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Food Culture and Travel

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School of Tourism
The Impact of External Influences on Food/Beverages in the European Region

Student Name: Emily Saunders | Programme: International Hospitality and Tourism Management | Level: H | Unit Name: Food, Culture and Travel | Unit Tutor: Dr Hanaa Osman | Number of words : 2744 | Date Due: 21.03.14 | Date Submitted: 20/03/14 |

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Contents
1.0 Introduction 3
2.0 Economic Impact 3
3.0 Political/ Legal Impact
3.1 EU Milk Quota Abolition 4
4.0 Social Impact
4.1 Food consumption Trends 4
4.2 Demographic Factors 5
4.2.1 Aging Population
4.3 Health Concerns 6
4.4 Food Preferences and Eating Behaviour Patterns 7
4.6 Competition 7
5.0 Environmental Impact
5.1 Climate Change 8
5.2 Seasonality 9
6.0 Conclusion 10
7.0 References 11

8.0 Figures and Tables
Figure 1.0: Destinations of Irish Exports (Irish Dairy Board, 2011)
Figure 2.0: Estimated Rise in Irelands’ Older Population 2006-2041 (McGill, 2010)
Figure 3.0: Relationship of Total Costs of Production and Proportion of Grass in Cow's Diet (Dillon et al, 2005)

1.0 Introduction
The following report will propose a detailed analysis of the macro-environmental factors that impact dairy production in Ireland. The dairy industry is one of the most vital sectors of Irish agriculture, accounting for 27% of agricultural output (Department of Agriculture and Food, 2006; Bord Bia, 2009). It produces 5.5 billion litres of milk per year (Icos, 2014) and is therefore a major source of income for the Irish food and beverage industry. A key feature of Irelands’ dairy industry is the intense concentration it has on implementing spring calving grass based dairy systems (Creighton et al., 2011, p 251-264). The positive and negative implications this method brings will be central to discussion in this report.

2.0 Economic Impact
Dairying is the most profitable type of agricultural production in Ireland. (Dillon et al, 2008). Dairy exports make up 30% of Irish food and drink exports, worth €2.7 billion to the Irish economy. (Department of Agriculture, Fisheries and Food, 2010) Although, this suggests Irelands’ dairy industry is financially stable, several macro-environmental factors are a matter of concern. Initially, the industry has faced the issue of the weakening of Sterling against the Euro, which has consequences in Irish exports to the UK being more expensive. With the UK market accounting for 28% of the Irish Dairy Board sales in 2010 (Figure 1.0, Irish Dairy Board, 2011) this is an issue that needs to be overcome.
Figure 1.0: Destinations of Irish Exports (Irish Dairy Board, 2011)

(Irish Dairy Board, 2011)

However, despite this, increasing population levels, enhanced standard of living and changing dietary patterns (Popkin, 2001, p13-18) have all positively contributed to increased food demand. Although, this will have positive impacts on food sales and exports, Binfield et al (2004, p12) believe that due to only a limited amount of agricultural produce being exported internationally,the concern of commodity price volatility is still a predominant matter. The dairy sector is currently experiencing a significant decrease in prices, a result of the uncertain world economy and the constantly changing environment (Schelhaas, 2014). The IFCN Dairy Research Center, (2013, p 1-3) recognised that following a significant rise in milk prices in 2007, a decrease followed in 2008 with a further deterioration in 2009. However, the overall long term outlook for dairy production is positive, as for an industry that is reliant on export markets the predicted growth in world demand and increasing global population should benefit Irelands’ dairy industry. In summary, although it is expected that prices will recover slowly as food production levels gradually increase, the demand for dairy products will continue to stay strong and it is predicted that prices will recover to moderately high levels.

