Dairy sector readies for milk quota overhaul

The EU’s milk quota regime has entered its final year, offering a once in a generation opportunity to the sector, writes Simon Coveney.

WITH exports valued at €3bn in 2013, the dairy sector is by a number of measures the country’s largest indigenous industry. Despite its formidable reputation and significant global footprint, the dairy sector in Ireland hasn’t even begun to reach its full potential. This is because, for the past 30 years, production has been constrained by an EU quota system. That’s all about to change, however, and the potential of the sector is about to be unlocked.

From today, the EU’s milk quota regime enters its final year. The decision to end the regime with effect from March 31, 2015, was initially taken by the EU Council of Ministers in 2008 and was confirmed in 2013, during the Irish presidency of the EU.

The impact of this decision on Ireland’s dairy sector and its agri-economy will be dramatic. It will change the business dynamic not only for farmers but also for co-operatives and PLCs processing traditional dairy staples as well as an increasingly sophisticated portfolio of consumer products, ingredients, and flavourings for global markets.

It is against this background that the sector, in the Food Harvest 2020 Report, set itself the target of a 50% increase in output by 2020. To put the potential of the sector in perspective, dairy production in Ireland rose at a rate of 5.6% per annum in the years from 1975 to 1984, to a total of 5.2bn litres. Today, Ireland’s dairy production, at approximately 5.4bn litres in 2013, is roughly the same as that in 1984. In that same period, production in New Zealand, with a grass-based system similar to Ireland’s, has increased from 7.6bn litres to about 19bn litres.

Ireland is also home to three of the four largest infant formula companies in the world and produces almost 10% of global supplies. The country’s potential has been recognised by multinationals such as Danone, which in 2010 announced a doubling of capacity in its infant formula manufacturing plant in Macroom, Co Cork.

Work has already commenced on the development of a global innovation centre involving the creation of 900 jobs in the Kerry Group in Naas, Co Kildare.

In Belview, Co Waterford, construction is well under way for a major expansion in production capacity for Glanbia, involving investment of €157m and the creation of an estimated 1,500 direct and indirect jobs.

Dairygold has announced a €120m phased investment to incrementally expand its production capacity.

All of these developments have been underpinned by significant State investment in the sector in recent years, through the €114m Dairy Investment Scheme, €18m provided for knowledge transfer programmes, and €45m made available through the Rural Development Programme for on-farm investment in the dairy sector.

This considerable capital investment required for expansion at farm level will continue to be supported through the Rural Development Programme 2015-2020 and my department, through funding provided to Teagasc, Bord Bia, and ICBF. This will ensure continuing support for research, education, knowledge transfer, marketing, and improvements in breeding and production on farms.

There will be challenges along the way, of course. Firstly, all of the additional production will have to be sold on international markets. During my tenure as minister I have visited the US, China, Japan, the Gulf states, and Algeria, and, recently, New Zealand, to raise the profile of the Irish dairy industry and to scope out supply opportunities and inward investment and partnership opportunities for the sector. Irish dairy companies are already developing a significant presence in many of these markets.

As part of this effort, Bord Bia has, along with stakeholders, developed a dairy sustainability and quality programme that can build on the sector’s already strong sustainability credentials and supplements Bord Bia’s Origin Green programme.

Secondly, we can reasonably expect that the price volatility which has characterised global commodity markets in recent years will continue. In this regard, it is critically important farmers make prudent investment decisions when it comes to expansion, and concentrate firstly on developing business models operating at maximum efficiency, both in terms of input costs and output. Farmers have been preparing for this through the knowledge transfer and extension services provided by Teagasc and through the work of discussion groups. In developing relationships outside of the quota system, farmers and dairy processors will have to agree contract models which provide some level of security for farmer suppliers.

This work is ongoing and will be vital in terms of securing supply to support the expansion in processing capacity and insulating farmers from the worst effects of price volatility.

Thirdly, Government and industry have together built a national brand image based on high standards of quality and safety, environmental sustainability, and animal health and welfare. It is essential these core values are not diluted in an effort to expand. Our aim is to produce the best quality dairy products in the world, in a carbon-efficient system that protects the environment and meets the needs of consumers and industrial customers.

Finally, we must ensure that as much value as possible is added to primary production in order to maximise the contribution of the sector to Ireland’s economy.

The development of the Irish dairy sector to its full potential will take a concerted effort from all of the stakeholders involved, prudent investment decisions, a careful eye on the risk factors, and a continued focus on competitiveness and quality.

This dynamic is well-positioned to capitalise on the once in a generation opportunity presented by quota abolition, and to significantly increase its contribution to exports, employment, and the Irish economy generally as a result.

Simon Coveney is Minister for Agriculture, Food, and the Marine

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