively weak when it comes to the crucial activity or creating an income for the farming family. It is unlikely that it will also be able to sustain the costs of what would, de facto, be an income protection policy.

THE RISKS FACING THE IRISH AGRI-FOOD INDUSTRY

Another abstract from by submission for the Public Consultation on FS2025.

The question: What do you consider the most critical risks facing the Irish agri-food sector and rank in order?

The following will of course relate back to comments made elsewhere within the questionnaire and the Annexes. Although the risks are numbered, equating this to an exact ranking is something of an inexact science.

1. The risk associated with not prioritising the creation of sustainable family farms and farm incomes

Simply if Ireland’s family farming model is not viable and does not create equitable returns to farmers, the whole agri-food industry becomes a ‘house of cards’. This does not necessarily mean that every farm has to produce a living income for the family but it does mean that the farming family has to be able to derive a living income from the farm and other employment within the local area. This may mean working on adding value to farm produce or in other rural-based industries like tourism. It is why one says that the beef crisis is not a beef crisis but a rural crisis as the beef production model in much of Ireland requires the farming family to have other income sources. It is why a strategy for rural Ireland is suggested as the priority.

2. The risk associated with giving priority to one sector of the agri-food industry over another

It is difficult to deny that there is a massive imbalance between Ireland’s family farms and its agri-food sector dominated as it is by a very few major players. Yes, there are the farmer-owned dairy co-operatives in the mix but how much of their produce still goes to supply-chain partners who are multinational by ownership and operations? With its targets on export growth and raw material expansion, it is not difficult to conclude that the priority within the Food Harvest 2020 strategy lies with an agro-industrial food processing sector of maybe 10-12 entities. And one could ask just how many strategic advisors have food industry experience as opposed agricultural and rural development experience? Even the lauding of FH2020 on the back of increased export values whilst farmers are seeing flat-line or declining incomes seems a little disingenuous whilst also hiding the fact that a successful food supply-chain has to be successful for all of its supply-chain partners.

One should also remember that one person’s raw materials is another person’s premium product; more so when you have a highly disparate trading relationship. If the former is a multi-national with a loyalty to is shareholders, one would expect it to keep its supplier options open and not to get overly-committed to one supply source. For their suppliers that may of course mean being tied into a supply-chain that does not wish to give credit for their premium raw materials [more so when their supply-chain partner is more interested in developing their own brand rather than a brand that is partly linked to the origin of their raw materials]. It is a case of good commercial practice coming into direct conflict with the interests of their supply base in one of their supplier countries. This is a risk for the raw material suppliers in that particular country and it is a risk that should be mitigated against [rather than embedded] by that countries agricultural strategy.

3. The risk associated with giving priority to the short-term when farming and food is long-term

If the author was to choose a single phrase to exemplify the FH2020 strategy as it pertains to the milk sector it would be “thinking short and planning long”. Agriculture is a very long-term business and when farming is a family business it is multi-generational. A major consequence of FH2020’s expansionary objectives is likely to be felt in 2015 with what is now being foreseen as a major crisis in the milk production sector. It may well metamorphose itself into something similar for the farmer-owned milk processors as they seek to support their farmer suppliers whilst having business plans that are insufficiently robust to do so beyond the short term. A part of this crisis can be attributed to excessive hype over the short-term market signals from 2008 to 2010 and a failure to analyse their likely impact over the subsequent years [at least to a point where Ireland could join the expansionists party in 2015]. It is imperative that markets are properly analysed and evaluated and from both the demand side AND the supply side. It appears that too few undertook the latter with the consequence that whilst new milk supplies are now coming on stream it has only taken a couple of demand-side hiccups to crash the global dairy market. Setting strategy is about undertaking in-depth market and economic analysis otherwise the strategy carries the inherent risk of just sending out the wrong signals.

