For readers unsure where Wales is, or if it’s a country, we’ll start with the basics. The Welsh are a pretty ancient bunch, populating the western chunk of Britain for thousands of years before the Romans invaded just under 2,000 years ago.
Wales is part of the United Kingdom, but has a devolved government headed by the First Minister of Wales and is a country in its own right [so try to avoid the question, ‘which part of England is Wales in?’ if you want to ingratiate yourself with the locals].
Wales has a population of just over three million (around a fifth of whom speak Welsh), and the Welsh Government (the National Assembly of Wales is in Cardiff, the capital) is separate from the British Government, which retains responsibility for UK-wide areas such as tax, defense, foreign policy and benefits.
Next, a quick geography lesson. Cardiff (which has an airport) and Swansea (both in South Wales) are two hours and three hours, respectively, from London by road or rail, while Wrexham (in North Wales) is an hour from Manchester and Liverpool. There are also five sea ports with cold storage along the Welsh coast.
1 – WALES IS A COOL PLACE TO LIVE, WORK… AND SET UP A FOOD BUSINESS
First, the sales pitch. While every economic development organization will tell you the region it represents has the best transport links, workforce and business-friendly environment, the incentives – and the attention - the Welsh Government can offer businesses looking to move to Wales, or expand existing facilities there, are a real differentiator, says Fuling Li, senior manager, foreign direct investment.
“Companies like the fact there are clusters of food businesses in parts of Wales they can be a part of, it’s a close-knit community and everyone knows everyone else; the professional team we have here that works with companies very early on in their thought process and provides support you aren’t going to get in other parts of the country. They get a lot of hand-holding.
“We’re not competing with London, so we often say set up your HQ there, but make Wales your back office location, R&D or manufacturing location.”
In short, she says, Wales offers great access to raw materials – notably milk and meat (lamb and beef) - strong R&D and innovation support, a skilled and cost competitive workforce (salaries are generally lower than in other parts of the country), good transport links to the rest of the UK and Ireland, low cost business premises and the best financial support in the UK.
2 - THE WELSH FOOD SECTOR IS GROWING
While many Americans don’t know it as well as Scotland (where’s Mel Gibson when you need him?), it’s also worth noting that Wales is a pretty stunning place, with miles of rugged coastline, breathtakingly pretty mountain ranges in Snowdonia, and its fair share of castles and other cool places to visit.
‘Unemployment in Wales is lower than the UK average’
It’s also got a very vibrant food and drink industry, which generates more revenue and employs more people today than it did at the start of the recession, and is now embarking on an ambitious plan to grow industry output by 30% [from 2014] by 2020, says Russell Roberts, head of trade, export and inward investment.
“Since 2014 the sector has grown by 17% to £6.1bn [in 2015] so we’re well on the way to meeting the target of £7bn in 2020 with growth across the board, particularly from microbreweries. Unemployment in Wales is also lower than the UK average.”
Welsh firms are also making a splash overseas, exporting £264.2m in food and drink in 2015 (+132% since 1999). While 88% of this was targeted at the EU, several premium/gourmet brands such as Anglesey-based Halen Môn (sea salt) and Ceredigion-based Ty Nant water (bought by an Italian firm in 1992) and Llanllyr Source (which was acquired by US venture capital firms SJR Equity and UPC Capital Ventures in 2014) have made inroads into the US and other non-EU markets, while Welsh lamb (and possibly beef) look set to be back on US menus next year after a lengthy hiatus prompted by the neurodegenerative disease BSE.
3 – BUSINESS INCENTIVES IN WALES ARE ATTRACTIVE
So what financial support is available? First, the Welsh Goverment can offer business finance loans supporting up to 45% of investment in capital expenditure or the capitalization of salaries on the jobs created (which do not have to be repaid if you are investing from overseas and meet certain targets); coupled with the Food Business Investment Scheme, which supports capital investments in processing equipment (up to 40% for SMEs, 20% for larger players).
R&D projects, meanwhile, can receive even greater support, with the Welsh Government offering up to 70% to small companies involved in certain types of research.
The Welsh Government has also created seven Enterprise Zones where specific financial incentives are offered for new companies and business relocations, says Li.
