Supply chain issues and rising energy prices had already caused input costs to soar in many sectors, but the war in Ukraine has exacerbated the situation and much of the pricing pressure has yet to make its way through the system.
Price hikes in animal feed, energy and fertiliser, along with supply chain issues, have seen food processors passing those increases on to the end consumer.
It is estimated that commodity price increases can take up to six months to reach consumers, meaning pressure on pricing is likely to continue at all stages of the process.
According to the Central Statistics Office, annual food price inflation has risen from around 1.5% in December to 3.5% in the 12 months to April.
“Irish food producers now face a tidal wave of challenges that encompass near doubling of energy costs, limited availability of key food and non-food ingredients, wider supply chain issues, and labour retention costs,” Kieran Rumley, Executive Director, Love Irish Food said.
“With [overall] inflation now estimated to reach between 7% and 9% in the third quarter driven by energy costs, the food industry is set for the biggest challenge that it has faced in many decades,” he added.
Other top challenges listed in the 2022 SME Food Barometer include greater economic volatility, identified by 86%, and supply chain issues – 66%.
Almost half of participants stated that labour shortages are a key threat for future business growth.
Despite the challenges facing the sector, 85% of firms surveyed expressed confidence about the prospects for their own company’s revenue growth in the year ahead. That was up from 75% last year.
But around a quarter said they thought the economy would improve in the year ahead – down from almost two thirds last year.
“The fact that Irish food SMEs are confident about their own organisations’ growth in the face of economic uncertainty is testament to their resilience and their confidence to weather current challenges,” Owen McFeely, Director at PwC Retail & Consumer Practice said.
“They have become accustomed to dealing with recent challenges, both Brexit and Covid-19 have tested their crisis management and business resilience capabilities.”