4. The risk associated with continuing with a strategy that promotes commodities over products

This returns to the twin or triple-track strategy proposed earlier. One accepts that for the foreseeable future Ireland will need its agro-industrial, agri-foods sector to shift its milk production that is focused on milk solids and its beef production that is focused on the EUROP grid. Whether this will ever be sufficient to enhance the returns to the smaller-scale Irish family farm is another matter. In the end the author believes that into the long-term Ireland must be competing for the top 10% of the World food markets and that it must have the necessary products to do so. If one considers those products to be of a multi-characteristic, designated-origin nature that appeal to issues-aware consumers across the ‘developed’ World then Ireland’s current offering to the market is very short of what is needed. These will take time to develop and the longer the agri-food strategy remains focused on commodities [premiumised or otherwise and/or produced in an industrial scale factory] the greater will be the risk to the long-term future of Ireland’s family farms. And one should not forget that whilst Ireland is trying to compete on the global markets [as unsuitable as they are for its farmers] others will be exploiting and developing the very markets that Ireland needs to be competing within.

5. The risk associated with focusing market development on markets unsuited to Ireland’s farms

To compete in a food market, be it local, national or global, all of the components within the supply-chain have to be sustainable. There can be brief periods when one or more of the partners can be loss making but essentially, over the long-term, all have to be financially viable. Is this the case in Ireland or are off-farm incomes and/or transfers from the tax payer [in various guises although some may be rightly construed as payments for environmental management services] actually subsidising the farm’s produce? Is this likely to change in the short-term? If not, should agri-foods strategy be focused first on finding market-financed solutions to improve the returns to the farm from farm produce sales? And if it does not, is the industry itself running the risk of building its future on the weak foundations of a largely unsustainable farming sector?

The following is a paragraph the author wrote recently about the Irish beef industry; “The absolute priority is to work within the constraints placed upon the beef industry by, for example, its small-farm structure and fragmented land ownership. This is simply the situation as it is and there is no sense in creating plans that ignore this fundamental starting point; not least in a beef industry that is characterized by many tens of thousands of small family farms. Solutions for the future of the beef sector have to take account of the wishes of those who have ownership of the agricultural sector’s primary asset, the land. Further, they have to consider that the family farming of beef is a fundamental part of rural Ireland and the farming-focused communities therein“. This is the starting point for an agri-food strategy for the beef sector and thereon it is about finding markets that suit the products that can be derived from the farming structure that actually exist in Ireland. The rest of the article, as it appears in Agrifood Solutions’ blog is included in Annex H.

6. The risk associated with further reducing the route to market options for Ireland’s family farms

Reducing the number of entities in the processing sector [to improve efficiency and gain economies of scale] is often cited as one solution for Ireland’s agri-food sector. The farmer-owned co-operatives Fonterra, Friesland-Campina and Arla are all given as examples to follow. These examples are, however, poor ones in that Ireland’s dairy sector is already dominated by two publically listed companies who are unlikely to vote to join a mega co-operative. The beef sector is also privately owned. Hence, is there going to be any real gain from consolidating the processing side further?. The author would argue that what farmers need is an array of dynamic smaller-scale processors and the greater sales opportunities created by more, not less, routes to market [albeit with as suggested, consolidated distribution and sales activities]. Without these farmers are exposed to the risks associated with major supply-chain entities getting it wrong or just [rationally and, according to their shareholders, properly] taking decisions that are not in the interests of their Irish farmer suppliers. Monopolies or oligopolies within the supply chain just mean greater risks for farmer suppliers.

7. The risk associated with over-playing the ‘green card’ in developing new market for Irish products

The author is an outsider to Irish agriculture. He has also spent many years in probably the most biodiversity rich region in Europe. It is light years away from many of the intensively farmed pastures of Ireland that are sown with ryegrasses and fed with imported nitrogen. Yes Ireland is said to be forty shades of green, it is called the Emerald Isle, and its national sporting colours are green but that does not, by default, mean that is food products are green. The author has even read the argument that Ireland should not have to comply to CAP greening measures because it is the EU’s greenest country already! This is not an attitude to take into the market development of a truly green image. More likely it will lead to a green version of horse-gate.

