Farmers’ eyes on prize of dairy-sector expansion
The 82% vote by Glanbia shareholders, last week, and the recently published Dairygold plans, give renewed impetus to the need for focus as to how this investment will be achieved.
IFA’s dairy executive, Catherine Lascurettes, has been examining this issue closely with the Dairy Industry Working Group, which is made up of the leading co-op executives, ICOS, and the Irish Dairy Board.
>>The next number of years are the opportunity of a generation. For dairy farmers, the abolition of quotas allows scope to grow their businesses for the first time in 30 years. It will all happen against the backdrop of a difficult financial environment, where borrowing is a challenge. Margins at every level of the chain are affected by milk and price volatility on one side, and increases in production and processing costs on the other side.
Farmers will have to invest €1.5bn on-farm to deliver the extra milk, which Food Harvest has projected to be 50% more that we currently produce. The banks are keen to invest in the processing sector, but will not come up with 100% of what is needed, and those co-ops that need to secure additional capacity will call on farmers to contribute the balance. What we want to avoid is too high a burden being placed on farmers, as this would affect their own expansion plans.
>>It is significant, but the danger is the extra revenue and employment, both of which could aid the country’s economic recovery, might not happen without a creative approach. We estimate that almost 10,000 jobs, directly and indirectly, could be created in construction, extra labour on farms, right through to primary and secondary processing of the additional milk and cattle generated by the expansion.
Our dairy expansion potential can, if optimised, deliver extra milk supplies, rising to 2.5bn litres by 2020, and additional annual export revenue, building up to €1.3bn. Significant local economic spin-off, in terms of additional consumption of goods and farm services, will be created by the extra 380,000 cows on farms.
Last, but not least, the additional activity and employment would generate €300m, badly needed, annual extra tax revenue and savings for the State. There is no reason why our sector would not continue to prosper beyond 2020, in response to strong global-demand growth for dairy products, further enhancing its contribution to the Irish economy.
>>Finding a creative way to ease the cost burden on farmers of the contribution they are being asked to make to the processing sector. The co-ops in our working group have made it clear that farmer investment is the key to unlocking bank finance for this project.
Our plan is that 30% of the overall investment, or €118m, could be found through a tax-relief loan scheme, at a very modest cost, in foregone tax revenue, of €48m over the entire period.
This scheme would be open to farmers and non-farmers. Investment would be sought over eight years to coincide with the timeframe for Food Harvest 2020.
>>The amount of revenue foregone at under €50m is small, but the prize is far greater. If we can get lift-off after 2015, dairy will create significant extra economic activity, with opportunities for greater employment, further output value, and increased export revenue.
We will see higher tax returns from increased farm incomes, dairy-processing profits and extra jobs. Combined, all of these elements could yield almost €300m in the time period up to 2020. We have given every rural TD a copy of our detailed proposal, and hope it will be strongly supported across all parties.
>>We have set out our plan and tailored the scheme to suit the sector. Given the legal format of the majority of milk processors, ie co-ops, we are suggesting that the relief would be based on loan capital investment rather than share investment. This would provide a simpler and a more flexible investment option, but can be suitably controlled. The investor would bear the risk on return. The loan must be for a minimum of five years to retain the tax relief.
>>We expect it would require approval from the EU Commission. What we have proposed does not fall within the current guidelines for risk capital investment. Given the importance of the project from a growth and jobs creation perspective, we believe a strong case can be made. Of course, that case would have to be made by our Government, and that is where we are seeking support as a first step.
