The Irish dairy industry would struggle to make a return on investment on new processing assets if it continues to play in the commodity space, Kerry Group CEO Edmond Scanlon has said. He was speaking at the launch of the 2018 Agribusiness Report, published by the Irish Farmers Journal in conjunction with KPMG.
“The reality is the basket of dairy products that we manufacture in Ireland is very much commodity based.
“With the level of investment that is going to be required to process the expected growth in the milk pool over the next five to 10 years, it’s going to be very difficult to make that work from a return on investment standpoint.”
He added that the collective Irish dairy industry would need to think very hard about the next phase of investment in building processing assets to handle the extra milk expected from farmers in the coming years: “The industry needs some joined-up thinking on how to best go about putting the next phase of assets on the ground, because I just don’t see how an adequate return is going to be gained from the current level of assets that are being spread all over the country.”
Dairy demand
On milk prices, Scanlon said there are no winners from the recent volatility in dairy markets.
He added that Kerry will be coming out in the next few weeks with a scheme for its farmers to try and introduce more forward-looking price mechanisms aimed at helping with volatility.
In the long-term, Scanlon believes the demand for dairy is there, particularly with much of the world’s population growth happening in dairy-poor countries. He said the biggest downside risk to milk prices remains supply.
“After that it’s down to supply and demand. It’s going to be that balance between supply and demand that will drive the price of milk,” he said.
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