If Ireland is going to truly exploit its colour-green image it needs to take to the market products that have green characteristics that can stand up to the full scrutiny of highly-aware consumers. Broad-brush green branding may work in a B2B context where supply-chain partners are looking to enhance their own green credentials but is that going to translate to the price premium necessary to make Ireland’s family farms sustainable? More likely it will need issues-aware consumers to pay a price premium for Irish products. Thus Ireland needs to be producing these products and to ensure that they have integrity. In a nutshell, believing that selling green is all about branding and sales talk just runs the risk of undermining Ireland’s potential long-term position as a supplier of premium and green food products to the World’s top 10% food markets.

8. The risk associated with focusing on climate-dependent, high-input, grass-fed farming systems

It is easy to assume that using a mainly grass-fed system is also be a low-risk system. It is, nonetheless, a system whereby performance is highly weather dependent and pushing the productivity boundaries can also increase those risks. A lower-risk system will leave significant flexibility to absorb any climatic variances but it may also not be the most economical [the monetary difference being the ‘cost’ of the ‘insurance’ policy]. As the farm targets higher yields and production levels, the climatic risks increase. If the higher production levels also require significant investment, the financial and, possibly, debt-related risks will also rise accordingly.

One frequently hears about maximising grass production but one should also be aware of the risk of forage shortfalls and high stocking levels [as demonstrated by the recent fodder crisis]. Variable climatic conditions can also mean abundant grass but an inability to conserve forage or to conserve high-quality forage. Drought conditions can mean the opposite [one cannot imagine many Irish farms considering irrigation to mitigate against drought]. Late springs and tight February/March calving can also have an associated climatic risk. It is certainly anything but straight forward and it is the individual farmer [as opposed to the strategist] who has to work out the right balance between productivity target and risk. And it should be remembered that for some farms the answer may be very extensive systems that focus on producing premium-quality products.

9. The risk associated with operating dysfunctional supply-chains when partnerships are required

The author highlighted the importance of strong supply-chain partnerships in Annex E – ‘Irish beef and the need for a parting of the ways’. The Agrifood Solutions blog post focuses on how the UK retail beef market has evolved in recent years. It is also continuing to rapidly evolve and it is all about developing very strong supply-chain relationships for fresh retail beef. It has been evolving for a number of years but has accelerated since the horse-meat scandal. It is about creating very transparent farm-to-retail-shelf supply chains that confer the maximum of traceability on the retail product. The strong farmer-processor-retailer relationships are also the basis for ensuring that the market/retailers specifications are met. Of course, as everyone should now be aware, this has included the renationalisation [or localisation] of the UK retail beef market and that has been at the expense of the Irish beef producer who now largely fulfils the role of shelf-filling back-stop.

The important point here though is the evolution of the strong farmer-processor-retailer relationships as per Waitrose, Dovecote Park and its beef suppliers. These are examples of how beef farmers and processors have to act to supply the real premium markets. Alas in the case of Ireland, if anything those involved with the beef supply-chain are moving further apart and into more antagonistic relationships. This does not bode well for the exploitation of premium market opportunities [like the USA]. This situation also creates a risk to the future of many of Ireland’s traditional beef farmers. It is also not a long-term risk, it is an immediate one. And as is said in Annex E, it may take some radical new route-to-market developments to change the situation.

10. The risk associated with contagion across and within the different agri-food sectors in Ireland

A question one has to ask is; what lessons have been learned in Ireland from the likes of the BSE crisis and, more recently, form the horse-meat crisis? A particular one that needs to be learnt is that it is important to reduce the risks of contagion whereby a crisis spreads between and within agricultural sectors. Not only does the author disagree with the Irish preference for broad-brush branding of its products but he is also not a fan of the use of quality assurance schemes that are designed to be all inclusive and bring all farms under one assured umbrella [it does little for creating the unique selling points that real, premium products need]. The risk is that when all products are marketed under one generic, ‘Irish’ label a single incidence of, say, horse-meat contamination can impact upon the entire industry. With BSE it was a dairy sector problem that through contagion impacted upon the suckler beef sector for many years. The use of generic branding, labelling and assurance schemes leaves little protection against contagion and exposes more sectors of the farming industry than necessary to a food scare. The potential for the use of ring fencing to mitigate against risk is also limited. By chance, broad brush branding will also not create the premium products that Ireland needs.

