Food Drink Ireland Executive Council. Budget 2019 Submission

Transcription

1 Food Drink Ireland Executive Council Budget 2019 Submission

2 Introduction and overview Food Drink Ireland (FDI) is a business sector within Ibec and represents the interests of over 150 companies. Meat Industry Ireland (MII) is the Ibec sector association representing the beef, pigmeat, sheepmeat and poultry primary processing sector in Ireland. Dairy Industry Ireland (DII) represents primary and secondary dairy manufacturers including the specialised nutrition sector in Ireland. The Prepared Consumer Foods Council (PCF) represents the prepared consumer foods sector. The Alcohol Beverage Federation of Ireland (ABFI) is the umbrella representative organisation for alcoholic drinks manufacturers and suppliers in Ireland All the above fully support the Ibec Budget 2019 Submission and all its proposals. However, we would like to take this opportunity to draw specific attention to the following issues which are of critical importance to the future growth and vibrancy of the Irish food and drink sector. A very strong food and drink performance in 2017 saw exports increase by 11% to 12.26bn. Slower import growth pushed the positive trade balance up by 771m to 4.56bn. However, food imports grew by 7% in the first 5 months of 2018 compared to the same period in 2017 with no change in food exports. Improving our domestic market position and continuing to increase exports, secures existing jobs in the labour-intensive agri-food sector and contributes to future jobs growth. The economic contribution of such growth is greater than any other industrial sector due to the agri-food sector s deep linkages to the wider economy, particularly in regional areas. The longer-term opportunities largely remain for the Irish food and drink sector. However, the immediate response must be to ensure the sector is fit for purpose to meet the substantial challenges ahead. Whilst agri-food is the economic sector most at risk in the event of hard Brexit, and indeed will suffer significant disruption whatever the nature of the UK exit from the EU, there are also other challenges that need to be addressed. Put in place a Brexit contingency In the context of Brexit, companies will need support to diversify products and market focus, innovate both products and processes and re-align their business models to mitigate the impacts of such a market shock. Supporting our domestic industries will help to mitigate the worst impacts of Brexit. In this context, there must be a stronger delivery on Brexit preparation and mitigation domestically. Major uncertainties remain making it difficult to plan ahead for Government, however the time for preparation is now. Our members will be making key decisions in advance of March 2019 and the Government can play a greater role in supporting them. This applies to the entire food chain. The Irish food and drinks sector, with 37% of exports destined for the UK and a similar level of imports in value terms from the UK, remains highly exposed in the context of any diminution of free trade with the UK, let alone a hard Brexit. The Prepared Consumer 1

3 Foods (PCF) sector faces additional challenges given factors such as its reliance on imports and exports with the UK reflected in complex and interwoven supply chain arrangements. Increases in tariff or non-tariff barriers, regulatory divergence or transport delays will impose significant costs on all areas of the Irish economy past the initial export shock. Companies will clearly need to diversify not just their export markets but also their sourcing strategy in response to these issues. The budget must ensure that price differentials with NI/UK are not exacerbated by policy. We welcome the European Commission state-aid ruling earlier this year clearing the way for a new Brexit support of up to 10 million to facilitate the restructuring of SMEs in Ireland. It is, however, extremely limited in scope (to SMEs in extreme financial difficulty and with strict criteria on equity attached), meaning that it will be of little use to firms until they are already in a situation near liquidation and far beyond the point of assisting diversification efforts. In the event of a hard Brexit or significantly disrupted trading relationship, support for a broader temporary state aid framework, moving past a focus just on restructuring, will be essential. Recommendations: Put in place a multi-annual framework for funding Brexit mitigation beginning in Budget The resources required will be in the region of 5% of the value of current annual export sales to the UK ( 650m over three years). Intensify government discussions with the EU Commission to secure a relaxation of EU State Aid rules as part and parcel of a wider set of measures to mitigate the worst effects of Brexit on the agri-food sector Introduce direct supports for companies looking to re-tool and re-invest in plant and machinery to produce product lines for new markets. This should take the form of a preapproved accelerated capital allowance scheme for projects which are deemed necessary under a clear Brexit related contingency plan. Provision must be in line with those already available for energy efficient equipment, with allowances available to be claimed at an accelerated rate of 100% in year 1. Continue work to put in place a broader temporary state aid framework to help Governments provide short-term assistance to companies. Introduce an enterprise stabilisation fund with assistance from EU colleagues. This would enable short-term financing like the supports that were introduced in 2009 that helped firms through the financial crisis and an increase in de minimus levels of state aid. Work to improve the terms and conditions under the current Brexit Loan Scheme which has interest rates of 4% and loan terms of only 3 years maximum. 2

