Mr. Paul Kelly:

I thank the Chairman and members of the committee for the invitation to appear before them. I commend the joint committee on undertaking a series of hearings on the Food Harvest 2020 strategy. I am joined by my colleagues, Mr. Shane Dempsey, head of consumer foods within FDII, Mr. Michael Barry, director of the Irish Dairy Industries Association, Mr. Cormac Healy, director of Meat Industry Ireland, and Mr. Ciaran Fitzgerald, chairman of Meat Industry Ireland. As the Chairman noted, we each have individual presentations. My colleagues will be dealing with their areas of the food sector.

I will start my presentation by giving an overarching view of the industry. The agrifood sector is by far the most important industry in Ireland, an indigenous industry with wider linkages to the overall economy. One in eight jobs in this economy are linked to agrifood. There are 690 enterprises, of which 94% are small and medium-sized enterprises, which is slightly lower than the European average of 99%. We have a slightly larger number of large companies, but the figure of 94% is indicative of the significant importance of SMEs.

There are two main aspects to the industry. We have a very strong domestic presence and would supply the majority of Ireland's €14 billion grocery sector and associated food service sector. We are very strong in the export market. We exported €9 billion in food and drink products in 2011. This is substantial. Some 75% of our produce goes to other countries in the European Union and the other 25% goes to third countries. Some two thirds of all indigenous exports emanating from Ireland are in the food and drink sector. That shows the importance and export potential of indigenous enterprise. The slightly broader bio-economy, which includes forestry and aquaculture, accounts for 30% of net foreign earnings. These were the findings of a study, Fostering the Smart Green Bio-economy, commissioned by the former Department of Agriculture, Fisheries and Food in recent years. In numerical terms, the bio-economy generated €11.5 billion in purchases in the domestic economy, the significant elements of which would be raw materials from the agricultural production sector as well as services. It has the largest payroll of any manufacturing sector at €1.75 billion. The sector hits above its weight. It would be the largest intra-EU exporter and we would be the largest net exporter of beef, lamb and dairy ingredients in Europe. Compared with many other countries in Europe, the agrifood sector in its broadest sense is much more important to the economy than it would be in other countries. One in eight jobs in Ireland is associated with agrifood whereas one in eight jobs in Germany is in the car industry. That show how important the industry is to Ireland.

The subject of these hearings is Food Harvest 2020, which is a very ambitious growth strategy, especially in respect of exports where it is planned to grow them by 40% to €12 billion by 2020. It is worth going behind that headline number and trying to get a sense of what impact it will have in terms of the wider economy. It will be much greater than export growth in any other sector simply because there are such deep linkages into the wider economy, into agriculture and both the rural and urban economies. The reason is that the direct expenditure as a percentage of sales in the Irish economy is 60%. That compares with 19% for other manufacturing sectors. Every extra euro generated by exports of food has a much greater impact in terms of direct expenditure to the rest of the economy than any other manufacturing sector. We have done some analysis on this and have circulated a report to members, entitled Sharing the Harvest, which estimates that if the export target hits €12 billion, it will result in 30,000 extra jobs throughout the economy. A percentage of them will be in food manufacturing but a much higher percentage will be in agriculture and ancillary services related to agriculture and a certain amount in the wider economy as the wealth flows into the rest of the economy.

Linkages are important. We often hear references to the food chain. That is particularly important to Irish agrifood. This is the only fully integrated industry supply chain of any industry sector in the country. Everything is available in Ireland: raw materials, production, processing, sales, marketing innovation and the corporate headquarters. It is either sold into the domestic market or sold on the export market. That means policy and regulation and the way they are implemented impact on the sector much more than on any other sector. What is happening at farm level has a significant impact on what is happening at processing level, and what is happening at the processing level has a major impact on what is happening at farm level, and so on right up the supply chain. One does not have such deep linkages to the same extent in any other sector in the wider economy.

We see a policy dichotomy in Ireland. The central tenet or vision of Food Harvest 2020 is smart green growth. The strategy was brought together by a combination of industry and the agrifood sector in its broadest sense, both private and public. There was very strong industry participation in the development of Food Harvest 2020 and subsequently in its roll-out and implementation. We are finding that in other parts of Government, we are facing a number of policies which are very much at odds with trying to achieve smart green growth, or else the policies are not being implemented quickly enough to ensure we will achieve certain targets of Food Harvest 2020. I can give some examples.

Let us look at the slides in the PowerPoint presentation. Certain aspects will be developed by my colleagues in their presentation. It is vital we have a sustainable and competitive raw material supply base. What happens at farm level - the production sector of food - is vital.