11. The risk associated with creating strategy without in-depth options, market and economic analysis

If a national strategy is to inform those working within an industry about the direction that the government wishes them to follow, it is beholden on that government to ensure that everything possible has been done to guarantee that the strategy is well prepared and solidly constructed. If not, is there a risk that the industry will be misinformed and misguided. Is there not such a risk here with the limited methodology being used?

12. The risk associated with listening to market-hype rather than relying on in-depth market analysis

In a similar vein, it is critical that those responsible for establishing a national agri-food strategy do so on the basis of having undertaken a thorough analysis of the relevant markets. This means both the demand and supply sides. The current crash in the dairy markets can be attributed to too many people around the world investing in dairy on the back of a very hyped-up demand situation five years ago. This triggered both milk processing and milk production investment which due to investment lags is now coming on stream [plus the market is anticipating more EU milk from 2015]. Good supply side analysis should have seen this imbalance in supply and demand coming and it should have been flagged up as possible in the FH2020 strategy. It may then have done something to reduce the possible risk of Ireland investing into a serious market downturn.

13. The risk associated with creating strategy when not fully costing raw material production costs

One often reads about production costs in Ireland that do not include the costs of farmer and family farm labour and a return upon some major capital items. As pointed out in a letter to the Irish Farmers Journal, the costs of production for milk do not include “some farm business costs, such as the farmer’s own labour”. It appears that milk production costs often only include a very small labour cost and that reflects paid labour only [of which there is little in Ireland]. One expects that the cost of production accounting line is actually drawn to allow international comparison with labour, property and capital costs being excluded to avoid what may be their distorting effects on the comparative data. This is an ‘academic’ exercise but it is one that feeds the illusion that Ireland is a low-cost producer of milk as it ignores farm scale. And scale of production is very important in an Irish context because it is the ‘multiplier’ that produces farm income.

The Irish farmer needs a living wage and this should be imputed in before considering the final cost. A land rental may also make sense to account for capital tied up, even if it is only to reflect interest that could be earned elsewhere. Factor all of this into the costs on a 60 head dairy herd that is the full-time occupation of the farmer and you might find that another €30,000 is a part of the costs, which at 5000 litres/cow is another €10 per litre. There are times when full-cost accounting is a necessary evil and this is one of them as without it the talked about cost of production may be highly misleading when it comes to, for example, establishing a national agri-food strategy where Irish family-farm-produced milk is the primary raw material used by the country’s agri-foods sector. The production costs as per an international comparative methodology may look notable but this is of no use to man nor beast if total farm income is simply too low to be sustainable.

14. The risk associated with going off ‘half-cock’ in the important-in-the-long-term US food market

One is greatly concerned about the potential for Ireland to overplay its ‘Irish’ credentials in the US market and to assume that just being Irish will be sufficient. It may lead to products being marketed with a price-quality relationship that is inappropriate. The US has a mature market and the premium-foods segment that Ireland needs to target will be an issues-aware one [as much as elsewhere internationally]. A case in point is the grass-fed label. There is a growing movement surrounding grass-fed/pasture-fed in the US and it is about raising/ranching cattle on grass so consumers will want to know exactly what is meant by ‘grass-fed’ within the context of Irish produce. It is not clearly defined and the risk is that some will attempt in the short-term to sell Irish beef products into the US using generic branding that makes broad, unclarified claims about it being grass-fed. This initial lack of definition may then undermine the credibility of later sales.