3.0 Political/Legal Impact
3.1 EU Quota abolition
In 2015, the European quota system that has limited milk production for 30 years will be abolished. (Taverner, 2014) This is predicted to decrease milk prices and increase milk production
(Réquillart et al, 2008, p1-8). As a result Ireland are preparing to increase their production by 50% (Mullaney, 2013, p6-7). If Irish milk producers continue to use the low cost grass based system they will cope well with the increased demand and decrease in prices. However, some may argue that ensuring low greenhouse gas emissions whilst increasing production is problematic. O'Donovan et al (2011) believe that in order to meet this challenge the industry must use its strengths of grass based production to its advantage by maximising the intake of grass in cows’ diets. Läpple and Hennessy (2012) argue that in order to increase such high levels of production an investment in enhanced technology will have to be made. On the other hand, an article in Farmers Weekly (Taverner, 2014) indicates that it’s hard to predict how the industry will cope after the quota system is abolished, suggesting that the future success of Irelands’ dairy industry is uncertain. 4.0 Social Impact
4.1 Food consumption trends
Food consumption trends are central to the social impact on the dairy industry in Ireland. An article by Food Engineering and Ingredients (2010, p12) presents that consumption of dairy products has been growing on a global scale due to the rising population and increases in per capita consumption. It is generally acknowledged that economic factors including high consumer income and declining prices for dairy products, in comparison to other foods, have caused most of this increase in per capita consumption (Agra CEAS Consulting Group, 2004). However, Binfield et al (2004, p12) express that ‘consumption of butter within the EU is expected to decrease and this is of particular relevance to Ireland as 80% of dairy production in Ireland are exported and butter comprises 60% of output.’ (Promar and Prospectus, 2009) Though, Dillon et al (2008) affirm that cheese production is expected to increase to 131, 000 tonnes per year by 2015. These patterns display the importance of Irish companies diversifying their product mix including reducing their over-reliance on butter exports in order to meet the food consumption trends.
4.2 Demographic factors
4.2.1 Aging Population
Demographic factors could also contribute to the food consumption patterns (Agra CEAS Consulting, 2004). Primarily, demographic studies (Lutz and Sanderson et al., 2008, p716-719; Mirkin and Weinberger, 2001, p 37-53) have revealed that the age profile of most regions in the world are increasing. Relative to trends in developed countries and EU countries, the UK has an ageing population (Office for National Statistics, 2012). In 2000, 19% of the population were below 14 years of age and this is likely to fall to 16% by 2025. The UK remains a key market for Irish dairy exports with trade growing by over 15 per cent (Deeney, 2014) and therefore it is crucial that Ireland note this change in demographic structure and change their product reliance’s accordingly. Ireland also has an ageing population with 11% of the population 65 years of age (McVeigh et al, 2013, p 872-875). Figure 2.0 (McGill, 2010) displays that it is expected to rise exponentially in the future.

Figure 2.0: Estimated Rise in Irelands’ Older Population 2006-2041

(McGill, 2010)
This suggests that the aging population will have great implications for dairy production as age groups have different demands for dairy products. For example, in the UK consumption of butter and ripened cheese is higher in older age groups, whereas consumption of block cheese is higher in lower age groups (Mintel, 2003). Quinlan (2013) believes that Irelands’ aging population will also cause a significant demand for products with anti-ageing properties and products promoting good digestion such as probiotic yoghurts, putting pressure on Irelands’ dairy processors to meet consumer demands.
4.3 Health concerns
A report by Agra CEAS Consulting (2004) indicates that health concerns are a key driver relating to the consumption trends of dairy products. Kearney (2010, p 2793-2807) and Dillon et al, (2005, p145) suggest that consumer health awareness is growing with the increasing availability of health information along with the ageing of populations and increased risk of diseases. For instance, in established markets, butter consumption has recently deteriorated due to the rising concerns about the fat content of butter and the link it has with increased cholesterol levels (Chang and Kinnucan, 1991, p1195) and risk of cardiovascular disease (Prattala et al, 2003, p 124). Quinlan (2013) states that there has been a recent growth in demand for dairy products with perceived health benefits. Consumers want products lower in fat to traditional dairy products (Food for Health Ireland, 2012) such as full-fat milk and cream which is a trend that also applies to Ireland (Euromonitor, 2011 cited by Quinlan, 2013). To prevent these health concerns and to meet customer demands, Kerrygold, a leading Irish dairy brand developed a reduced fat butter with 25% less fat and 50% less sodium (Bulletproof Executive, 2014; Whitehead, 2006). There are currently more overweight people than underweight or malnourished in the world ( Popkin, 2006) and obesity levels have increased specifically amongst young people with the number of obese young people tripling over the past three decades (National Center for Health Statistics, 2010). As a result of this the government have implemented several health campaigns such as the ‘Change4Life’ programme in order to decrease obesity rates and increase customer awareness (Croker et al, 2012, p 404). This suggests that the rise in obesity levels and improved health awareness may have a significant link to the decline in butter consumption. Nevertheless, although there are negative views surrounding the relationship with butter and obesity levels, others believe that dairy products can also have positive impacts on health. Medical studies (Dirienzo et al, 2003, p; Zemel, 2005, p 537-546) have identified that there is an opposite effect between dairy intake and body weight and that three servings of dairy products per day in a reduced calorie diet may help accelerate body weight and body fat loss. Accordingly, it is evident that dairy products can contribute to reducing obesity (Dirienzo et al, 2003).

