Dairygold pledge not to waste cash

DAIRYGOLD will not rush to invest farmers’ money in new processing facilities until it has exhausted all “brown-field” options, according to chief executive Jim Woulfe.

Speaking at yesterday’s Teagasc National Dairy Conference in Cork, Mr Woulfe said his board is assessing Dairygold’s existing production capacity, and will publish the findings of its ongoing viability study before the end of the first quarter in 2012.

“We must first look at Mitchelstown and Mallow, where we are already achieving 17% to 18% production increases,” said Mr Woulfe. “We are conducting extensive feasibility studies on the production situation post-2015.

“We will look at any brown-field sites first before any talk of breaking into green-field sites. There is no magic to this. There is no funding available from the Government or the EU.

“Any processing expansion will have to come from the price per litre of milk, so we must go about this in a thrifty way. We will look at the feasibility studies and see if we can work smarter, with the least cost. We don’t want to waste farmers’ money.”

The Dairygold chief expressed this view in response to a question from Cork-based farmer Kevin Twomey, who Mr Woulfe jokingly thanked for having ambushed him with a surprise question.

The context to this discussion is the investment required to build new processing plants to cope with an expected surge in Irish milk production at the end of the EU’s milk quota era in 2015.

Some industry estimates put that figure at €400m. IFA National Dairy Committee chairman Kevin Kiersey yesterday suggested a figure of up to €1bn. Much of the cost will be in drying facilities, with up to 45% of future Irish dairy exports likely to be cheese, with powders and whey also set to increase sizeably.

The Government-backed Food Harvest 2020 report predicts an opportunity to expand dairy output by up to 50% over the next decade. The dairy sector is also debating a centralised super plant into which all of the major co-ops might supply milk.

Addressing Mr Woulfe, Waterford dairy farmer Jim Walsh said: “Wouldn’t it make sense for Dairygold and Glanbia and the other co-ops to work together and build a common plant? We don’t want to build any white elephants around the country.”

The Dairygold chief executive would not discuss the industry view that the co-ops are conducting joint meetings on the centralised co-op proposal, but only said that he would be surprised if the other co-ops were not making similar studies on the most cost-effective approach to expansion.

“Profitability will be the order of the day, whatever approach we take,” said Mr Woulfe. “The price per litre of milk has been good of late. It has gone from 21.8 cent per litre to 34cpl now, which gives an average of 28.5cpl for the three years.

“That is a reasonable measure by which to gauge price volatility. In those three years, we have also witnessed everything from bad weather to fluctuations in global demand and market changes. That average price is a fair measure of the opportunity.”

At yesterday’s Teagasc conference in the Rochestown Park Hotel, Cork, Mr Woulfe chaired a discussion entitled Expansion: The Importance of Planning and Cash Flow.

Leading Teagasc personnel gave a series of in-depth discussions on planning for expansion, along with talks from members of the banking and business communities.

Dairy farmer Denis Finnegan delivered a detailed presentation on how he and his father Dan have profitably grown their farm in Coachford, Co Cork, since creating a farm partnership in 2006.

James Allen of New Zealand agri-business advisers AgFirst gave a presentation on the real life example of a family farm in North Waikato which expanded from 240 to 340 cows, and from 70ha to 110ha. He also cited the new sheds, effluent systems and other new capital investments required for the expansion.

Denis Finnegan said his combined capital investments associated with expansion came to around €2,200 per cow; James Allen’s clients in Waikato saw their farm’s debt levels rise from AU$20 per kilo pre-expansion to AU$30 per kilo post-expansion.

The day’s talks struck a balance between optimism for the opportunity represented by growing global demand for food, with cautious advice on the risks and potential stress involved in managing a larger farm, complete with personnel and debt through capital investments.