Co-op body pushes for reform of dairy sector

ICOS, the voice of the Irish co-op movement, is pushing for radical change in the Irish dairy sector.

Its disclosure follows the publication of a strong two-page document on rationalisation of the milk sector, produced recently by Joe Gill, head of research at Bloxham Stockbrokers.

ICOS said it has held talks with 17 co-ops with a view to streamlining the industry to ensure greater returns on milk for Irish dairy farmers.

It is promoting the idea of a “Milk Ireland” model, which it says will generate grater returns for farmers and achieve better market penetration overseas.

In its statement last week ICOS said “Milk Ireland” would help co-ops to maximise the production of profitable products, help efficiency of operation at shoulder periods and minimise “milk miles”.

It would also closely integrate with the marketing of dairy products. It was encouraged, it said, by the level of commitment forthcoming from the co-ops.

John Tyrrell, director general of ICOS, said the talks were a “work in progress”.

The overall aim is for the dairy sector to make the best use of its combined facilities to generate greater efficiencies. It is unclear whether that is meant to be code for rationalisation and the creation of key centralised processing units.

Experience of the last few years has demonstrated how volatile the global markets can be. A little over 12 months ago farmers were getting top prices for their products in a burgeoning global market.

It was reckoned that dairy output was falling 3% behind international demand until the slump hit home.

Now the dairy sector is faced with new market realities plus the impending threat posed by the ending of quotas in 2015.

Rationalisation has been part of the dairy sector for years, but the harsh reality is that even without the slump farmers will have to compete on open markets in a few years and cannot indefinitely postpone addressing that core issue.

Pat McLoughlin, ICOS chairman, told the Irish Examiner milk prices were being subsidised by up to 6c per litre. In effect, he said, the real price of milk, based on current butter and skim milk prices, was between 18c and 20c per litre.

Various studies suggest milk at that price represents break even and many farmers now depend on a second income to survive.

Mr McLouglin described market conditions as disastrous for processors and farmers with no significant upturn anticipated before the second half of 2009.

Reform of the dairy sector was the only way forward, a point that Gill made in his analysis.

Herd sizes will have to go from 50 to 70 and the number of production plants have to be cut.

That should yield greater profits and presumably allow the sector to pay above market prices form time to time when returns are below par.

This analysis from both sides is not new. It’s been a given for some time that we need to take out costs but the social implications of that kind of change has stood in the way.

Farmers are also slow to agree closures in their own area because they fear they will lose their grip on the production units that have served them well for over 100 years.

Gill has been a bit bolder in his plan, but then he doesn’t have to bring diverse interests in the farming community with him.

Change is needed and if ICOS can push this idea forward it would result in a substantial boost to the Irish food sector long term.

That plan of action has been dong the rounds for a long time and the changes taking place in world markets means the time scale for reform is being compressed.

ICOS has to be courageous at this stage and get the dairy co-ops to agree a solution. They could do worse than to examine the plan put forward by Gill.