4.4 Food Preferences and Eating Behaviour Patterns
Agra CEAS Consulting Group (2004) propose that food preferences and consumer attitudes are gaining in importance as a determinant of demand for dairy products. The demand for convenient dairy products is rising (Mintel, 2011) in light with the acceleration of consumer lifestyles. (Jabs and Devine, 2006, p 196-204). The main reasons of this acceleration are the growth of single-parent households (Nixon et al, 2006, p 79-87; Ziol-Guest et al, 2006, p 347-371), longer working hours and a higher proportion of families with both parents working outside the home (Bauer et al, 2012, p 496-504; Blake et al, 2011, p401-407; Stewart et al, 2004, p2-6). The impact these changes have on eating habits include less time spent preparing food (Regmi, 2001, p-1-2), less families eating together, decrease in people eating breakfast (Levin and Kirby, 2012, p 63-70) and a rise in informal eating habits such as snacking and eating whilst on the move (Euromonitor, 2008 cited by Quinlan, 2013). These trends are substantial in Ireland and therefore create opportunities to produce more dairy snack products to fit in with the customer lifestyle trends. Cheese specifically has opportunity to further develop its rising consumption trends in the snacking market, and is being marketed as a healthier snack alternative to crisps or sweets (Mintel, 2011).
4.5 Competition
Finally, Irelands’ dairy sector works in a very competitive market with competing exporting countries including Denmark, the Netherlands and New Zealand (Thorne and Fingleton, 2006, p49-61). These countries all have an advantage over Ireland, due to Irelands’ product portfolio having a strong emphasis on butter, which has not changed in line with the decline of butter consumption. The only noticeable changes in Irelands dairy product portfolio is the modest increase in cheese production. Whereas all the competing countries have reduced their dependency on butter, thus gaining advantage on their income of dairy sales. Conversely, Ireland has gained competitive advantage attributable to the drought in New Zealand, as the world’s largest dairy exporter (Baskaran et al, 2009, p377-389), this had meant global supply is limited thus giving Ireland the opportunity to increase production of dairy products as demand increases (Department of Agriculture, Fisheries and Food, 2010). Additionally, Irish producers are better placed than competing companies to withstand higher feed costs, due to the predominantly grass based production (Irish Food Board, 2010). The lower production costs compared with competing European countries are evident, however production costs are lower in New Zealand and Australia which could be due to larger herd sizes (Figure 2.0 Dillon et al, 2005).
Figure 3.0: Relationship of Total Costs of Production and Proportion of Grass in Cow's Diet
(Dillon et al, 2005, p142)

