November Council Meeting Addresses Commodity Prices and Competitiveness

The final Food and Drink Council Meeting of 2010 took place on Thursday 18th November 2010, from 11am to 1pm, in Bewley's Hotel, near Dublin Airport.  There were 2 speakers who presented at the meeting. Please click here to view the agenda.

The first speaker was Adrian Devitt of Forfás' Competitiveness Division who gave 'An overview of the costs of doing business in Ireland in 2010'.

Key Points: Adrian said that Ireland remains uncompetitive from a costs perspective despite recent improvements. The improvements in the last 2 years are due largely to the current deep recession but Ireland is still only half way to where we need to get to in terms of competitiveness. He also made the distinction between falling costs and competitiveness and that one does not necessarily lead to the other as other markets have also experienced falling costs. He mentioned particular areas where improvements were most notable and these were unit labour, property and electricity costs.

Regarding unit labour costs, according to Adrian, this is the biggest cost input (45% of total costs, exc raw materials) for food and drink manufacturers. He said that per hour wages had only declined by 3%. He said that there are 4 things that companies typically do to reduce labour costs. First of all, they eliminate bonuses; second, they reduce employees’ number of hours worked; thirdly they reduce staff numbers; lastly they introduce pay cuts.   The pay cuts are usually only introduced after these other measures are taken first.

He stated that the minimum wage at €8.65 was the second highest in the EU on a per hour basis.

Transport is also a big cost input for food and drink manufacturers and accounts for 16% of total costs (excluding raw materials). Ireland, he stated, has made some competitive gains in the last 2 years. With regard to utilities, there has been a dramatic improvement here. Ireland has improved from an index of +33% versus the EU average to +6/7%. The price of electricity for large energy users has come down but this is mainly due to the lower cost of oil and gas, not due to government actions and these gains were likely to be reversed in 2011.

 Regarding property, costs have fallen here but they’ve also fallen in other countries so the improvement in cost competitiveness has not been huge. Adrian drew attention to the fact that property costs are only relevant to new businesses.

Government delivered goods have stayed relatively high but have come down where they are exposed to competition. However, health and education costs were still going up. Regarding professional fees, engineers’ and architects’ fees have dramatically come down as they are linked to the construction industry. However Veterinary, Legal and Accountancy fees have not seen a marked reduction. Accountancy fees peaked in Quarter 1 2008 and legal fees peaked in the middle of 2009 and they are gradually going downwards. He said he could not compare local authority charges with other countries.

To view the presentation, please click here.

The second and final speaker was Nick Peksa of Mintec Limited who spoke on How Commodity Food prices have changed in recent years and what the future holds. To view Mintec's presentation, please click here.

Nick Peksa introduced himself and gave an overview of what Mintec do. He said the company was based in the UK, founded in 1982 and provides commodity training, information and support services to major companies across a variety of industries. He said that Mintec gives decision makers access to the hard facts and figures and helps companies to understand and control their costs and bring value to the innovation process.

He showed a number of graphs of various food commodity prices, including oats, grain and cereals and milk and sugar which showed how prices have changed over recent years and the expectation for 2011.

He said that speculation is playing an increasingly important role in the price of food commodities in recent years. He gave the example of a volcano that took place in 1999 in the Philippines. This led to a spike in the price of coconut oil even though the nearest plantations were a thousand miles away. He stated that an increase in the price of one commodity can lead to upward pressure on the price of other similar commodities and showed a graph of palm oil, rapeseed oil, sunflower oil and soya bean oil.

Nick stated that Mintec provides Monthly Commodity Reports. They provide subscribers with a detailed analysis of market movements and trends across a range of important commodity markets - covering both the food and non-food sectors. Each report contains an executive summary, followed by an overview of key market indicators. He said they work in Ireland with Kepak, Pierres (Cuisine de France) and Lakeland Dairies.To view Mintec's October market report, please click here.

Nick said they also run a training course called Datagain Lite.  

The Datagain Lite Service, is an advanced tool for in-depth analysis of commodities. Below are listed some of the areas where Datagain creates a distinct advantage.
• Having the ability to follow a wide range of commodities from a single source.
• Examining commodities from different sources.
• Long and short term contract tracking. Verification of supplier pricing.
• Combination of raw materials; using the blending features to create a theoretical value for packaging, salad mixes and cost models.
• Potential to incorporate member data and requested sources into the system.
• Currency conversion and effects linked with the markets and suppliers.
• Advantages of having access to production as well as import and export information to build a complete commodity picture.
• Tracking materials from feedstock - i.e. crude oil  chemical feedstock  packaging material.

For more information, please contact Nick Peksa at:
Email:   This e-mail address is being protected from spambots. You need JavaScript enabled to view it  
Tel: +44(0)1628 851313
Fax: +44(0)1628 851321
Mob: +44(0)7867 553689