The Welsh business rates scheme can provide financial support for business rates liabilities incurred by SMEs located in the zones, while an enhanced capital allowances initiative enables eligible businesses to claim a 100% first year allowance for the capital cost of investment in plant and equipment made before March 31, 2020 (so whatever happens with Brexit the cash is available until 2020, says Li).
She added: “We’ve got a healthy pipeline [of companies looking to set up food & beverage facilities in Wales] from Ireland, but we’re also currently talking to several food companies in the US that are exploring their options; we can put them in touch with consultants that can help them make contact with supermarket buyers, help them write grant applications or look at the potential market for their goods in the UK.”
4 – INDUSTRIAL PREMISES ARE AFFORDABLE IN WALES
There are also serious cost benefits to setting up a manufacturing facility in Wales, which offer more competitive labor costs and industrial property costs vs the Midlands and the southeast of England, claims Li.
Wales also has a network of food co-packing facilities, bottling facilities and HPP facilities (high pressure processing) for brands that want to test the waters with local production before setting up their own facilities, said Li, who noted that US firm Lifeway Foods uses a Welsh co-packer to produce goods for the UK market. “We helped identify the site.”
'Calbee was well-courted by the Welsh Government'
One company that has recently set up shop in Wales is Japanese snack firm Calbee (maker of the fast-growing pea-based Harvest Snaps brand in the US), which set up a £6.4m manufacturing facility at a former chilled pizza factory in Deeside, north Wales in 2015 backed by non-repayable finance support from the Welsh Government as part of a £10m investment program that will create more than 100 full time jobs.
Aside from helping the firm identify suitable manufacturing facilities, the Welsh Government also offered technical advice and R&D support (via Cardiff Metropolitan University’s Food Industry Centre), market analysis and research, says UK MD Richard Robinson.
“Calbee was well courted by the Welsh Government. They were talking to the company over a couple of years, so when I joined in 2014, we developed a shortlist of 20 sites, two or three of which were in Wales. We also liked the fact that there were a number of food manufacturing sites in north Wales and there was a willing workforce there.”
Brexit doesn’t really change anything
But would Calbee have acted differently had it been making the decision now (in light of the Brexit vote)?
“No," insists Robinson. "The UK market is so big in its own right that even just for the UK, we’d probably need two to three sites. Calbee is considering sites in central Europe but that would be in addition to facilities the UK, not instead of it. We are selling products in Spain already and we’re looking at several other European markets.”
Calbee originally test marketed the pea-and rice-based Harvest Snaps brand in 2014 (the products were imported from the US) but quickly came to the decision that a more Japanese-sounding brand (Yushoi Snapea rice sticks) would work better in the UK, he says.
“In focus groups consumers loved the product but didn’t like the branding, Harvest Snaps seemed a bit old and tired, so we decided that when we started producing the product locally, we’d go for the Yushoi brand.”
The brand is already available in multiple retailers and performing well, he says: “We believe there is huge room for growth. Everyone sells Walkers crisps [UK version of Lays chips], but retailers are looking for innovative new snacks and they have been very willing to give us a go. The brand is now worth £3.1m from January 1, 2016 to mid-August 2016, so we should top £5m by the end of December.”
From Boulder Brands to Five Guys
Other businesses that have benefited from process and marketing grants from the Welsh Government include US firm Boulder Brands (now part of Pinnacle Foods – which acquired Davies Bakery in Flintshire in 2013 to use as a base to manufacture the Udi’s gluten-free brand and private label gluten-free items for leading supermarkets); and Easibake, a subsidiary of Northern Ireland-based firm Evron Foods which set up shop in Pontypool.
If you’re a fan of the burger chain Five Guys, you’ll also be pleased to know that it set up shop in the UK in 2013 and has sites in Cardiff and Swansea.
5 – IT WILL GIVE YOU ACCESS TO ALMOST 70 MILLION PEOPLE
So what about the elephant in the room?
Historically, the Welsh Government has promoted Wales as a ‘gateway to Europe.’ Post June 23 (when the UK voted to leave the EU), this phrase rings slightly hollow, acknowledges the Welsh Government.
But Brexit doesn’t mean overseas investors should abandon Wales, or any other part of the UK, insists David Morris, deputy head of the food division.
