2004 a good year for the Irish Dairy Board

EU enlargement and the first phase of the CAP were significant for the IDB, writes RAY RYAN.

THE Irish Dairy Board, which exports dairy products to over 90 markets throughout the world, had a good year in 2004.

It is a key player in the overall dairy sector, which produces 5.36 million tonnes of milk from 25,000 suppliers to 36 co-ops and plcs and has an 80% export rate.

The IDB, headed by chairman Michael Cronin, chief executive of Newmarket Co-op in north-west Cork, and Dr Noel Cawley, managing director, is the major international exporter of Irish dairy products, servicing the needs and quality demands of customers worldwide.

From its formation in 1961, it has evolved in response to the changing European and world business environment. It is now one of Ireland’s biggest exporters and a major food distribution company in overseas markets, with annual sales of €1.8 billion.

It owns the internationally established Kerrygold brand, the Irish dairy industry’s most important marketing asset, and has group subsidiaries based in Europe and in the United States.

Operating in a wide variety of markets, the IDB’s trade covers every continent. However, during the current decade one of its main objectives is to increase sales within the EU through improved distribution and marketing.

Enlargement of the European Union, incorporating ten new member states and 75 million additional consumers, and the implementation on July 1 of the first phase of the CAP mid-term by way of a 6% decrease in support prices were significant events for the IDB in 2004. The price they are paid for the gallon of milk supplied to co-ops or plcs has always been the bottom line for producers in the dairy industry and it has not changed despite shifts in structures and markets.

Most forecasters viewed the major changes that came into effect in 2004 with some apprehension. However, a period of strength in world dairy markets and reduced EU milk production combined to make the EU enlargement process pass very smoothly for the dairy sector.

Strong markets counteracted the tendency for buyers to anticipate the intervention price cuts before July 1. The firm trend continued, despite significant fluctuations in prices for individual products.

The European Commission sought to bring prices down to the new intervention levels by a vigorous policy of reductions in subsidies and releases of intervention stocks. Gross intervention equivalent milk price (before processing costs), came down to 28.5c/litre on July 1. But the IDB purchase prices remained above this level after July and in December stood at 29.4c/litre.

Such a strong performance enabled the IDB to pay out cash bonuses to the co-ops that supply it - €7m last month and some €8m to follow next April-May. The bonuses are worth around 3c/gallon to the co-ops which trade through the Board.

However, IDB managing director Dr Noel Cawley said 2005 may prove more difficult than 2004 for the export marketing of dairy products. Prices have not yet fallen to the level the Commission considers appropriate, and another 6% reduction in support prices is due next July. “The recent weakening of the US dollar against the euro, coupled with the continuing Commission policy of reducing export refunds, are posing significant problems for dairy product sales in overseas markets.

“The weather conditions, which created temporary shortages in 2004 in several important producing areas, may not be repeated. However, we must all be encouraged by the way in which the difficulties of 2004 were successfully overcome.”

IDB estimates that total turnover increased by 5% in 2004. Profits are also expected to exceed last year’s record level.

Meanwhile, IFA Dairy Committee chairman Michael Murphy welcomed the payment by the IDB of the cash bonuses worth a total of €15m to co-ops. Regarding IDB’s strong performance in 2004, he said it was indicative of how the industry as a whole would have performed this year. It vindicated his view throughout the year that market returns to co-ops performed well during 2004, and the constant talking down of prices by some societies was unjustified.

“The lesson of 2004 is that price decisions should not be made based on the worst-case CAP reform scenario, but rather on real market out-turns and improved efficiencies by all processors,” he said.

Mr Murphy said present indications are that the relative shortages of product on world and EU markets will continue into 2005, and the current stable situation will hold.

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