4 Introduce additional marketing and innovation supports for companies looking to reformulate, re-package or innovate their product lines for new markets. Safe, sustainable high quality and nutritious food is essential post Brexit. There is a serious threat of regulatory divergence, therefore it is necessary that sufficient investment in resources is provided to safeguard the high standard of food safety systems and to ensure that the relevant agencies maintain strong operational relationships with our counterparts in the UK that will protect north-south and east-west trading relationships. Ensure further price differentials do not emerge between the Republic and Northern Ireland due to increases in taxes. Reduce alcohol excise tax by 15% and retain the 9% hospitality VAT to support the food service and tourism industries. Allow companies claim VAT as an input credit at the same time as declaring their liability to minimise cashflow needs. This VAT deferral licence regime already exists in the Netherlands. A review of Section 56 of the VAT regime (particularly the rules on group registrations) could provide a better solution in the long run. Help companies attract and retain skilled workers and address labour shortages At a time when organisations are facing into a new war for talent which will see advanced economies experiencing a shortfall of 40 million educated workers by 2020, employers face a significant recruitment issue while Ireland fails to harness our full economic potential. While the lack of skilled workers needs to be addressed, it is also important to highlight that labour availability remains a critical issue within certain sectors of agri-food. The meat processing industry is facing a serious challenge in securing the necessary labour resources at general operative level which are essential to maintaining current operational activity in processing. The consequences could seriously hinder industry capability in meeting its growth plans under Food Wise 2025, and undermine its ability to retain high-end customers and take advantage of much needed international market opportunities. Recent Irish economic recovery, increased job creation and in particular the surge in construction activity has meant that meat processors are now faced with a major challenge in attracting workers into all positions, but particularly into unskilled general operative roles. Despite ongoing significant efforts by meat processors to recruit from the Irish and European labour force, the critical nature of the current situation is deepening as the economy approaches full employment again. The situation has now deteriorated to levels where it is having a real impact at individual plant level and negatively impacting the ability of companies to plan for expansion and indeed to meet day-to-day operational demands to service existing customers. 3

5 Government assistance in the form of employment permits for the meat processing sector is essential. A failure to resolve this issue will in the short term reduce processing capacity in the industry, limit companies ability to take on new business opportunities in international markets which are critical in the context of Brexit and in fact endanger existing business. In the longer term, it will undermine the potential future expansion of the sector as per the Food Wise 2025 targets. The People in Dairy Industry Stakeholder Group was set up to address a series of labour and human capital issues facing the sector. DII participated in the development of the plan from June Apprenticeships and training and support are in line with the Group s recommendations. This is needed for the dairy industry given there is a lack of qualified operators for our high tech indigenous industry. Access to talent The development of the Irish agri-food sector over the last 50 years has been supported by and led to the development of a wide range of expertise and knowledge in both private and public sectors and across all levels of the sector. This skills and knowledge base provides a valuable and solid footing for the continued development of the sector and there is a clear need to ensure that those working in the food and beverage industry are valued and recognised as key to the industry s success. However, with the changing economic landscape the sector faces many challenges in relation to securing existing jobs and the creation of new ones. Key challenges and skills gaps For the sector to reach its full potential, there are numerous challenges and skills gaps which must be filled up and down the supply and value chains. These include: The need to attract and develop management and leadership capability. Lack of in-company capability to accelerate market development and direct market access. Capability to access finance through business and financial planning expertise. Lack of technical capacity to absorb new research and innovation from research bodies. Inability to develop management teams, implement succession planning, plan for mergers and acquisitions and professionalise corporate governance structures. Limited ability to attract and access third level graduates with skillsets to address these gaps. Lack of skilled operatives in certain key areas such as engineering, maintenance and technicians. Recommendations Ensure the skills base of the agri-food industry reflects not just the current business demands but the challenges of future growth in existing and new markets. Urgently extend the employment permit schemes so that labour shortages do not impact on existing business and growth prospects. Apprenticeships and training should be extended to address the lack of technical operators for a fast-growing indigenous industry that is spread across the country. 4

6 Increase funding supports for enterprise-led training initiatives including Skillnets and industrial apprenticeships. Unlocking growth potential through innovation Budget 2019 must look at boosting agri-food s capacity for innovation. Indigenous companies experience greater challenges to dedicate and develop internal resources needed to engage successfully with universities/research bodies and to capitalise on their research outputs. These enterprises require additional state support to build the absorptive capacity and to participate in any research collaboration. The OECD have highlighted that the productivity gap between indigenous companies and larger multinational organisation is widening. Too many indigenous companies, particularly SMEs miss opportunities to fully realise the potential of research activity in higher education institutions, and too few have the knowledge and skills to develop, value and exploit the situation. Recommendations: Introduce funding for a targeted, paid internship programme for PhD students, aimed at installing innovation expertise directly into businesses operation to identify new product and process development opportunities, highlighting development and commercial opportunities to increase innovation within the business. A critical feature of the programme will be that the internship provides a supporting link to higher education consultancy services, business and legal schools, research programmes, spin-out companies and statebacked innovation supports. Send a signal of intent to serial entrepreneurs by radically improving the CGT entrepreneurs relief by introducing a 12.5% rate with no lifetime cap on gains. Introduce a simplified pro-forma R&D tax credit scheme for SMEs which allows smaller firms to overcome funding constraints on their innovative activity. The 5 million capital investment to fund research and innovation in the PCF sector announced in Budget 2018 is welcome but a mere foundation. To combat the current and future risks of Brexit, Government should provide further support for innovation in the PCF sector. Streamline and simplify the application processes for access to innovation supports, particularly for SMEs. Ensure a taxation environment which encourages increased investment in innovation Continue the strong focus on and investment in industry-led applied and fundamental research. Continue budgetary support for technology transfer and adoption at primary production level. Continued support from government / industry funded initiatives such as the Diary Processing Technology Centre and Meat Technology Ireland. 5

