As international dairy markets evolve at a startling pace, we in Ireland are about to begin a momentous period of change, for which we have been preparing over the last five years.

Irish dairy output is predicted to grow by about 50% over the next five years. Our challenge is to achieve the targeted expansion in an economically and environmentally sustainable manner, preserving what is best about dairying in Ireland and improving on what we can do better.

In 2010, world trade in dairy stood at about 53 billion litres (in liquid milk equivalent). China was a new and significant importer of product then, purchasing over 300,000t of whole milk powder annually, and New Zealand had an annual milk output of 17 billion litres a year.

In the past four years, the changes have been dramatic. World trade has grown to around 65 billion litres. This year, it looks like China will account for approximately 600,000t of whole milk powder imports – double its share of four years ago. And New Zealand has grown its milk pool by almost 3.5 billion litres – the equivalent of 65% of Ireland’s entire output.

Demand-driven expansion

This rate of change shows no signs of slowing down. Our world is growing fast, with population set to exceed nine billion by 2050. Each year until 2030, at least 150 million people will be entering the middle class, bringing almost 60% of the world’s population into a middle income bracket. While population growth is predominantly happening in developing countries, this increased wealth is creating demand for a westernised diet. In China alone, demand for dairy is set to grow by 43% by 2019. To meet this pace of development, the predicted pace of dairy growth cannot afford to slow.

It is now time for Ireland to enter the fray. After more than 30 years of quota restrictions, our dairying potential is ready to be realised.

The Irish dairy industry has been preparing for quota abolition for the last five years. Indeed, with continuous investments ongoing at farm, processing and agri-business levels, and with branding and route to market developments, one could say that Ireland has been preparing for quota abolition for the past 30 years. During this time frame, our milk production has barely grown, while New Zealand has tripled its output off a similar base.

Changing sector

Now Ireland is primed for development to take advantage of these evolving market opportunities. As things stand, Ireland could comfortably increase its milk output by 20% to 25% from its current resources. At farm level, the efficiency and quality of milk production has advanced in leaps and bounds through improved breeding, genetics, animal health, husbandry and grass management. All of these improvements have left us with better quality milk that is more efficiently and sustainably produced. There is also further significant capacity to increase our milk yield.

Another important change to note at farm level has been the increase in average herd size from an average of 54 cows in 2008, to 65 today and a projected 85 by 2020.

Industry has been evolving also. Processors continue to invest in capacity and the enhancement of facilities. Irish processors are investing more than half a billion euro in new facilities, including the significant investment by Glanbia Ingredients Ireland in building dairy processing facilities in Belview and Dairygold’s €117m investment in its Mallow and Mitchelstown facilities. Investments like these are critical for the Irish dairy sector to become a major player on the world stage.

Advances at farm and processor level have left us with a relatively low-debt industry, prudently invested with state-of-the-art processing infrastructure, which can flexibly deliver the dairy products demanded by global markets.

Markets

For the past five years, the Irish Dairy Board (IDB) has been steadily building a global commercial infrastructure in anticipation of increased Irish dairy output. Part of this drive to secure new, high-value outlets for Irish dairy products has seen the business make significant investments in the US, Saudi Arabia and, most recently, Spain. We have opened access to markets and sectors in which we have not previously operated. We invest in high-profit, growth businesses, often in milk-deficit regions, that deliver route to market and value and leverage shared intellectual property and expertise.

Ambitious targets clearly require expansion beyond the existing core markets and that is why we have been focusing a lot of our energies on developing opportunities in emerging regions. Our expansion drive has also seen us deepen our long-standing presence in Africa. We have expanded our activity across the continent to reach more markets than ever before.

We now have a new headquarters based in Port Elizabeth, South Africa. Africa has been a core market for Kerrygold for many years and it holds massive promise in the future as its population grows and becomes wealthier.

As in Africa, today you will find many of our people living in the markets we operate in. In just 18 months, we’ve placed 35 new people in-market. These numbers will increase considerably over the next five years. By working alongside the consumer, customer, distributor and local partners, you develop a deeper understanding of the market, the challenges and importantly the opportunities it presents.

