Last year saw a sharp increase in the profitability of Aurivo Co-op, while at the same time debt was written down. What were the main drivers of the increase in profits?

There were a number of factors that boosted profits last year. Markets were in good shape and operationally we made a lot of progress right around the business which helped us deliver better. Through and with IDB, we did a lot of work with customers to be more innovative with products for them. We have four pillars to our strategy: customer focus, innovation, operational excellence and people – there are work streams going on in all of those which contributed to a better year and this year has started well also.

On the dairy ingredients side, is the co-op looking at more innovative, higher-value products?

In the innovation area we had 60 new ideas implemented through the business last year. Not all of these are new products but a significant number are and some are tweaks to existing products to meet customer specifications.

Has the Donegal acquisition been beneficial for Aurivo and what is the future for the liquid milk business?

We are very happy with the additional volumes of milk resulting from the Donegal acquisition. That has helped to drive efficiencies, particularly at the Ballaghaderreen plant. The acquisition also brought other opportunities which we hope to take advantage of in the coming months. The overall liquid business has not been sustainable for the processor or farmer for some time. Unless we can make it more sustainable for the front end of the supply chain, ie ourselves and the farmer, then milk won’t be attracted into that market any more. There is no sense in processing milk and taking all the risk that goes with it for no return. We are and will be seeking alternative markets for year-round production. Part of our Focus 2020 is built around that.

What do you feel are the biggest challenges facing dairy farmers in the years ahead?

The main challenge I would envisage ahead of us is to cope with the volatility that will come. When milk supply runs ahead of demand and markets take a dip, [the challenge is] that we are all able to cope with that. I think that the second half of this year will be tough and the average milk price this year may not be as high as last year. Increasing milk solids is one of the best tools for increasing milk price. We were the first to introduce the A+B-C price structure in 2006 and farmers have made significant headway on solids since then.

In an ideal world what we would all want predictable cashflow, both at the processing end and at the producers’ end. We need to find ways to deal with market fluctuations both at the co-op and at farm level. The stability fund we established is one of those ways but it is only one. Farmers need to plan to manage volatility as best they can at farm level.

We have recently launched a farm profitability programme which is aimed at helping suppliers become more sustainable and profitable regardless of their size. Anyone supplier who wants to engage with the programmes is welcome to, whether you are a new entrant, a farmer with 40 cows looking at expanding to 60, or looking at squeezing more out of the system.

Focus 2020 is the long-term strategy for the future of the business. What is it and what has been the reaction by farmers to the co-op seeking investment from milk suppliers over the coming years?

It is a plan about growing our milk supply, which our producers have told us they will do. In fact, these days our milk supply is up 20% week-on-week with last year. It is also about investing in technologies and products that customers want in order to find profitable homes for that milk. In terms of the consultation process with producers, we expect to return to them with a final document on our proposals within 10 days. There is good feeling towards it. Not one farmer asked why we were doing it or said that they are not willing to invest. We have to marry that with the needs of the business.

Farmers understand that they need to invest in their business just as we need to invest in ours. We can’t tick along the finest as we are, but we would be doing farmers a great injustice by not investing in the future.

The acquisition of the Donegal business has increased the overall number of retail stores. How is that side of the business doing currently?

We were not badly affected by the collapse of the building sector. In the past few years we have seen slow but steady growth in the retail store business.

The fact that sales are starting to grow again is a good indication going forward. The business is evolving, there is more and more business being done online which is an area that we are not in. We have to constantly look at the costs of the business. We have to decide if we want a high-service model or a low-cost model; we can’t operate both from an agri point of view.

As an important part of the business, what have been the biggest factors affecting the mart business for the co-op in the last year?

It is now a regulated business, it’s low margin and we would like to see the regulation evenly applied to everyone.

The marts are a low-margin side of the business but we feel that it is a much needed and worthwhile service for our customers. There is room for more consolidation in the industry as a whole. We had eight centres six or seven years ago, we now have four and we have held the same share of cattle through the marts. We are open-minded to anyone that wants to work closely with us.

Is the co-op looking at growing sales and volumes through the mill?

We have restructured how we operate. Instead of having a separate mill team, we have one farmer-facing team now which is intended to deliver a more streamlined business. We have a lot of new customers; we intend to hold onto them. Last year during the fodder crisis we think we did our bit for farmers and hopefully that is not forgotten.