7 Sustainable agri-food solutions Plastics and packaging Ensuring food safety for consumers is a key driver for packaging design. Effective packaging processes reduce rates of food waste to just 2-4% in industrialised countries. Moreover, the environmental impact of avoidable household food waste is eight times greater than the impact of total packaging waste going to landfill. Packaging ensures that people can buy and use products when they want them, in good condition and with less wastage by increasing shelf life. Food and drinks producers In Ireland are global leaders in decoupling the amount of packaging put on the market from growing consumption. From 2006 to 2015, total household consumption increased 5.8%, while packaging decreased 4.4%. By contrast, across Europe total household consumption increased 10%, while packaging grew 1.8% during the same period. Proposals for a deposit and return scheme for sealed beverage containers must be considered in the context of our existing and successful waste packaging collection and recycling scheme in Ireland - Repak. The substantial financial commitment by food and drink companies as funders of Repak has seen Ireland exceed EU packaging recycling and recovery targets. Before industry began funding Repak, over 90% of all packaging went to landfill. Now more than 90% of all packaging is recovered and recycled. Placing a deposit return scheme directly on top of our existing scheme, would put this progress at risk. Removing easily recycled and valuable materials like aluminium and PET from our current system, would dramatically increase processing costs and impact the cross-subsidy of less recyclable materials, almost certainly threatening the viability of Repak. Additionally, non-alcoholic beverage bottles make up just 0.8% of litter according to the Department of Environment. According to EuroStat in 2015 Ireland collected 82% of plastic packaging and recycled 34%. This clearly points to a gap in our national recycling infrastructure. It is this gap, rather than potentially duplicating collection systems, that must be addressed to truly deliver a circular economy for packaging. Recommendations: Provide segregated recycling bins in public, this would reduce on-the-go littering while increasing recycling rates. Do not duplicate collection schemes, which would jeopardise improving our overall recycling rates. Support the development of national infrastructure to provide a fully functioning secondary raw material market resulting in the availability, accessibility and affordability of food grade quality packaging 6

8 State supports for technological mitigation at factory level and environmental measures at farm level Ireland should be seen as a source of sustainable food supply to global markets. While recognising that we need to continue to work to reduce the environmental impact of our agri-food production systems. The food and drink sector in Ireland fully accept the challenge of climate change and the need for increased action to minimise impacts on natural resources, to reduce GHG emissions and to protect the natural environment for future generations. Recommendations: Renewable energy: Moving towards onsite renewable energy generation would help drive down the emissions across the sector. If farmers and food processors/manufacturers were incentivised to install renewable energy, a significant amount of decarbonisation can take place. Efforts must also be made to maximise the potential offered by anaerobic digestion at farm and processing level. Farm Advisory Service: Progress in ensuring uptake of knowledge and practices at farm level aimed at improving overall productivity and therefore reduce emissions intensity will need a comprehensive and focussed advisory service in the future. Continued support for the Dairy Sustainability Ireland initiative led by DII, and the Agricultural Sustainability Support & Advice Program (ASSAP) running from it. Research & Innovation: Research and development will be key to finding new ways to reduce our agricultural emissions. Government must support this area strongly into the future and invest in areas of research that will lead to national programmes that will assist Ireland in meeting its climate change targets. Continued assistance through knowledge transfer will ensure that new innovative practices are communicated to all stakeholders and adopted by the sector. Investment: The Pillar 2 Rural development Programme covering support for important schemes such as the BDGP, TAMS and GLAS which all contribute greatly to efficiency and improved environmental performance of the sector must maintain a strong budget. Support efforts to improve workplace wellbeing The consequences of nutritional, physical and mental ill health are far-reaching for Irish society, in terms of reduced economic performance along with increased health and social welfare expenditure. With 68% of the 15 to 64-year-old Irish population in employment, it provides the perfect opportunity to positively encourage and support healthier lifestyle choices by employees. The Government should explore the provision of support to businesses in Ireland that undertake initiatives outlined below. 7

9 Recommendations: Support by employers for employee wellbeing through gyms, sports club memberships, and personal fitness equipment should be removed from BIK in the same manner as membership of professional bodies and the bike-to-work scheme. Follow the lead of other jurisdictions in introducing direct support for workplace wellbeing initiatives. For example, initiatives to or materials/equipment which relate to programmes which raise health awareness, encourage behavioural change or promotes employee participation in wellness programmes should be creditable against companies corporate tax bills. This could include, talks, subscriptions, demonstrations, competitions, or classes for example. Review the treatment under income tax of benefits provided by workplace wellness programs (for example quit bonus or other incentives to participate in wellness activities) which may be taxable as income to the employee. 8