15. The risk associated with the Transatlantic Trade and Investment Partnership agreement

Annex F includes an Agrifood Solutions blog post about TTIP. Whilst it recognises the concerns that some Irish MEPs have over the potential impact that TTIP may have on, in particular, the Irish suckler beef sector, the blog states that a greater threat to the Irish farmer may come from Irish agri-food strategy itself rather than TTIP per se. This is again about ensuring that Irish farmers are a part of a supply-chain that builds upon their strengths as opposed to exposing their weaknesses. The article is about Ireland focusing on producing high-value, premium products that compete in the top 10% of the foods market place with the kind of designated origin products that are more likely to originate from marginal zones within the EU where farms are generally smaller [and probably family run]. It is about Ireland’s farmers being asked to compete like versus like.

CREATING AN AGRI-FOOD STRATEGY FOR RURAL IRELAND

The following is another extract from the submission I have written for the public consultation on Food Strategy 2025.

Question – How can the strategy for the agri-food sector be improved for the next decade?

As a follow-on from the paper [Annex A] on the success of Food Harvest 2020 and as a result of the conclusions from the broader review of Food Harvest 2020 [AFS FH2020 Review complete report], the proposal is that a twin-track strategy is required for Ireland’s rural, agricultural and food sectors. This was originally presented within a blog posting as per Annex C.

Upon writing this response, the idea has evolved to create a triple-track strategy as in the following:

1. An overall umbrella strategy for Rural Ireland to include the following sub-strategies to:

a) improve the viability of the Irish family farm primarily by enhancing output value
b) increase value-added food processing on-farm and/or within the rural community
c) create efficient routes-to-market for rural, small-scale, premium-product producers
d) integrate environmental and landscape management practices with farming systems
e) increase non-farming/food income sources for farming and non-farming rural dwellers

2. An overall umbrella agri-food processing sector strategy with the following sub-strategies to:

a) improve the returns from the existing farmer-owned co-operatives to the Irish family farm
b) support those family farms wishing to scale-up to supply processors more efficiently, and
c) an overview [to inform 3c/d] of how private-processors see their own ten-year evolution

3. Farm advisory and research and food-sector technical, marketing and sales sub-strategies for:

a) the advisory and research needs of the Irish family farm in the context of 1a and 2b above
b) the advisory and research needs to develop locally-processed premium food products [1b]
c) creating efficient routes-to-market for rural, small-scale, premium-product producers as 1c
d) the marketing and sales activities needed to support private companies and co-operatives,
and, a specific strategy to support the development and maintenance of;
e) a stand-alone food-technology capability to support private companies and co-operatives

As can be seen 3 is about creating strategies for the government-funded support services to agriculture and the food sector. These should be informed by the strategies developed within 1 and 2. It should be noted that 2c is included as an overview as opposed to a strategy document as it is not the role of government to set strategy for private sector companies. It is about allocating the Government’s funds to support the private sector as and where Government deems it appropriate and it is deemed in the interests of the Irish tax payer and the Irish economy.

The above may appear complex but it has to be viewed in the context of the industry that the strategy is meant to serve. It is far more difficult to attempt to produce a single strategic document for the entire agri-food industry as per Food Harvest 2020. One consequence of which was the inclusion of all and sundry issues but the whole being dominated by the post-2015 milk expansion target and the increase-exports indicator of strategy performance.

In the context of creating strategy, the sub-divisions should allow greater focus to be placed on the issues within a specific sub-sector and the sub-divisions within those. It should also allow more detailed analysis to be made of the economic, marketing and technical issues that will impact upon a particular sector [this contrast to, for example, the background paper to Food Strategy 2025 that provides little about the income situation in the Irish pig, poultry, potato and horticultural sectors other than that as they are near market they much be viable].
Essentially, despite its apparent complexity, the above does presents three strategies.

