Dairy industry needs help to get through its next phase

There is no Plan B, says Glanbia managing director John Moloney, of the group’s proposal for expansion of milk processing — on which their 7,800 active members must vote on Tuesday, Nov 13.

He says all options were assessed, and they came up with the joint venture proposal, to cope with up to 60% growth in milk output by 2020. It would be part-funded by the sale of 3% of Glanbia plc share capital.

He makes the point that Glanbia shares have performed well, making it prudent for farmers to use some of their value — while Glanbia plc continues to pursue the global nutritionals path which has paid off so well for them.

It is Glanbia plc and Co-op’s good fortune that they have done well, and thus have the option to unlock more than €60m of share value to help finance a processing joint venture.

But there may not be a Plan A or Plan B in sight for some of the dozen or so co-ops involved in milk processing, which face major difficulty in funding processing expansion.

That is why the Dairy Board, responsible for 60% of Irish dairy exports, sees funds for processing expansion as one of the biggest challenges ahead.

Dairy Board chairman Vincent Buckley says it is vital that future processing facilities are flexible enough to provide them with the extra product they will need — but says it is not possible for the processing industry or farmers to fully fund that processing requirement.

Farmers must invest significantly on their own farms, so it will be very difficult for them to fund the processing industry.

The Dairy Board agrees with IFA that incentives are needed for investors in the industry, and Government support for investment is vital — not by way of direct Government investment, in the current difficult national financial situation, but by way of a tax support stimulus that would create employment, plus a pro-business attitude, making exporting as easy as possible, and supporting research and development.

The Glanbia initiative — and the hope that it presents an opportunity for greater collaboration between all the dairy co-ops — may be pivotal to meeting the challenge of funding investment in the Food Harvest 2020 plan to process the 2.75 billion litres of extra milk could be produced by Ireland.

Strong Government encouragement for it would be welcome, as an acknowledgement of the potential of the dairy industry.

If investment can be found, Ireland will increase production and processing to the scale of 1.5% of Europe’s current milk pool.

It is not a very significant extra volume of milk in the EU context, nor in a global context of demand for dairy produce increasing at an expected 4% per annum, while global production increases by no more than 2% per annum.

But it is huge in the Irish context, where dairy exports are already 30% of agri-food output, and dairy directly employs about 27,000.

It’s a low profit margin industry, but with the lowest cost of production milk in the EU, and a clean, green marketing image, it works for Ireland — which can be seen from the Dairy Board’s achievements. Kerrygold is Ireland’s only international food brand, the No 1 butter in Germany, the No 1 imported brand in the USA, worth €500m of retail sales per year.

Pilgrims Choice cheddar is No 2 in the UK market, and Dubliner cheese is achieving double digit market growth in the US.

But the industry needs help to get through its next phase after EU quotas are scrapped in 2015 — and now is an opportune time for the Government to get behind it.