EU tries to wean off dairy
They have already slashed annual spending from its €2,755 million level in 2004, and Thorkild Rasmussen, the head of the dairy sector in the EU Commission, has spelled out plans to reduce it further, to a miserly €400 million by 2013, when export refunds will end.
From where he was sitting at the recent ICOS annual dairy conference, it was pretty clear to him that milk processing companies and dairy farms will have to get bigger and fewer and more competitive, and more value must be added to milk from dairy farms, rather than simply turn it into butter and milk powder.
That's a challenging outlook for the industry, even before it enters the unknown, but very dangerous waters of the upcoming World Trade Organisation agreement. Companies across Europe are taking the European Commission at their words, and striving to follow their advice by finding new products and markets.
Companies like Valio in Finland, are taking markets by storm with their lactose free milk drinks, even selling their new lactose free technology to other processors.
They are keeping millions of lactose intolerant consumers happy, to the delight of the 13,000 Finnish dairy farmers in the 28 dairy co-ops which own Valio between them.
A whey-based orange drink enriched with calcium is another recent Valio new product. Their probiotic juices launched in Finland 1997 are already the biggest selling product in Finland's refrigerated juice section.
In Greece, researchers say they have isolated three strains of bacteria from dairy sources that have desirable probiotic properties and could be applied in the food industry, the probiotics share of which is expected to more than triple in value over the next few years.
Other dairy companies are looking to China's booming economy to lift their fortunes.
Groupe Danone seeks to maintain its position as one of the world's leading food firms by paying about €38 million to double its ownership share of China's Bright Dairy & Food Co to about 20%.
This guarantees their share of the huge 38% per year growth in sales of dairy products in China, a market expected to maintain a relatively high growth rate over the next 10 to 15 years.
Arla Foods have gone the same route.
Innovation and expansion overseas seem to be the way forward. This was clear in Glanbia's annual report, showing that a difficult year in Ireland spoiled the group's good international performance, and now they say Irish milk price cuts of 0.66 cent per litre in April and a further 0.66 cent in May are necessary. They have promised to pay at least the average of the 2006 KPMG milk price audit, while trying to redress the situation by building internationally in cheese, nutrition and selected consumer foods sectors, reducing costs, and co-operating with other processors where possible.
Lakeland's 1.3 cent per litre milk price cut for March is another sign of hard times in Ireland's dairy industry.
New dairy products are badly needed. How can processors here hope to prosper, still shoving out hydrogenated fats in spreads, products which many supermarket chains around the world have banned on health grounds, because of their links to heart disease, narrowing of blood vessels and diabetes?
Farmers may be happy to hear they are cheaply made, by heating natural fats such as soya or palm oil to more than 250 degrees Centigrade, and then bubbling hydrogen through them, to produce a tasteless solid.
Unfortunately, more is needed to entice today's customers, especially after medical research has shown that hydrogenated fats shorten human life.
Disappointingly, new products, or opportunities overseas, didn't get much of a look-in at the recent ICOS dairy conference.
Farmers at the conference heard mostly about the high processing costs they complain so much about. They also heard about the Department of Agriculture's dairy policy, and the Nitrates Directive. ICOS President Padraig Gibbons set out the challenges, but was short on solutions, and Policy Development Director Martin Varley seemed to think the European Commission should continue to bankroll the milk industry, while easing off on regulations which are costly for farmers and processors.
At least he told co-op directors that they must allow their co-ops to strategically plan re-investment in processing, production and marketing.
But Thorkild Rasmussen of the European Commission must have felt like adding "Read my lips", as he announced the planned shrinkage of the EU's dairy marketing budget, but heard little about innovative ways for the Irish dairy industry to wean itself off the dwindling funds from Brussels.