1. a strategy for rural Ireland that focuses on family farms, local food-processing and rural employment
2. a strategy for agri-food that focuses on the co-operative processing sector and scaling-up farming, and
3. a strategy that focuses on developing the support services to the farming and food-processing industries

Further one would add that the IRBS website contains reference concerning the development of strategy. The first paragraph within which appears to be the Food Harvest 2020 / Food Strategy 2025 approach [albeit with little time being given for public consultation]. The second gives a step-by-step approach; albeit one that is more suited to the creation of the umbrella and sub-sector strategies discussed above. To quote directly:

“Agricultural and agri-food sector strategy

There is a trend at present towards be the committee-of-notables approach to establishing strategy and that their experience can substitute for options analysis. This is then allied to a consultation process with stakeholders whereby all interested parties are able to submit their viewpoint for consideration. In its way it is a laudable approach. If this is, however, where the process ends it can be described as a two-legged milking stool of a methodology. The shortfall is that it does not at first identify realistic options then fully analyse them. It relies too heavily on intuition leading to the best conclusion.

Stuart Meikle’s has spent several years on agriculture and agri-food sector strategy and has evolved an approach to determining strategy that is a little different. It would be for a small team to (i) outline the alternatives, (ii) obtain a consensus as to the most likely viable possibilities, (iii) undertake technical, resource, market, economic and risk analysis of the options and, (iv) present the results to a committee of the ultimate decision makers. In this way a more informed discussion can be had, constraints fully recognized and considered, specific issues addressed, possible conflicts avoided and a strategy developed that is well founded on research and analysis-derived facts. This is an approach that is as equally applicable to an industry, a sector or a private business” (www.IRBS.guru).

MOVING FROM GLOBALISATION TO LOCALISATION

The following is an extract from the submission I am preparing for the public consultation on Food Strategy 2025.

It is understandable that in an agri-food nation that is reliant on exporting that globalisation is given a lot of air time. It is, nevertheless, a fact that most of Ireland’s exports still go to the UK and the rest of the EU. If anything, far too much time and thought is dedicated to the opportunities within the global market place and far too little is given over to protecting or enhancing existing market positions in existing, albeit, mature markets.

Globalisation is probably seen by most people today as the dominant economic force and it is certainly the attention grabber for Irish agri-food policy makers. A quieter force is, however, at work and that is localisation. It is acting in Ireland’s mature export markets and it is likely to also be acting in many an international, high-value, mature markets. Localisation is probably at work everywhere with the possible exception of those premium markets that are not served by their own traditional agricultural sectors and are, therefore, import dependent.

Is localisation important? As is known, Ireland is in the throes of a beef crisis and one of the under-lying causes of that crisis is what has been termed the ‘renationalisation’ of the British beef market. A better term may well be localisation of the British beef market. Horse-gate is often cited as the reason for the re-localisation of the UK retail beef market but it has been a growing trend for a number of years. It has been particular apparent at the top of the UK retail market and it is likely that it is the issues-aware, probably-wealthier [less price-conscious] consumer that is leading the localisation movement. Failing to spot the localisation of the UK retail beef sector has been a serious oversight by somebody in Ireland and it is one that is costing the Irish beef farmer dear.

Localisation is not a British phenomenon; one understands that the French are also encouraging the consumption of local beef. Indeed, within Europe and, quite probably, in many other nations where income and availability do not inhibit choice one can expect the concept to grow amongst the issues-aware consumer. It is certainly an issue that gains momentum with each new food scare. It may also gain further impetus where consumers become more concerned about just what is included in processed food products [i.e. sugar levels, highly-refined carbohydrates and different fats]. Re-localisation may stimulate the organic foods market but it is as likely to stimulate consumers to seek out and source locally. The recent move away from one the one-stop-big-weekly-shop to buying smaller quantities from multiple locations may further encourage what could be a defining shift in food buying habits.

Is localisation happening in Ireland? Indeed it is and it is evident in most food retailers in terms of their promotion of local produce. At the supermarket level this may simply be by promoting what may be the produce of the agro-industrial scale food producers of Irish origin. Produce availability is often the limiting issue but as more farmers seek to develop short-chain routes to consumers one can expect more, not less, alternatives to become available. This is a very issues-aware-driven phenomenon and the Irish public are food-issues aware; albeit many will be constrained by economic circumstance and high food prices from fully involving themselves in re-localisation.