For a start, the UK food and grocery market (including online sales – at retail value) was valued by IGD at a staggering £169bn ($215bn) in the year to May 2015, while it has a population of almost 70 million, which gives any manufacturer looking to set up shop there an enormous local market to access before contemplating selling elsewhere in Europe, he notes.
6 - IT'S HOME TO WORLD CLASS FOOD RETAILERS
The UK is also a sophisticated food retail market dominated by world-class food retailers – Tesco, Sainsbury's, Asda, Morrison's et al - looking for innovative new products, with higher-end players such as Waitrose and Marks & Spencer, and discounters including Aldi and Lidl also gaining traction, he says.
“The UK is the fifth largest economy in the world, so regardless of what happens with Brexit (UK Prime Minister Theresa May says she will trigger article 50 before the end of March 2017, setting in motion the two-year process of leaving the EU), it’s still a hugely attractive market. However, of course there are uncertainties right now as to whether we will continue to be able to access the EU single market without trade barriers post Brexit.”
In the short term, the one notable impact of the Brexit vote has been a devaluation of the currency (sterling’s value has dropped), something which has positive and negative effects depending on the nature of your business, he says.
While it makes imports of raw materials more expensive, of course, the weaker pound has made UK assets more affordable for overseas purchasers as well as making its food exports – at least for the time being – more competitive, he notes.
7 – BREXIT ISN’T THE END OF THE WORLD
But what about all the EU money coming into Wales, which according to an analysis by Cardiff University, was a net beneficiary of EU funding (as it was classed as a ‘less developed region’) and yet voted overwhelmingly to leave the EU in June.
Will the UK government be able to guarantee that it will match the level of funding Wales currently gets from Brussels post the exit from the EU?
When asked this question in the House of Commons in July, Welsh Secretary Alun Cairns would only say: “I can guarantee that Wales will get its fair share.”
While this has obviously caused some uncertainty, Morris points out that whatever happens in the Brexit negotiations, current EU funding will continue until at least 2018 and in some cases 2020.
Say cheese
So what's going on in the dairy sector - one of the biggest chunks of the Welsh food industry (Wales has a lot of cows and a lot of grass)?
While dairy farmers have had something of a torrid time lately with prices hitting rock bottom earlier this year, supply and demand are starting to align again, says David Morris, deputy head of the Welsh Government’s food division.
“Some farmers have left the market but the herd hasn’t contracted, all of the processors have growth and expansion plans, and there is scope to expand dairy production south west Wales. We don’t have large yogurt producers or milk powder producers there.”
David Giles, commercial director at Glanbia Cheese in Llangefni, north Wales – a joint venture between Irish dairy giant Glanbia and US cheesemaker Leprino Foods focused on mozzarella – is also optimistic despite milk pricing woes and Brexit.
On dairy pricing, adds Giles: “Go back to February and there was a perfect storm – there were significant surpluses everywhere; China wasn’t buying as much, Russia had closed its borders to EU imports and there was also the end of the quota system, so production had gone up.
"But the long term picture hasn’t changed, and longer term, globally, we’ll need more milk, so things have now come back into balance.”
On Brexit, he says: “We’re the biggest producer of mozzarella in Europe and we export around 40-45% of our product, and much of that is to Europe, but for us, it was very much business as usual [after the June 23 Brexit vote].”
But why the relaxed stance?
Chiefly, he says, because while Glanbia Cheese supplies a lot of cheese to the EU, rival EU-based manufacturers also supply mozzarella to the UK, so if Brexit results in trade barriers, all that could happen is that this situation could potentially reverse.
“We also have a competitive advantage in that we have access to Leprino’s proprietary technology, which enables us to produce mozzarella more quickly and efficiently with better yields," adds Giles, who says output at the Welsh plant has doubled since the joint venture was set up in 2000 with 2016 production at the plant likely to be 41,000t.
8 - THE R&D SUPPORT IS WORLD CLASS
On the R&D front, Wales has eight universities, 15 colleges, and three food centers (the Food technology Centre at Llangefni, north Wales; Food Center Wales in Ceredigion to the west; and Cardiff Metropolitan University’s Food Industry Centre in the south) offering advice and support for NPD, process and factory design, technical, labeling, packaging, legal, and nutritional advice, sensory testing, incubation units and business development. (For full details, click HERE.)
