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.”

Ken Tyrrell, Business Recovery Partner, PwC Ireland, said, “Based on the relatively low rates of business failures in the retail and hospitality sectors during the pandemic, it is clear that that many of the 4,500 companies are in these sectors.

“While they have not gone bust, many are on life support and will need additional support to repair their balance sheets as the service economy fully reopens.”

Overall, the insolvency rate (liquidations & receiverships) per 10,000 companies was 14 in 2021, which was down 87% from its peak in 2012.

“Kilkenny had the highest number of insolvencies, with 25 business failures per 10,000 companies – higher than Dublin at 24,” Mr Tyrell said. “Cork performed well averaging only 12 insolvencies per 10,000 companies, half of Dublin’s rate.”

The Arts & Entertainment sector was the worst sector impacted by far – with 85 insolvencies per 10,000 companies in 2021, followed by Travel & Transport (47) and Health (36).

The research shows that Retail (8), Hospitality (16) and Construction (15) had a much lower than expected level of insolvencies per 10,000 companies, which may be indicative of government supports targeting these job intensive service sectors.

At the other end of the spectrum, due to the strong performance of the FDI sector and the ability of these workers to easily transition to working from home during the pandemic, PwC’s analysis shows that the lowest rates of insolvencies per 10,000 during 2021 were in the Information & Communications, Professional, Scientific & Technical sectors.

Overall, Ireland’s insolvency rate for 2021 was 11 liquidations per 10,000 companies. In the UK, the comparable rate is 26 liquidations per 10,000 companies, nearly double Ireland’s rate. PwC’s analysis revealed that over the past 17 years, the UK has historically tended to be 35% higher than Ireland in terms of insolvencies per 10,000 companies.

PwC estimates that there is currently a debt overhang of at least €10 billion made up of warehoused Revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities.

“This is likely to mean that further support will be required for certain sectors and many of the 4,500 companies identified earlier – which have effectively been on life support – will recover while the economy fully reopens but some will need to proactively repair their balance sheets.

“Many of these companies will need to restructure their debts and will likely look to formal processes such as the Government’s recently launched SME restructuring SCARP (Small Company Administrative Rescue Process) process and traditional processes such as examinership. We expect to see a step-up in restructuring throughout the course of 2022.”