The great challenge for the Irish agricultural and food sectors is how to benefit from localisation when Ireland is an export dependent country. In theory, by definition, export means non-local. One can see from the beef crisis and the UK market, the UK retailer and consumer is not willing to consider Ireland as ‘local’. That may, however, be due to horse-gate but it is also because Irish beef is not presented in the market so as to entice the consumer to buy it. To be blunt, Irish beef does not have much to say for itself other than it is Irish. And ‘Irish’ has suffered badly across the beef sector due to contagion from a limited incidence of horse-meat contamination [it is risky that Irish agri-food policy makers seem to want to pursue in Ireland a broad-brush, put-everyone-in-the-same-pea-green-boat, ‘Irish’ branding]. It also highlights Ireland’s major agri-food problem; a lack of products.

Thankfully, the issues aware consumer is not totally fixated with local. They are also interested in provenance and how a product is produced. They are interested in ethical issues like Fair Trade. They are interested in ecological issues and landscape issues. They are interested in animal welfare issues. And they are especially interested in traceability and origin. It is the likes of France and Italy and, increasingly the likes of the separate countries of the UK, that are best placed to develop sales to these issues aware consumers [who often it appears also inhabit the upper echelons of the food markets] as they have and are evolving their range of designated-origin products. By contrast, Ireland has hardly begun the process of developing high-value, premium, designated-origin products.

As a consequence Ireland is excluding itself from the top-end of the international [be they EU or global] foods markets and, hence, it is also excluding itself from the very markets that could/may produce the returns to the very family farms that so characterise Ireland’s farming industry and who form the bulwark of rural Ireland.

The situation is also made worse in a policy-making context by the continued focused on broad-brush Irish quality assurance schemes. There are lessons to learn from the beef crisis and one of them is that having an all-inclusive farm assurance scheme that everyone is signed up to does not necessarily create a premium-priced product when it reaches the retail market. It is stated that Irish beef is quality-assured on some UK supermarket shelves but that does not translate back to a significant premium to the farmer. Another factor that has also been over-looked in the beef crisis is the differential between Scottish and Irish beef. Scottish beef trades at a premium over other UK beef and is, hence, far ahead of the price that Irish beef commands. Why? The answer lies in the designated-origin status of Scottish beef and the fact that it continues to become more of a product and less of a commodity. One can expect this to be an evolving process that will place Scottish beef at the top of the global beef markets.

A country where Ireland should be able to overcome issues-aware consumers wanting to buy local is the USA. In part this will be due to issues-aware consumers ‘rebelling’ against the way their indigenous food industry operates. There is also the strong, historic links between Ireland and the USA and the vast Irish-origin population in the USA.

That said, it would not be wise to assume that being ‘Irish’ is going to be enough alone; products with traceability and a strong marketing story that tells the real tale of the product will also be necessary to break into the upper echelons of the US market. A factor that, no doubt, will be focused upon in Ireland will be that its beef [and dairy products] are grass-fed. But what does that mean and how is ‘grass-fed’ going to be guaranteed to the consumer? Pasture-fed is already a point of differentiation in the US market and consumers have their expectations and they will not be met by baloney that says that all Irish beef is grass fed or any similar assertion. It will just not ‘cut the mustard’. Worse, by not having specific products with a clearly designated origin, Ireland faces horse-gating its own forays into the US food markets by ‘overplaying’ the quality characteristics of its products. There is a danger that short-term over-selling and thinking that it is all about branding may inhibit long-term market development.

To conclude, localisation will offer interesting alternative market options to Ireland. It will, nonetheless, have to develop the products suited to its associated consumer-aware markets. They will also have to be products that can overcome the ‘non-local’ origins of the product. Thankfully that can almost certainly be done in the international premium foods markets where ‘Irish’ is a good trade name. It will take more imagination within the UK and EU. The rewards for success will, however, be that Ireland will be producing products that may be better suited to providing appropriate rewards to its smaller-scale traditional farmers and their rural communities; be that through directly adding value via the farming system itself or by processing the farm’s produce locally. And who has not read this and assumed that local means local to the consumer; it can also mean local in how it is produced.