“We have something unique here in Wales, and England looks at us with some envy because of the relationships we’ve cultivated between government, industry and academia.”
David Lloyd, director of the Food Industry Centre at Cardiff Metropolitan University
Cardiff Metropolitan University - which offers degrees in a wide range of disciplines from Food Science & Technology to Biomedical Sciences, Human Nutrition and Dietetics, Food Industry Management, and Sports & Exercise Science - has an impressive range of facilities, from development and consumer research kitchens and a sensory testing lab, to pilot food production facilities plus cutting edge kit from 3D printers to DNA testing equipment.
Not bad going for a country the size of Wales, notes David Lloyd, director of the Food Industry Centre at Cardiff Metropolitan University: “We have something unique here in Wales and England looks at us with some envy because of the relationships we’ve cultivated between government, industry and academia.”
While Brexit is viewed by many in the food industry – especially on a legislative front – as a headache, says Lloyd, the expectation is that in the short term, at least, the British will continue to align with the EU.
Meanwhile, if tariffs are introduced post Brexit, it could mean that UK retailers source more home-produced food rather than importing it, which will be good news for some Welsh companies, even if big exporters may be worried right now (although they are currently benefiting from the weaker currency) he says.
9 – WALES KNOWS ITS OATS (AND BIOMATERIALS…)
Aberystwyth University in west Wales is known internationally for its research on oats (70% of the oat acreage grown in the UK is from varieties bred in Aberystwyth) and is working with partners including PepsiCo, Glanbia and oat miller Morning Foods on developing cultivars with better yields, enhanced grain quality and nutritional characteristics, and reduced environmental impacts using marker assisted breeding and other techniques.
A low input cereal grain used in hot and cold cereals, snack foods, non-dairy drinks and animal feed, oats contain more oil (6-12 %) and protein (12-20% in the de-hulled kernel) than most cereals, as well as high value compounds such as cholesterol-lowering beta-glucans, avenanthramides (naturally occurring polyphenols found only in oats), resistant starch, which has gut-friendly prebiotic effects, and oat oil derivatives used in functional foods and personal care products.
Breeding can increase desirable components such as beta-glucan (although the higher the beta-glucan content, the more ‘slimy’ the texture, and the lower the yield), while you can also breed varieties with a lower oil content that work better for making oat flour, says Dr Tim Langdon, principal investigator at IBERS (Institute of Biological, Environmental and Rural Sciences).
The key to developing new cultivars with commercial potential, however, is speeding up the process, says Dr Langdon, who has been working on cutting edge ‘double haploid’ approaches to oat breeding that can slash years off the breeding cycle.
The challenge, he says, is that most commercial partners aren't able to think 10 or 20 years ahead, which is the kind of timescale yon can be looking at to develop new cultivars.
"Conventional breeding requires many rounds of inbreeding to ensure traits from the less useful parent are no longer present in the final variety."
By contrast, 'double haploid’ approaches Dr Langdon is exploring take germ cells that contain only a single (haploid) set of chromosomes and regenerate whole plants in which those chromosomes have been doubled so that traits for all genes are identical (homozygous). Plants then contain no hidden genetic variation, and those with the traits breeders want can be selected and used directly for trials, he explains.
“This is just a significantly faster way of breeding – so you can go from say, a 15 year process, to a five year process.”
Biorefinery potential
But oats aren't the only game in town.
Dr Mike Morris, a business development manager at Aberystwyth University, has been working on the bioconversion of high-sugar perennial rye-grasses and other feedstocks to produce added value products from lactic and succinic acid to proteins, lipids, oils and bioactive compounds via a fermentation process as part of the EU-funded Beacon project, a partnership between Aberystwyth, Bangor and Swansea Universities.
He’s also worked with meat-substitute brand Quorn on identifying high value components (eg. flavors) from the broth remaining after the proteins have been harvested from the fermentation vats; and talking to firms interested in extracting color from tea or other natural extracts using new membrane technology (so they don’t have to use solvents).
2nd generation biomaterials, fuels
At the BioComposites Center at Bangor University in northwest Wales, meanwhile, Dr Adam Charlton is exploring how Wales can put itself on the map when it comes to biomaterials.
