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News : Innovation Last Updated: Aug 24, 2010 - 11:45:44 AM

Ireland: A "smart" economy in food better than pie-in-the-sky aspirations?
By Michael Hennigan, Founder and Editor of Finfacts
Sep 26, 2009 - 12:24:11 PM

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Ireland is a significant food producer but it fails to take advantage of its position. Meanwhile, amateur politicians who thought the property bubble was a permanent free lunch, have switched to the aspiration of a "smart economy" as a leading innovator in medical and other high technologies.

There will always be markets for food and this week, the United Nation's Food and Agriculture Organisation (FAO) said  global food production will have to increase 70 per cent  for an additional 2.3 billion people by 2050. Ireland is mainly a commodity food producer but who would have thought that Irish farmers would find an outlet with a gin producer for milk that is used in Baileys Irish Cream(the registered trademark omits the apostrophe!) - -  now a world class brand? Swiss company Nestlé - - the world’s biggest food company--  has 5,000 people directly involved in R&D and has 28 research centres across the world.

Taoiseach Brian Cowen - - a small town solicitor - - his deputy Mary Coughlan - -  a former social worker  - - and Minister for Foreign Affairs Micheál Martin - - a school teacher on 20 years of leave of absence from Presentation College, Cork (this selfish man has had "temps" doing his teaching job  since 1989) - - have never worked in an international sales or manufacturing operation but talk about establishing a European Silicon Valley in Ireland; replicating  one of America's top universities, Stanford University, in Ireland  and creating a world-class "knowledge economy" by 2013.

Economic illiteracy in Ireland is common and is not a preserve only of the Lisbon Treaty No campaign. However, very few risk directly challenging political guff as it puts in peril, the prospect of paid public sector work or patronage appointments. The power of vested interests is pervasive and it pays rich dividends most of the time.

It's striking that the politicians who presided over a broken political system for more than a decade, now propose bold visions for the economy but have ZERO to say on reforming a governance system that has been shown to be so unfit for purpose. It's even more striking that others who set forth ideas on economic change, cannot see or find it inconvenient to acknowledge that without change in the way the country is run, the economic potential will not be fully realised.

SEE: Political and economic reform in conservative Ireland and the promise of an "everlasting boom"

The Farmleigh diaspora business forum last weekend may have had some merit at least in getting views from people who are not part of the vested interest class within Ireland. 

It's reported that Intel's former chief Craig Barrett and others proposed doubling Ireland’s spend on research and development to about 3 or 4 per cent  of GDP, to bring us into line with other countries competing for foreign direct investment

The Irish Times reports that the Sandyford-based Institute of Management in Ireland (IMI) says it is preparing a report for the Government, summarising the proposals that emerged from the session on the so-called “smart economy” and Washington-based senior public affairs consultant Susan Davis is preparing a memo on the event.

The latter is presumably pitching for some lucrative business, while the IMI shouldn't waste its time unless it provides useful comparative international data.

Finfacts has previously provided data on the low number of jobs generated by commercial spin-outs from Irish university research and from one of the world's leading technology universities in Switzerland.

In Ireland so far, figures are plucked out of the air; 30,000 jobs from the proposed TCD/UCD tech corridor; 30,000 from greentech and so on.

SEE: Innovation Ireland: Science Foundation claims 8 spinout companies from university research; Enterprise Ireland claims over 100 

Zurich's Federal Institute of Technology produced less than 1,000 jobs from spin-outs in ten years but the two universities in Ireland can create 30,000!     

All the aspirations in the world can be promoted, without facing facts.

Ireland is more dependent on US firms than any other developed economy.

Pat Ivory, Head of Trade at business group IBEC said this week on export figures: "These CSO figures combined with Eurostat data released earlier this month illustrate that while our exporting companies are facing very real challenges in a difficult trading environment their performance compares favourable with that of other EU member states.” 

