Food manufacturers operating in the Republic of Ireland are facing such stiff cost pressures they could be forced to relocate to Eastern Europe, industry experts have warned.
Food suppliers in the country had traditionally benefited from low costs, low corporation tax and tax breaks for exporters.
But reforms of these tax breaks, alongside rising wages and property prices, a strong euro and global financial turmoil, had made Irish manufacture increasingly “unsustainable”, according to experts.
There is already evidence businesses are struggling. Irish exports fell 7% in the first half of the year, the latest figures from the Irish Exporters’ Association have revealed. Northern Foods, whose frozen foods division is based largely in Ireland, said it expected a writedown of £4m to £5m (8% of operating profit) due to the strong euro. The division’s margins had already been squeezed. In 2006, frozen generated £22.9m operating profit from sales of £238.1m. This year that had fallen to £11.4m profit from £245.4m sales.
Meanwhile, Greencore’s share price has fallen from €4.50 a year ago to €1.32 this week, after a 21% fall on Monday as troubled Icelandic food group Bakkavör sold its 10.9% stake. Kerry Group shares are down 5.4% year-on-year. A leading strategy consultant said that companies coming under increasing pressure would have to consider relocation.
“Depending on the shelf life of the products concerned, there are two places to look,” he said. “The UK is not a bad place as it is relatively efficient and the pound is not so strong any more. The alternative is Eastern Europe, especially Poland. It has effective plant and infrastructure, and is also right next to Germany, which lowers distribution costs.”
A spokesman for Northern Foods said the company had no plans to relocate any of its Irish facilities, but acknowledged the company faced pressure from the strong euro.
But reforms of these tax breaks, alongside rising wages and property prices, a strong euro and global financial turmoil, had made Irish manufacture increasingly “unsustainable”, according to experts.
There is already evidence businesses are struggling. Irish exports fell 7% in the first half of the year, the latest figures from the Irish Exporters’ Association have revealed. Northern Foods, whose frozen foods division is based largely in Ireland, said it expected a writedown of £4m to £5m (8% of operating profit) due to the strong euro. The division’s margins had already been squeezed. In 2006, frozen generated £22.9m operating profit from sales of £238.1m. This year that had fallen to £11.4m profit from £245.4m sales.
Meanwhile, Greencore’s share price has fallen from €4.50 a year ago to €1.32 this week, after a 21% fall on Monday as troubled Icelandic food group Bakkavör sold its 10.9% stake. Kerry Group shares are down 5.4% year-on-year. A leading strategy consultant said that companies coming under increasing pressure would have to consider relocation.
“Depending on the shelf life of the products concerned, there are two places to look,” he said. “The UK is not a bad place as it is relatively efficient and the pound is not so strong any more. The alternative is Eastern Europe, especially Poland. It has effective plant and infrastructure, and is also right next to Germany, which lowers distribution costs.”
A spokesman for Northern Foods said the company had no plans to relocate any of its Irish facilities, but acknowledged the company faced pressure from the strong euro.
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