The debate in the morning session of the National Dairy Conference brought together a high-powered group of Irish milk processors and marketers to discuss how they view the world in terms of margins and efficiency.

Kerry Group chief executive Stan McCarthy sparked the debate suggesting Ireland needs to recognise its positioning in the world.

He said: “In Ireland, we process five billion litres of milk, so we are probably 31st in the world in terms of scale. We are not big, so we have to be able to compete in processing efficiency and a proper dairy exchange to manage volatility that cannot be exploited by customers.

“We need to understand that the EU support system has changed fundamentally and ultimately we need to be able to give a return on the litre of milk to be able to compete on the global market. All extra milk is going to go to the developing world and we have to compete there – we are disadvantaged from a geography point of view, but advantaged from an environmental point of view.”

Glanbia Ingredients boss Jim Bergin sparked the debate further when he said Ireland lacks an innovation engine.

He said: “If we don’t have that then we can’t compete with the Friesland Campinas or the New Zealands of the world. It’s not a single centre fix and long-term I think it’s the lack of innovation that will catch us.

“From an efficiency point of view I think we can ride that out. I’m clear there is lost opportunity by not consolidating, but that runs deeper and more complex than economics into co-op loyalty, multipurpose co-ops etc.

“We are working with the likes of Danone and have joint innovation teams looking for the next breakthrough but it’s a tough place to move forward.”

Aidan Cotter, chief executive of Bord Bia

“The role of the Chinese market in determining the future cannot be overstated. Emerging markets are driving the growth in dairy demand and long term demand trends predict average growth of 2.4% per year. There will be 1.5bn people joining the middle class mostly in Asia and Africa who require more dairy proteins – that’s three times the size of EU buying group. Health and wellness products are key drivers for more selecting more quality food such dairy products.”

Donal Dennehy, operations director, Danone Ireland

“We bring people into Ireland and what you have to remember is that many don’t associate Ireland yet as a dairy region. We need everyone working on this message. It’s much better when you wake up to look up the weather forecast than the smog forecast. We have recently invested €200m on high-spec product processing in Ireland and we have done this in the hope of a sustainable and growing Irish milk supply. We need quality milk along the whole chain from farm to factory – the green image only helps so much.”

Michael Hanley, chief executive, Lakeland Dairies

“All of our customers for dairy product are growing – that’s the reality – even if there is a 10% inaccuracy in the global dairy demand figures it is clear there is growing population. Our biggest fear is that we won’t have enough milk and the second issue is trust and quality of product. The EU needs to up its game now on Free Trade Agreements which are critical to trade development.”

Kevin Lane, chief executive, Irish Dairy Board

“We have 36 new people in Africa looking for products Africans want and we want to manufacture and further process this product and hence we have invested over €20m in Saudi. We are also investing in butter processing in Michelstown and the reason we are doing that is we are going to make butter and spreads for all different markets. It will be a 15 month process to get Michelstown moving.”

Stan McCarthy, chief executive, Kerry Group

“I hate to spoil the positive opportunity with the facts but we need to be realistic on opportunities. Maybe more thought is required on how we address some of the issues. Dairy companies need presence in the market to have a successful business model and a big issue is understanding the local legislation which is a whole new dimension and one that’s gets more difficult with differing geography.”

Tom Moran, secretary general, Department of Agriculture

“Engaging with third countries where all this extra dairy product will be sold is a huge job of work. For example, in China, first you have to get reputation across and discuss the topics with the control agencies there. They have the equivalent of the USDA in America. The key to the door is quality and safety and if you don’t have that you may forget about it.”

  • General agreement huge opportunity to change rural Ireland with the removal of milk quotas.
  • Industry experts Jim Bergin, GIIL and Gerry Boyle, Teagasc, say the lack of innovation in Irish dairy industry will catch us out in the long-term.
  • Big job of work to get extra product to developing world
  • Food Harvest 2020 Implementation Group have washed their hands of a new industry structure despite admitting it was critical when report was first published.
  • The first session at the national dairy conference talked about the market opportunities surrounding milk produced post-2015. It involved some of the main players in Ireland that process and market product.

    We heard from Bord Bia’s Aidan Cotter, who emphasised how important the Chinese market is. Other speakers talked of standards and safety being so important for an Irish dairy industry. All comment was valid and worthy. We didn’t learn too much new information, but good is not always new.

    Some of the speakers touched on important issues that have become perennial weeds that no spray can kill – little or no consolidation, lack of processing efficiency and lack of innovation. One of the problems is that it is practically impossible to put a value on these issues, at least in the short term.

    Some say a better national package is worth 3 c/litre. Ask any farmer milking 70 cows next spring if they want an extra €11,000 in farm output that a better national plan could potentially deliver. You won’t be long getting an answer.

    While I believe and agree with the Minister that the quota brakes coming off is a great opportunity, it will only be realised if there is a margin in it for dairy farmers. This means we need a better national processing, marketing and research structure in place. That’s not to take from or demean any business working in that area at the moment.

    However, the slow evolution of these critical issues will bite and become apparent to dairy farmers as increased non-farmer ownership of the industry, foreign ownership of processing structures, poor milk price, premium products produced with no extra value transferred back to the farmer, or a mix of all four. It’s already happening. Are dairy farmers prepared to accept this fate? Is the Department happy to accept this?

    The State and Food Harvest 2020 Action Group have washed their hands of any involvement in restructuring the dairy industry. Let me remind you in the published action plan they say it is critical that “the processing industry must move towards a small number of scaled operators who have the scale and culture to drive efficiency and value added in line with key international competitors who have already achieved consolidation”.

    We know consolidation is complex, but there are always solutions if you want to find them – ask the Dutch, Danes, Kiwis or Finnish industries.

    In the latest report from the Food Harvest Implementation Group published in August 2014, they admit absolutely nothing has happened on this action point. They say: “The industry view is that industry rationalisation remains a decision for the boards of respective companies. The State role is one of assisting and encouraging rationalisation.”

    There is, however, no point spending millions more on innovation unless the industry and processing structure is right to reap the rewards. Get the building blocks right and then put the research and development in place. The Food Harvest Action Group is wrong to wash its hands of this, or, at the very least, they are ignoring the farmers who want industry change.

    More than ever before, there is an onus on farmer directors to make the right decisions for their co-op, but also the national industry. For far too long, the thinking has been too parochial. Farmers drive change. Like the Dutchman on the panel said: “More milk is not a burden, it’s a blessing and we must look at the opportunities and aim to be best in class.”

    Jack Kennedy