The destinations of the exports from "our exporting companies,"  -- mainly US firms - - are not generally decided in Ireland  and it's unclear whether a large increase in the output of PhDs from Irish universities, would increase foreign direct investment or provide skills for other economies.

The investment promotion agency, IDA Ireland, says existing R&D is a factor in new investments but hard facts are no substitute for marketing spoof.

The IMF said in June that Ireland has lost market share in the global and Eurozone flows of FDI (foreign direct investment). FDI inflows into the Eurozone have tended to fall as a share of world FDI flows.

However, Irish FDI shares have fallen faster. In recent years, Ireland has become the most expensive location in the Eurozone, with the possible exception of Luxembourg. The transformation from a location for low-cost manufacturing to a centre for high value added production and services is ongoing. However, the IMF says research shows that FDI flows to a country are highly influenced by recent momentum - - increased global competition for FDI implies that task for Ireland is increasingly harder.

However, we do not know what the potential is in attracting significant R&D operations.

Every ministerial announcement is strong on bragging about 'high value" jobs but that generally should be taken with a pinch of salt. 

Intel's Craig Barrett said there were about 14 reasons why Intel came to Ireland in 1989 but that only one remained: our tax rate.

Comparisons with economies, such as Israel, are ridiculous.

Ireland has not a strong exporting tradition and only a small per cent age of SMEs, are involved in exporting.

Israel has the benefit of having a strong military research base and it has created significant companies with about 65 listed on the Nasdaq Exchange in New York.

No Irish tech company has annual revenues of more than $100m.

The Irish Exporters' Association (IEA) warned this week that 35,000 jobs are at risk in traditional manufacturing sectors between now and the end of 2010.

The US-owned pharmaceutical/medical devices sectors, which account for 56% of Irish merchandise exports, have boosted exports this year, but caution is necessary in making policy on the basis of data dominated by about 20 American firms with a high import content.

Their role is very welcome but ramping up R&D spending should be made on the basis of credible facts. 

Irish Food Industry

Ireland is the 24th biggest milk producer in the world and 17th biggest beef producer.

New Zealand is the 8th biggest milk producer and its cooperative Fonterra is the world's biggest dairy company, which had a market share of 2.7 per cent  of world production in 2007. Ireland's Glanbia was the 20th biggest with a market share of 0.4 per cent .

Fonterra says it is responsible for one-third of international dairy trade.

In 2003, a report by two firms of consultants, Prospectus and Promar International, proposed a merger of three of the top five Irish processors - - Kerry, Glanbia and Dairygold - - to create a single consolidated player processing in excess of 70 per cent  of the milk produced by 2008.

Apart from focusing on the need for increased scale at both production and processing levels, the consultants urged a major change in the product mix being produced by the Irish dairy industry - - away from commodity type products and into higher value added products.

"The Irish dairy industry produces over 60 per cent of its output in the form of base or commodity type products (butter, powder, casein and bulk cheese)," the report said.

"These products attract lower margins and are extremely price sensitive. The industry relies heavily on EU market intervention and other market supports that are increasingly coming under threat. It has developed very few internationally branded consumer products.

"It invests significantly less than its major competitors in terms of capital investment and R&D. The economic added value to the raw milk produces is lower than the industries in countries such as Denmark and the Netherlands, reflecting the relatively high weighting of base products and the significantly less investment compared to its major competitors in terms of capital re-investment and R&D.

"Policy changes arising from CAP reform and WTO agreements are pushing EU dairy product prices close to world market levels which could lead to milk prices falling to below €1 a gallon. This would have major consequences for the viability of many dairy farms."

The report said the Irish dairy industry was using EU intervention for 30 per cent  of its butter production and 11 per cent  of its skim milk powder output.

The EU's statistics agency Eurostat, provides comparative country data on for example cheese production  --  which gives the potential for significant value added  -- and shows that Ireland's output in 2004 was as low as Sweden's. There is no Irish data for the years after 2004 - - other country data is up to 2008.

Ireland's cheese output was lower than in Spain and Greece while production in the Netherlands was almost six times the Irish level.

