Dairy industry ‘needs to be restructured’

THE long-term outlook for the Irish dairy industry is favourable, but it is dependent on a restructuring plan being adopted, Kerry Group chief executive Stan McCarthy told the Teagasc national dairy conference in Killarney yesterday.

Mr McCarthy told the 700 delegates it is imperative that Ireland restructures its dairy industry in order to compete globally.

Structural challenges in the industry include loss making and low margin businesses, seasonality which leads to underutilised processing assets and limited access to large consumer markets for fresh dairy products. It also has predominantly low-value commodity production, comparatively higher input costs and a poor investment history.

The industry also has multiple selling/trading agents and a relatively expensive milk assembly cost due to a predominant small scale supply base and geographic spread.

Mr McCarthy said milk suppliers have the advantage of a grass-based system and a favourable climate.

Low-cost producers in Ireland are among the most efficient in the world, but there is a high variation in on-farm production costs.

Regarding the markets, he said commodity prices have improved during the third quarter of this year.

There had been welcome increases in whole milk powder, skim milk powder and butter prices. Cheese and casein were making a slower recovery.

Demand conditions have continued to improve. Growth has resumed in key economies. But there is a big overhang of intervention stocks.

Mr McCarthy said Kerry continues to view longer term market prospects optimistically. Global demand for quality dairy products will continue to grow at over 2% per annum, but cyclical market volatility is inevitable.

Dairy farm enterprises with low-cost, grass-based production will be viable, but upscaling to compete in global markets will be necessary over time.

He said there will be an opportunity for Ireland to increase dairy production post quotas by 30%.