Dairy industry has to do more to clean up its act
Down in Glanbia, shareholder farmer anger over falling milk prices resulted in a no confidence motion against the existing dairy co-op board at the recent annual general meeting.
This is serious given the co-op still has slightly more than 50% of the plc, where the management is striving valiantly to move the group in the direction of food ingredients products, based on their own dairy research.
The problem is CAP reform under the so-called mid term review.
Under that plan, 55% of export subsidies are to be withdrawn over the period 2004-2007.
While this was agreed, the sector understood it would, make up for the declining subsidies through better prices from the markets they serve.
That expectation has been scuppered, the Irish dairy sector has claimed.
It blames excessive diligence by the commission in cutting subsidies faster than had been indicated.
The net impact of lowering the subsidies has been to push prices internationally closer to EU intervention levels and some suspect milk prices in the market are down 10 cent from last year’s highs.
Concerns about the method of introducing CAP reforms resulted in a top-level Irish delegation visiting the Agriculture Minister recently. It was led by ICOS, but included Hugh Friel of the Kerry Group and chief executives of other major dairy co-ops. They left the minister in no doubt about their deep concerns.
It may have sounded like the Irish farming community crying wolf, but any suspicions of that were dismissed by the recent Lakeland Dairy returns of its last financial year.
As a direct result of the over zealous reforms, Lakeland lost about €5 million in operating profits last year, chief executive Ed Prendergast said.
The instability generated by the changeover to market-led prices meant Lakeland had to withdraw from a joint venture with Connaught Gold involving €10m of capital investment.
This is at a time when the industry needs to engage in more joint ventures to cut costs in order to prepare for more open markets. Already we have seen moves in that direction between Dairygold and Glanbia.
In one instance, that will involve Dairygold processing butter for Glanbia at its Mitchelstown plant.
The contract probably saved the Dairygold plant from closure while boosting the efficiencies of both groups.
Other agreements have been signed and others are likely to follow.
What has transpired over the past few weeks is just another sharp reminder that nothing is forever.
These reforms have been well signalled and, not before time, it looks as if the sector is waking up to the challenges threatening to engulf it.
ICOS director general John Tyrell yesterday welcomed the initiative of the minister at last week’s Agriculture Council, when she raised the concerns of the co-ops about the commission’s approach in managing the dairy market.
The minister had the support from seven other countries for the position she has taken in demanding a more supportive introduction of the reforms that allows the industry to adapt to the new regime, so we are not just dealing with an Irish whine in this instance.
CAP reform affects the whole dairy sector at farm, processing and marketing levels.
Co-op businesses and producers need an approach from the commission which takes account of the business needs of the sector and of its need to plan ahead with consistency.
That’s true, but the sector needs to get its act together in trying to take as much cost out of the businesses.
While Brussels is to blame in this instance, Ireland’s industry needs to do more to clean up its act.