New Zealand's production was 2.6 times the Irish level.

New Zealand company Fonterra is the world's leading exporter of dairy products and responsible for more than a third of international dairy trade. It has 15,900 employees and it says its global supply chain stretches from farms all over New Zealand to customers and consumers in more than 140 countries. Asia is the second largest consumer of Fonterra’s dairy ingredients after America, making up about 40% of Fonterra’s total sales across the globe.

In recent months, farmers in Ireland and across Europe have been protesting about low dairy prices - - they never complain about high prices - - and the European Union has resumed export subsidies.

The FAO Dairy Price Index of international dairy product prices (100 in 2002-2004) fell by 58 per cent  from its peak in November 2007, to a value of 114 in February, 2009. Since then, prices appear to have bottomed out in the first quarter of 2009 and have recovered to124 by May 2009. While much uncertainty exists, there is evidence to suggest that, based on fundamental indicators, such as stagnant milk production in major exporters, prices may rise in the next few months. Product prices in the Oceania region were $1,900 per tonne for butter, $2,000 per tonne for skim milk powder, $2,200 per tonne for whole milk powder in April 2009 and $2,575 per tonne for cheddar cheese in May 2009. These prices are about half their year earlier levels.

FAO statistics

What is striking about the Irish Farmers' Association (IFA) website is the addiction to protections and public handouts.

Two Michael Hennigans sample the local brew at SOULedOUT, Kuala Lumpur, July 2008 - - Ireland has no world class food brands to match Guinness, Jameson and Baileys Irish Cream.

Dan O’Brien, a senior editor at the Economist Intelligence Unit, in an article in the Irish Times last month, which was an edited extract from his forthcoming book, to be published by Gill Macmillan wrote:"The World Trade Organisation is the most effective global multilateral construct that has ever existed.

The interests of any small, politically powerless country that is highly dependent on foreign trade dictate that it support ardently that organisation. Ireland does the opposite; consistently working against its own interests. Each time an effort is made to advance the Doha round of trade talks, Ireland is the most vocal opponent among the EU 27.

This position is seen abroad, by those who care to look, for what it is - - the granting to a small vested interest (in this case farmers) of the power to determine policy to the detriment of the wider economy."

The IFA has campaigned for the banning of Brazilian beef from the EU but across Europe, one is much more likely to find a scruffy Irish theme pub than an Irish steak house.

SEE: Doha Trade Round - Irish Farmers and Sacred Cows

Tommy Doherty, partner at business consultant Mazars,  highlighted in 2008 how New Zealand is taking advantage of markets in Europe.

New Zealand’s success has been its innovative approach to new markets especially but not only in Asia, where growing wealth is seeing consumers shift their eating habits from root vegetables to dairy and meat products.

“The food industry in New Zealand developed specific measures and worked with external partners to develop new technologies and new products. They created specific products for specific markets and created best practice dairy markets in Asia. And despite being 12,000 miles away from European markets, New Zealand has become increasingly competitive for its chilled lamb and their lamb exports to the EU have increased 40 per cent in the last two years”.

What about fixing both our broken political system and building a food industry with world class potential, coupled with the support of a strong research base to produce compelling healthy and convenience foods for adults, children and babies - - before banking so much on fatuous aspirations to be a world leader in basic research?

We are part of a common currency zone and at least the peoples there have heard of Ireland  - - which would help in the long process of developing new markets.

SEE: Finfacts article March 2010: Innovation Ireland Taskforce's aspirational report; US banks / credit-card companies contribute most money for start-ups - - not venture capital companies

SEE: Finfacts article Dec 2009: The challenge of creating 160,000 new Irish jobs

SEE: Finfacts article Oct 2009: Global Irish Economic Forum and branding Ireland: Green Party minister Eamon Ryan is both for and against science

SEE: Finfacts article Oct, 2009: Germany's Food & Beverage sector star of crisis -- exports up 15% in 2008; Good news continues

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© Copyright 2010 by Finfacts.com

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