5.0 Environmental Impact
5.1 Climate Change
Climate change is a major environmental factor that impacts not only dairy production but livestock food production on a global scale. (Thornton, 2010, p 2853-2867). Irelands’ mean annual temperature has increased by 0.7 8C between 1890 and 2004 (Fitzgerald et al., 2009, p244-55). Precipitation patterns are also changing with annual precipitation rising on the north and west coasts and small increases in the south and east (McElwain and Sweeney, 2007). IPCC (2007) state that the changes in weather and climate patterns are predicted to continue into the future which will have implications on agriculture, especially grass growth having an effect on the grazing season of the cattle. As milk production in Ireland is primarily grass-based, to ensure high production levels at low costs (Dillon et al. 1995, p 286-299; Shalloo et al, 2004, p 1945-1959) this could potentially effect the future production efficiency rates. The increasing temperature poses significant challenges for Ireland as thermal environments can negatively affect milk production (Kadzere and Murphy et al., 2002, p 59-91). However, Dillon et al (1995, p286-299) argue that Ireland holds a competitive advantage by using a grass based system as the moderate climate favours grass growth and grazing conditions over a long period. Promar and Prospectus (2009) support this by proposing that the grass based system is facilitated by Irelands’ moderate climate, which makes it suitable for grass production suggesting that it is more cost efficient than the grain-fed systems used in competing countries. On the other hand, Fitzgerald et al (2009, p244-55) suggest that the weather and climate can negatively detriment the production levels, as systems in the South East of Ireland often experience less grass availability in the summer, due to soil water shortages and lack of sufficient precipitation. This raises the problem of seasonality to the Irish dairy industry, which is discussed in the next section of this report.
5.2 Seasonality
As milk production in Ireland is predominantly grass based; it differs on a seasonal basis throughout the year. Maximum production levels are from mid-April to August and lowest during December and January (Promar and Prospectus, 2009). Irish dairy farmers have repeatedly adjusted the date of calving, so that through compact calving, the majority of the herd calves throughout spring in order to maximise the amount of grass in the lactating cow’s diet. This means that production cost efficiency is maximised and it also increases supply levels in the peak months of April to August. (Shalloo et al. 2004, p1945-1959). This provides a competitive advantage as Irelands’ main competitors don’t have a corresponding seasonality pattern. However, Promar and Prospectus (2009) argue that this seasonality can act as a major constraint on the Irish industry as it leads to poor capacity utilization in the processing sector, which increases the operating costs of processors. Crucially, the seasonality of production can also disadvantage market demand as many standard dairy products are relatively consistent in consumption all year round. Additionally, it limits the types of products that can be produced. For instance, the lack of ability to store short shelf life products from summer to winter. This limits the products available, and so processors rely heavily on making storable products such as butter, hard cheese and milk powders. (Quinlan et al. 2012, p22-31). This inhibits processors from meeting customer needs for standard products all year round. Fundamentally, when processors cannot produce consistent products all year round, they face major challenges in selling products due to inconsistent textures and flavours (Promar and Prospectus, 2009). In summary, it is evident that the predominance of grass-based production, and the seasonality of the production results in inconsistency and variability in the dairy products produced. Conversely, Irelands' seasonal characteristics of temperate climate and effective grass growing ability confer an optimistic competitive advantage over competing dairy exporters due to the low cost production and higher efficiency levels they provide (Shalloo et al. 2004, p1945-1959).

6.0 Conclusion
To conclude, the report has demonstrated that macro-environmental factors are currently heart of the debates concerning Irish dairy farming, as they provide both opportunities and implications. It is evident that the dominant agricultural focus on the low cost grazing strategy (Dillon et al, 2008, p 16-29) has facilitated Ireland in gaining a competitive advantage over other exporters. However, several debates (Promar and Prospectus, 2009,; Shalloo et al, 2004, p1945-1959) have stemmed from this, due to the impact climate change has on the seasonality of production through using a grass feed strategy. The report concluded that although seasons favour this strategy, consistency of produce during the winter season to meet customer demands is still an issue. Another subject that was identified were consumer preferences. Existing consumer trends show that a change in household structure (Jabs and Devine, 2006, p 196-204) and increasing health awareness (Kearney, 2010, p2793-2807) has resulted in consumers demanding convenient healthy alternatives (Mintel, 2011). These trends have positively impacted the Irish dairy industry providing opportunities for new diverse products.

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