Mr. Paul Kelly:

As regards the economy-wide impact of the sector, members of the joint committee will be familiar with Food Harvest 2020 which is the national agrifood strategy. It is expansionary in nature and while some might say those targets are ambitious, we would say they are realistic. It may well be the case that those targets can be exceeded. In headline terms, the targets are to increase exports to €12 billion by 2020.

In the context of the deep linkages to the economy, our analysis - which is based on published figures from Forfás and the Central Statistics Office - shows that direct expenditure in the Irish economy is equivalent to 60% of sales. That compares with 19% for the rest of manufacturing so, in essence, every extra €1 we get in exports from the food sector, will result in direct expenditure of 60 cent in the domestic economy. Compare that with any other aspect of manufacturing and one will get 19 cent. Therefore, when we grow exports in the food sector we will get a much greater, positive impact for the wider economy than for any other exporting sector.

Our strong view is that this export growth will have a beneficial effect on the economy, particularly in terms of jobs. Last year, we published a report entitled "Sharing the Harvest". In that analysis we did all the relevant number crunching involving CSO numbers from their input and output tables. We also examined the profile of growth out to 2020. Our estimate is that up to 30,000 jobs will be created across the economy if those export targets are reached. A fraction of those will be in food manufacturing and processing. A significant amount will be at farm level but a lot of it will be in the rest of the economy, providing services to food processors and food producers, thus allowing them to achieve that growth. That is a fairly significant figure in its own right.

Our priorities run across the whole food chain, from farm to fork. That is because of the unique nature of the supply chain in Ireland. Unlike any other large-scale sector, everything is here, including raw materials, manufacturing, sales and marketing, exporting, research and development, and innovation. In addition, the corporate headquarters of many of the companies are located here.

Due to the unique nature of the supply chain we are more affected by policies and regulations than any other sector. From our perspective therefore it is important that we get this right. That applies to what is happening nationally and at a European level, as well as what is happening on the international stage.

That leads us to what we call the policy dichotomy in Ireland. As I said earlier, we believe there are positive winds for the economy that will arise from Food Harvest 2020 with jobs growth of up to 30,000 to 2020. However, there are also a significant number of constraints in situ which need to be addressed in order to ensure that such growth can be achieved. It should be borne in mind that we are not looking at things purely from an export focus, but are also interested in the domestic market. It is an important market for every company even if they are exporting. Smaller companies in particular need to function properly in the domestic market before they are able to achieve scale and move into export markets.

We are experiencing high input costs, including energy costs which are rising significantly. That is a big competitiveness issue for all companies. In addition, proposals for taxing food and packaging are matters of concern, as are marketing restrictions. The issue of retail buying power will be addressed by the incoming statutory code of practice for the grocery sector.

I will now move on to the area of financing difficulties for the sector, while my colleague Mr. Michael Barry will talk about environment constraints in due course. The big issue for us is how to finance expansion and renewal in the food sector. The sector is characterised as one with high capital costs and relatively low margins over time. That is the reality of the sector and Ireland is not much different from other countries in that respect. We need to match up those two things. The medium to long-term financing facilities that are required for the sector's profile - high capital costs and relatively low level margins - are difficult to obtain. The current credit climate in Ireland is even more difficult for the food sector due to those situations. There have been some positive announcements in the sector of late. Generally, we have been looking at large companies that have greater access to capital markets. There is a major roadblock for many SMEs, which have been in situ for a number of years and have a lot of plant and equipment that needs renewal, or they may have expansion plans that require significant capital investment. That roadblock needs to be dealt with and this can be done in a number of ways. State aids, including capital investment supports, are currently up for renewal. The regional aid map is being developed by the European Commission at the moment and will run from 2014 to 2020. It is important that the Irish negotiating position remains strong to ensure that aid levels at least remain at the same level and, if anything, are increased for the industry here.

There is also a need to look at food sector-specific funds. The National Pensions Reserve Fund and Enterprise Ireland have a number of funds in place. The take-up by the food industry is relatively low compared to a number of other sectors, so that area needs to be re-examined either in terms of food-specific funds or some sort of primer that will ensure a higher rate of take-up by food companies.

We also need an innovative approach to matters such as capital gains tax relief. If people are selling up and getting out of other businesses, including food ones, there should be incentives for them to reinvest. The research and development tax credit scheme, which is utilised by many food companies, should be maintained and strengthened with a particular focus on SMEs, so their take-up will be even greater.

Manufacturing cost competitiveness is of huge importance to the industry. If one is exporting, one's cost base in the domestic market will tell a lot about how competitive one is in export markets. Similarly, if one is selling in the domestic market and the cost base is out of line, imports will be relatively more competitive. In order to ensure that one is not displaced off supermarket shelves, one must be cost competitive. That is vitally important, no matter whether one is in the domestic or export market. A big issue for food companies is industrial energy costs, as the sector accounts for about 25% of such energy usage.

It should be borne in mind that we are operating off fairly tight margins and, in addition, many of the raw materials we use are priced on an international basis. Therefore, if industrial energy costs are out of line with our competitors, either in the domestic or export markets, that will move us out of line significantly in terms of cost competitiveness.

When we talk to our companies they tell us that rebates for large energy users, which were in place for the last few years were useful, particularly after the crisis of 2008 and 2009. They were very useful in reducing the companies' cost base. More importantly, we now find that electricity costs are 15% to 20% higher than their UK sister plants. The gas differential is even higher.

This causes two problems. In the short to medium term, it puts our cost base out of line, which impacts on our ability to compete in the marketplace. When decisions are being made on medium to long-term investments, having a cost base that is out of line has a significant bearing on whether those investments will be made in Ireland or elsewhere. Last year and this year have seen price increases of 15% to 20%. Part of this is due to increases in the price of raw materials, namely, fuels. It is becoming a significant issue for the food industry.

There is a direct relationship between cost competitiveness and jobs. It is important that we retain existing jobs and create new ones. Ensuring cost competitiveness is important in this regard. There is little that we can do about the cost of raw materials such as gas, but we can focus on network capacity charges, the public service obligation, PSO, levy and the capacity payment mechanism to ensure they are suitable for ensuring cost competitiveness, which is most important for the economy. If we get our competitiveness right, the companies will do all they can internally in terms of energy efficiency, ably supported in many instances by, for example, Sustainable Energy Authority of Ireland, SEAI, schemes and the like. The external energy cost factors need to be addressed.