Next generation bio materials and fuels won’t use food crops such as sugar or corn as feedstock, but will instead utilize high-sugar grasses, forestry residues, spent grains or food processing residues, says Dr Charlton, who helped establish ‘The CO2 Lab’ – a pilot scale extraction facility investigating the use of green solvents, including supercritical fluids, at industrial scale.
“When you're dealing with these kinds of raw materials, the key is efficent pre-treatment, how to get some of these more fibrous feedstocks into a state where you can break down the lignin and get at the sugars, by using enzymes or steam rather than chemicals.
"In future, biorefineries producing multiple biobased products could be located next to farms or saw mills,” adds Dr Charlton, who has also done a considerable amount of work on developing bio-based food packaging, from pizza trays made with wheat straw to egg and fruit boxes made from rye grass.
“While low oil prices have made the economics of all this more challenging, we need to invest now or we will be left behind.”
The Biocomposites Center is also a partner on several EU-funded projects exploring everything from producing novel ingredients from Welsh seaweed extracts to algae-derived food and personal care ingredients.
Wales has seven EU protected food names (Welsh lamb, Welsh beef, Pembrokeshire Early Potatoes, Anglesey Sea Salt (Halen Môn), Conwy mussels, Welsh wine and Welsh regional wine), which receive Europe-wide legal protection against imitation.
What remains to be seen, is whether post Brexit, they will lose their protected status in the UK, yet retain it in the EU.
10 – IT’S CREATING A VIRTUOUS CIRCLE…
While foreign direct investment decisions are based on the attractions of the region in question and the markets to which it provides access, hearing about Welsh success stories helps put Wales on the map, and in turn, makes it a more attractive place for overseas investors, says Fuling Li at the Welsh Government..
Indeed, just spend a few minutes browsing the website of premium sea salt brand Halen Môn (the Welsh translation of ‘Anglesey salt’) – which features stunning views of the island of Anglesey off the coast of north west Wales - and I guarantee that you will at least want to visit Wales, even if you don’t have any plans to set up a food business there…
“Saying all salt is the same is a bit like saying all olive oil, or all red wine tastes the same,” says co-founder Alison Lea-Wilson, who has built a gourmet food brand that sells in multiple overseas markets including the US.
“Our product is consistently picked out in blind taste tests, but it also looks very different to many other sea salt brands. It’s got a sparkling white appearance, naturally, whereas some sea salt is almost grey, which makes some people think we must bleach it. We don’t. Chefs also like the fact that if you put it on hot food, such as a steak, it doesn’t immediately melt into a pool of brine.
“But what really sells the salt, and what we focus on in our marketing, is the provenance of the salt and the way we make it. It’s pure and unadulterated, because we don’t have any heavy industry here; we also have shellfish beds here - mussels and oysters – that effectively pre-filter the water before it goes through our sand and charcoal filters.”
So does the ‘sourced from Wales’ message resonate in overseas markets – which account for 30% of Halen Môn sales? And do many people in the UK – never mind the US – understand what Halen Môn means?
“It’s tricky,” says Lea-Wilson, who says she is awaiting what comes out of the Brexit talks with “some trepidation,” although the export business is benefiting in the short term from the weaker currency.
She adds: “We’re very proud of our Welsh roots and provenance, but a lot of people don’t know where Wales is, never mind Anglesey. The Japanese love Wales, the food, the rugby, whereas in the US, we have more work to do, although some Americans are definitely getting more knowledgeable about Wales.”
However, Halen Môn is picking up traction in the US – having just picked up a deal with Trader Joe’s – which unusually, is going with the branded product, rather than insisting on a private label deal, she says. It is also performing well in gourmet food stores such as Dean & Deluca and in upmarket chocolate brands such as Fran’s in Seattle, which uses Halen Môn smoked sea salt in its caramels.
"I was in New York at the Summer Fancy Food Show a while back and our strapline at the time was 'Pure sea salt from Wales' and a lady came up to me and asked me if it if was suitable for vegetarians - given that it was sourced from w[h]ales - and I realized that I had a lot of work to do..."
Want to find out more about investing in Wales? Click HERE.
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