With its grass-based system, Ireland has certain competitive advantages. It is very important that we maintain these and discover what can be done to improve them. The Common Agricultural Policy and the decisions that will be made in respect of the climate change roadmap will be hugely influential in the context of the sustainability and, more particularly, the growth of the supply base as 2020 approaches. My colleagues, especially those who are involved in the meat and dairy sector, will comment further on those matters.

Another important issue at processing level relates to the fact that State support is necessary in the context of maintaining - and expanding upon - current activities. The food sector is a low-margin entity. Like many other sectors, it has difficulties in the context of access to credit, financing, etc. These difficulties are exacerbated by the low-margin environment that obtains. In such circumstances, there is a need for a degree of State support. Such support has been very successfully implemented across the food sector in recent decades and has had a massive impact in terms of bringing us to the point at which we currently find ourselves.

One of the issues that arises in this regard is the State-aid regime. There are different aspects to State aid but one of the most important relates to the regional aid guidelines. In a nutshell, these set down the intensity or percentage level for industrial grant aid. In the context of capital investment and expenditure on the part of companies, we are very much constrained by existing State-aid rules. However, an opportunity exists in this regard. State-aid regimes are generally run over a six or seven-year period and the current one will come to a conclusion at the end of 2013. Outline proposals from DG Competition in Brussels in respect of this matter have been issued and negotiations are beginning to take place. During the next 12 months we will, therefore, be presented with a very important opportunity to try to reset some of those rules in order to ensure that between 2014 and 2020 the investment aid available to the industry will be increased from current levels. Many people are of the view that this is vital in order that the industry will be facilitated in achieving its expansion ambitions.

As is the case with any industry, manufacturing cost competitiveness is a major issue for the food sector. It is very important in light of our very strong export focus. If our costs are out of line with those of our competitors in other countries, they become embedded in our sector when we are trying to gain access to retail shelves in the UK, France or wherever. Similarly, if our cost base in the domestic market is too high, we run the risk of import substitution. This is because some countries have lower cost bases than that which obtains here. The food sector has an ongoing issue in that Ireland has a small economy which is made up of approximately 4.5 million consumers. As a result, we suffer from a lack of scale when compared to some competitor economies.

This is a consideration which must always be central to what we are doing, particularly in the context of, for example, energy costs. Energy is a very large component of the cost of food production. We must also take cognisance of transport and waste and environmental costs. All of these costs are beginning to go in the wrong direction again. We must monitor the position in respect of each and ensure that the overall cost of doing business is kept under control. There is a direct relationship between cost competitiveness, the maintenance of jobs and the creation of new employment.

The industry has a strong export focus but the domestic market is vitally important. Every food company in Ireland begins operations in the domestic marketplace. It is essential that there be a properly functioning domestic marketplace. My colleague, Mr. Shane Dempsey, head of consumer foods, will discuss this matter in greater detail. However, there are issues relating to the forthcoming introduction of a statutory code of practice for the grocery sector. The legislative programme that is before the committee for the current term includes a Bill designed to facilitate the amalgamation of the Competition Authority and the National Consumer Agency. The latter will contain an enabling provision that will allow the Minister for Jobs, Enterprise and Innovation to sign the statutory code into law. We call on the committee to ensure that the process in this regard will be expedited. It is vital that the statutory code be put in place as soon as possible.

We want to ensure that there is a properly functioning domestic marketplace. All existing exporters in this country started off in that marketplace and those who come after them will do so as well. If we can get matters right in respect of the domestic marketplace, it will give exporters a springboard for future success in markets abroad.

Another issue that would have been discussed before the committee in recent months is that which relates to the reputation of the food industry, particularly in the context of matters such as diet and health. We are of the view that some of the policies that have been put forward by certain Government Departments are very much at variance with what the food industry is doing. However, the food industry has a very strong track record in respect of providing consumers with high-quality information in order that they might make informed choices and making available for consumption high-quality, nutritious and safe foods. Again, another of my colleagues will deal with that matter in greater detail. However, one of our main aims is to ensure that there will be a multi-stakeholder approach to issues such as obesity.

I imagine that everyone present would acknowledge the importance and scale of the agrifood sector in Ireland, which has a very sizeable domestic market and very large export markets. The sector punches above its weight in the context of its performance. The deep linkages it has to the remainder of the economy mean that the expansionary strategy that is Food Harvest 2020 will impact on the broader economy in a more positive way than will export growth in any other sector.

There are certain barriers to growth, to some of which I have alluded. My colleagues will discuss the impact of those barriers at sectoral level in greater detail. However, we are of the view that they can be removed in a very constructive fashion. If this happens, the win for the economy will be in the region of an additional 30,000 jobs.