The value of exports from the food and drink sector reached €6.665 billion in 2003. This represents a very positive performance when viewed in the context of weaker economic conditions in all the major export markets, significant adverse currency movements, and intense price and product competition in all markets.
The euro zone accounted for 30% of Irish food and drink exports in 2003. Of the remainder, the UK accounted for almost 40% and the rest of the world for 30%. In other words, 70% of our exports last year were outside the euro zone. If the value of exports is adjusted for the appreciation of the euro against sterling, the dollar and other currencies, the underlying growth in the total value of exports is closer to 10%, which is encouraging.
At a global level the food and drink industry is going through a process of significant change that is presenting important challenges to all involved in the industry ranging from the producer to the retailer. There are many different forces driving these changes, but the key ones revolve around changing consumer behaviour with an emphasis on convenience foods, functional foods and speciality products. This in turn is driven by factors such as lifestyle, demographics, and global retail trends. From a Bord Bia perspective, the Irish food and drinks industry's success on domestic and external markets will depend on the industry's ability to anticipate and respond to emerging market developments.
I would like to talk about our marketing strategy in the context of some of the sectors, starting with the meat sector, what is happening there and how we are responding to it. Irish exports of meat and livestock increased by 5% in 2003, to reach almost €2 billion. A strong performance in beef and live animal exports offset declines in lamb and pigmeat exports. Further growth is expected in 2004 due to increased penetration of premium EU beef markets assisted by the absence of intervention stock, a decline in EU production and relatively strong consumer demand. We also anticipate reasonably steady prospects for lamb and for pigmeat.
The European beef market is now in deficit for the first time in 25 years. Irish beef exporters, responding to the improved demand, marketed a record 415,000 tonnes within the internal market in 2003, a volume never previously approached in the industry's history. The increased focus on Europe, to where we exported 85% of our product in beef last year, is set to continue. Consumption in 2004 is estimated at 7.75 million tonnes and that will exceed the consumption peak in 1999. More people are eating beef now in the EU than were for many years.
The enlargement of the EU from May is set to offer further opportunities. As health concerns switch to obesity, the role of red meat in a healthy and balanced diet is becoming increasingly recognised. The recovery of the beef market in Europe over the last two years is remarkable, but there are significant challenges. The prospective ending of the over 30 months scheme in Britain, possibly in the late autumn, could displace some 70,000 tonnes of Irish beef exports on an annualised basis.
Another challenge is the prospect for the cattle and beef trade as the year progresses. They are likely to be affected by any pre-decoupling decisions by producers to reduce cow numbers and to bring forward marketing in advance of the slaughter premium.
Proposals for EU legislation dealing with the transportation of live animals represent an important issue for the live export trade. The continued recovery in the export of live animals to 220,000 in 2003 has been an important development. Meanwhile, the challenge from South American imports continues to grow. In the latest GATT trading year, imports of beef from South America into Europe paying full duty are set to almost double to reach between 100,000 and 120,000 tonnes.
Food safety remains at the top of the international food agenda. The outbreak of BSE in the US and the development of avian flu in both the Asian and American continents highlight the global nature of the meat trade. It also highlights the vulnerability of trade flows, both to animal disease and to any concerns about infections migrating to humans.
The speed of response of the EU and national authorities to banning imports of poultry from Thailand, once the issue became apparent, is reassuring. The substantial decline in the incidence of BSE cases, from 183 cases in 2003, down from 329 in 2002, is similarly reassuring. The continued rise in the age profile of cases points to a continued reduction and a positive backdrop to national efforts to gain greater market access.
Other challenges include the full implications of the CAP reform which will depend on the decisions yet to be taken by many member states with regard to the options available to them under decoupling. The Doha round of WTO negotiations will determine the market access, the lower import tariffs and duties and the level of export subsidies available. All of those will have an effect. Any further opening up of the EU market is likely to result in increased supplies of South American beef, in particular, entering the EU.
I have discussed the challenges and the environment that we face in the beef sector. Our strategy is to concentrate our resources on securing three conditions which we consider necessary for the industry's success. The first is to support the industry as it extends its market reach by working to restore market access in international markets and building new businesses within the enlarged Union. The second condition is to improve the industry's market position in the markets where it is competing, by targeting the highest returning customer segments. The third condition is to build a sustainable brand image for Irish beef that will secure its long-term position with consumers and offer the prospects of a premium for producers. All our work is geared to meeting those three conditions of extending market reach, improving the industry's market position, and building a sustainable brand.
In addressing those conditions, we are implementing a number of key initiatives. In May, we will host a second European meat forum in Dublin which will bring some 200 European meat buyers and journalists to Ireland. We have extensively reviewed the case for branding Irish beef as a means of building a lasting franchise for the product among consumers. This year, we have decided to launch a major co-branding project on the Italian market. The project will seek, in partnership with some of the leading retailers, to promote Irish beef on taste, supported by our green image, and to establish the Irish beef market as a premium mark of quality in the marketplace. The Italian market has the largest import deficit in Europe, is the most rapidly growing market for Irish beef, and the product is listed by many of the leading retailers.
In addition, we will launch the chefs' Irish beef club in the UK, France and Holland as a means of building the positive image of beef in the food service through a partnership with high-quality Michelin star restaurants. We are working with over 30 leading supermarket groups promoting Irish beef and lamb, with over 3,500 outlets in the EU. We plan to further consolidate and develop these market positions in 2004 and we are making progress with the industry in accessing new supermarket business in the accession states, particularly Poland, Hungary and the Czech Republic.