Our teams on the ground then feed that back into consumer insight, innovation and commercial teams here in Ireland. It is critical that we react quickly to the markets’ needs – be it tailoring a product to meet local tastes or getting customised powdered ingredients on the seas to meet a customer’s urgent requirement.

Branding

Continued investment in branding and new product development at home have strengthened the position and offering of Kerrygold and brands such as Pilgrims Choice and Dubliner. Extensions of the Kerrygold label to new products, such as spreadable butter and continental cheeses, have contributed to double-digit growth rates in Germany, where the brand is already the market leader. We recently launched Kerrygold Cream Liqueur in the US – a very exciting development for the brand.

Supporting these product developments has required substantial capital expenditure in upgrading our facilities around the world. The latest and most exciting of these investments has been the decision to build a centre of excellence for Kerrygold butter production and packing in Mitchelstown. This will ensure a world-class supply chain to help meet the evolving needs of Kerrygold customers and consumers around the world. And it will also support the growth and development of the Kerrygold brand itself.

The brand has so much more growth potential. This facility will process up to 50,000t of packet / tub butter a year, principally for the US and UK markets. It will also go a long way towards streamlining our production activities in Ireland. We are currently in the planning stage and hope to be in production in the spring of 2016.

All of these investments are being made to secure long-term returns, which will benefit our members and their suppliers. At the IDB, we believe that these developments will provide the right outlets for Irish dairy products and that they will generate strong and sustainable returns. This is important, as our farmers need to be confident that their efficiently produced, high-quality milk will find a home on international markets.

Need for sustainability

As we look ahead to the next five years, the main concern to everyone involved is that we develop this industry sustainably, both in an economic and environmental sense. Over the past number of years, we have consistently encouraged farmers to be prudent and careful about making investments and taking on a lot of debt.

We have always guided our future milk projections in line with what most responsible banks will base their long-term finance around – i.e. that, in the long-term outlook, a milk price from 26 to 32 cent per litre is a sustainable pragmatic forecast to use. While farmers have enjoyed prices in mid-to high-30s in recent times, we have consistently warned that this is not a sustainable long-term norm.

In order to enjoy the opportunities that the long-term demand for dairy will bring, all stakeholders need to ensure they can weather some difficult years. While they will continue to track an upward long-term growth trend, dairy markets have become increasingly volatile in recent years and they will continue to be so.

This means that development and growth will not be uninterrupted. We expect the good years to outnumber the bad, but we need to be prepared for some tough times. These may arise from, for example, temporary market dips and weather-related production difficulties.

Prudent investment and good financial management at farm, processor and market level are critical. Likewise, to preserve the extraordinary value of our industry, we must continue to maintain a sharp focus on production, process, supply efficiency and the quality of the dairy products we produce. A lapse anywhere in these areas would be hugely damaging to the industry and cannot be allowed. That is why we have so strongly supported the Bord Bia Sustainable Dairy Assurance Scheme (SDAS).

Consumer focus

Today’s consumer is more connected and informed than ever before. Around 25% of the world’s population has grown up with the internet and social media. This globalised consumer is more interactive with the brands they purchase. They demand high-quality, sustainably produced products.

Our customers are moving quickly to react to this consumer demand. They have put stringent programmes in place to ensure sustainable production throughout their entire supply chain. The sustainability demands of customers will present a challenge for many of our competitors.

However, these same demands present an opportunity for the Irish dairy industry to showcase what we do naturally. Ireland has the perfect attributes for sustainable dairy farming and we can now prove it with the SDAS.

Expansion by efficiency

It is important to note that while sector growth will come from expansion of the dairy herd and extended milking seasons over the next five years, we project that our grass-based production system and stocking density rates will remain superior to our European counterparts.

It’s very clear our industry is preparing well for the changing landscape of Irish dairying. We at IDB do not see the realisation of post-quota development plans as the end of a process – it is just the beginning of the bright future that lies ahead.

Our focus is to continue to pay leading product prices over the next five years. We want to ensure that average yearly returns out-perform those of our peer group of leading European dairy companies. And we want to create a robust and valuable diversified asset for the Irish dairy industry. We must go forward together.