As I announced on Monday last, Erin Foods Ltd. are establishing a joint company with the H.J. Heinz Company of Britain to develop and market the products of Erin Foods Ltd. in the United Kingdom. The joint company will be incorporated in this country, and will be known as Heinz-Erin Ltd.
Before commenting on this development, I might, perhaps, review briefly the development to date of the food processing project of Erin Foods Ltd. As Deputies are aware, Cómhlucht Siúicre Éireann Teoranta embarked on this project in 1960 in response to the encouragement given to State-sponsored concerns in the First Programme for Economic Expansion to extend their activities to projects related to their main spheres of operation. The company's intention was to establish, within a reasonable time, a substantial self-supporting food business directed mainly towards export, and so help to expand the income and employment generating capacity of Irish agriculture. The company concentrated on the production of dehydrated foods because it seemed to them that this form of processing offered the best prospects of success.
In 1962, the Oireachtas approved of the investment of Exchequer moneys in the project, and to date £4 million has been invested by the Exchequer— £3 million by way of share capital and a further £1 million by way of loan. The total investment in the project has, however, been in the region of £8.5 million; the balance of £4.5 million beyond the Exchequer's investment has been contributed by CSET. In 1963 Erin Foods Ltd. was set up as a wholly-owned subsidiary of CSET and has concentrated on the marketing side of the business.
Thanks largely to the drive and initiative of Lt.-General Costello, the project has expanded steadily over the past few years and at present gives employment, both in its own and associated plants, to some 1,400 persons. In 1965-66 wages and salaries paid amounted to over £800,000 while a further £340,000 was paid to growers of vegetables. Sales in that year totalled £2 million. In addition to the plants at Carlow, Mallow, Thurles and Tuam owned by CSET and Erin Foods Ltd., vegetable processing plants have been established on a co-operative basis in association with the main venture at Midleton, Skibbereen and Glencolumbkille.
The difficulties and costs involved in the development of the project have been substantially greater than had been foreseen initially, due in large measure to the intense competition in the British market. The total losses up to 30th April, 1966, amounted to almost £5 million including approximately £1 million representing research and development expenditure which has been capitalised. The loss for the year 1966/67 is estimated at £1.3 million on sales of about £2.6 million.
The Government decided in 1965 that the time was appropriate for a full and objective re-assessment of the position and prospects of the project. Cómhlucht Siúicre Éireann Teoranta and Erin Foods Limited accordingly engaged Arthur D. Little, Inc., international management consultants, to carry out this re-assessment. The consultants' report was received early in 1966 and was later published. It put forward a number of alternative courses of action that might be followed. These ranged from discontinuing the food project to an all out attack on the UK market backed by a wider range of products than at present. This latter alternative would involve a further investment of £15 million and further losses of £5 million before the concern would reach the profit-making stage in 1973.
In addition to recommending alternative courses of action, the A.D. Little report contained a number of suggestions designed to improve the productive and marketing efficiency of the project. One of these was that Erin Foods should not be confined to marketing but should extend its responsibilities to all aspects of the food project. The Government accepted this recommendation and full effect has been given to it.
As regards the various alternative courses of action suggested by the consultants, the Government took into account the fact that Erin Foods was still in the process of testing its capacity to exploit the UK market and expand its present range of products. It was considered premature, therefore, to come to a firm decision on the alternative which should be adopted and it was decided to defer a decision until the results of the current year became available. This would also enable the views of the newly reconstituted board on the developing situation to be taken into account.
One of the possibilities mentioned in the A.D. Little report was a joint venture partnership with a marketing oriented firm already having an established position in the UK. This was not a new suggestion. Lt.-General Costello had earlier suggested it as a possibility. The Government had already approved it in principle as they considered it to be the most feasible and economical way of achieving a speedy advance in export markets. Cómhlucht Siúicre Éireann Teoranta and Erin Foods Ltd. had explored the possibilities of a joint venture on a number of occasions. On receipt of the A.D. Little report, Erin Foods reviewed these earlier approaches and made a fresh assessment of the possibilities open to it in this field. They eventually came down in favour of a link with the H.J. Heinz Company which is one of the leading firms in the food industry in the UK with a sales force probably larger than that of any other comparable firm in the UK market.
It is important to be clear what the Erin Foods/Heinz agreement covers and what it does not cover. It is not, for example, a merger of the two organisations. Each company will retain its separate identity. The essence of the agreement is that a joint company will be formed to promote and develop the sales of Erin products abroad. Erin Foods will sell its products to this joint company, at a price to be agreed. Heinz will do the actual selling in the British market. The joint company will promote and advertise the products sold through it. In brief, therefore, there will be three functions to be discharged by three separate companies with Erin Foods producing. Heinz-Erin marketing, promoting and advertising, and the H.J. Heinz Company doing the actual selling. I should emphasise that this position will not be reached overnight. Initially the joint venture will not cover sales of all Erin products in the British market. During an interim period, which it is hoped will not last more than a year or so, the joint venture will confine itself to sales in the catering market. During this period the details of a full-scale attack on the British market will be worked out. It is intended that after this interim stage the joint company will cover all types of markets in the UK apart from bulk sales which will continue to be serviced direct by Erin Foods.
An important and indeed essential feature of the arrangement from the Irish viewpoint is that it preserves the identity of Erin Foods in the UK market. This will be done in two ways. Firstly, all products sold through the joint company will contain an indication that they have been produced by Erin Foods for distribution by Heinz-Erin. Secondly, all catering products and vegetable retail packs will be marketed under the Erin Foods label, though recipe retail products will bear the Heinz label.
