‘Investment in dairy processing a must if €8.9bn sector is to expand’

Investment in dairy processing facilities will be needed to keep Ireland’s hopes of expanding its €8.9bn export-valued agri-food sector on track, Teagasc director Prof Gerry Boyle has told the Joint Oireachtas Committee on European Union Affairs.

Ireland’s main dairy co-ops have yet to overtly state their plans to invest in either new brownfield sites, expand existing facilities, or their intentions to either stay separate or share the costs of developing new facilities.

Prof Boyle told the Oireachtas: “The cost of building the capacity to process a 50% increase in milk production is estimated to be in the region of €350m to €400m. This Teagasc estimate is based on the construction of five or six additional cheese or WMP plants to process an increase of 50% in milk supplies.”

Among the questions still unanswered for the dairy sector are the scale of the new plants to be built, and to what extent are there economies of scale in milk processing facilities that can and should be exploited.

Prof Boyle asked: “Will it be possible to build new plants adjacent to existing plants? Will new plants have to go to greenfield sites? Where geographically will the additional milk be produced?”

Prof Boyle was very upbeat about the prospects for dairy sector exports, citing studies predicting future surges in global demand. Yet, he also pointed to the immediate need for planning, noting Ireland’s annual milk output of 5m litres in the years from 2007-09 could jump to 7.5m litres annually by 2020.

This will mean extra dairy cows, housing, milking parlours and storage facilities, new waste management facilities and perhaps new farmland. New entrants will need banking credit. The dairy sector has great export potential, but is in urgent need of investment, the Teagasc head noted.

By contrast, Prof Boyle’s presentation suggested the meat sector is unlikely to need any extra investment in processing facilities. Across the meat processing sector excess capacity is the problem rather than constrained capacity, he said.

The targets which the agri-food sector has set for itself in the Food Harvest 2020 report stand at 20% extra output value growth for cattle and sheep.

If the pig sector target of 50% output value growth is achieved new investment in slaughtering capacity would be needed, he said. Any plans to expand the pig sector will be dependent on the prices being paid for pigmeat.

Prof Boyle also urged the Oireachtas committee to give due consideration to the agri-food sector’s added value to the Irish economy, by virtue of its homegrown status. Every €100m exports contributes nearly €50m to GNP versus €20m for pharma and ICT.

In relation to Europe’s Fiscal Compact Treaty, Prof Boyle said Ireland’s agri-food sector is hugely dependent on a stable European currency.

He cautioned, however, that Irish agri-food exports could still be derailed by core design flaws in the eurozone architecture and by the lack of banking credit.