We plan to continue to work closely with both the Department of Agriculture and Food and the Department of Foreign Affairs towards regaining access to markets closed to EU beef in the aftermath of BSE. Similarly, an extensive programme of market research, participation at international trade fairs, inward buyer visits, and other trade development and image building activities will be a key foundation to our work in supporting the industry.
In lamb, the EU market continued to readjust last year following the historically high prices that prevailed in 2000 and 2001 after the outbreak of foot and mouth disease. The value of our exports last year amounted to €145 million, a fall of 12% arising from a decline of 8% in volume and 4% in price. Market conditions for lamb remain relatively stable with the Irish market now accounting for about 35% of the industry's output and the French market accounting for 70% of exports. The principal challenge from a marketing perspective is to widen the appeal of lamb to a broader market and to younger consumers. We are working with all sectors in the industry to achieve this goal through a programme of product and recipe development and through strong, targeted promotional campaigns in both the Irish and French markets.
In pigmeat, 2003 was another challenging year with difficulties emanating from the appreciation of the euro, the release of APS stocks, and increased competition on global markets. The result was a decline of 6% in prices across the EU. Last year, Irish exports were valued at €250 million, which was a fall of 4% in volume and 3% in price. Market conditions remain challenging for the industry and are not helped by further pressure on margins from higher feed costs. Bord Bia is working with the sector on a comprehensive pork promotional programme for the Irish market for 2004. We have developed a new theme "A World of Flavours" which has been worked with through our advertising and focus groups and will, we believe, help to highlight the diversity of the product and gain increased consumption.
The increased penetration of imports of beef, pigmeat and poultry in the Irish market, given our high self-sufficiency, is a cause of some concern to many Irish producers. Although much of this product is processed for re-export, it is also absorbed into domestic consumption, particularly in the catering and food service trade.
Our Féile Bia programme, with almost 1,300 members, is an initiative aimed specifically at providing increased information and transparency about the provenance of products and ensuring that they come about through recognised quality assurance schemes. We will further develop this programme in 2004 by requiring clear identification of origin in the various establishments, extending the auditing programme and working with the industry to ensure the integrity of the scheme is maintained.
To complement the quality assurance schemes that we have in place for beef, pigmeat and eggs, we are working with the industry and will shortly launch a new quality assurance scheme for chicken, following two years of preparation and consultation with the industry. We believe this development will further enhance the positive reputation of Irish chicken on the domestic market.
I wish to cover some other sectors. The consumer food sector has been one of the strong growth sectors for the last eight to ten years and is a sector that comprises the chilled, frozen, ambient and speciality food products which are processed into other products sold in retail outlets in the food service sector. Last year, because of currency fluctuations, exports showed a decrease of 5%, but when that is taken out, volume grew by 4%. Some 77% of these exports go to the UK and they are especially prone to exchange rate fluctuations.
The confectionery sector and the frozen foods sector showed growth. The issue for many of the companies here is the increased price sensitivity of the consumer, increased competition from European competitors, the power of the multiples and the relative battle between private label and brands that is unfolding on our supermarket shelves.
Smaller Irish companies in the speciality food sector have seen strong sales growth in the past two years and are working with those companies. We established the TASTE council last year as a way of providing a forum and action body that could address some of the issues such as education, distribution, innovation, how to retail and sell speciality food products, which is one of the most dynamic areas with which we deal.
In overall terms, the environment for consumer foods, speciality foods and beverages will remain particularly challenging in 2004 and the core competencies we will focus on will be innovation, building new customer relationships and cost control in the face of tightening margins. We have developed a range of customised services to assist companies with their individual market development objectives. We will be hosting a major trade exhibition and conference in Dublin in September. We have expanded our brand programme for which we have tremendous industry support to deal with the issue facing companies in terms of sustaining their brand on the shelves. Our food service sector is currently fully or over-subscribed which works with companies in Britain and into the continental markets.
The year 2003 saw better times for dairy products, which carried through to 2004. Most of the work we are involved with is around the consumer food products such as cheese and ingredients. We will be working with the companies through trade shows, market research and extended buyer contact events. The beverage sector increased by 8% - it is now a €1 billion industry. Key markets are the UK, the USA and continental Europe. We have an active programme with the companies involved in promotion and trade development.
Exports in the edible horticulture sector fell by 3%, largely due to increased competition and exchange rate pressures because the exports are to the British market. There has been intense price pressure on UK retailers with such actions as aggressive Internet pricing structures.
Bord Bia is represented on the task force which was set up by the Minister of State at the Department of Agriculture and Food, Deputy Treacy, and we will continue to work on a series of actions to further help the industry. Our mission is around trade development and promotion of the food industry. Our objective is to deliver effective and innovative market development promotion and information services to drive new growth in the sector.
We are acutely conscious of the importance of the food and drink industry to the Irish economy. Given the change facing the rural economy, it is vital for its well-being that the agri-food and drink industry is nurtured and developed. It accounts for something like 55% of all indigenous exports but it faces many of the same threats as other industries, including increased foreign competition from low-cost producers, a loss of domestic cost-competitiveness, a serious exchange rate risk and the need to move up the value chain. We have a focused promotion plan around meat, consumer foods and beverages and speciality foods. We are working in co-operation with the industry and believe our plans, market knowledge and skills from our people can play a vital role in ensuring the industry secures a successful and profitable future.
