Eoin Lowry (EL): How has Ireland fared in the past 20 years and what is its greatest challenge post quota?

IP: The Irish dairy system, developed in a EU context, has done well under the quota framework. But achieving scale has been the challenge under this system. Understanding sustainability and consumer branding, while scaling production, will become greater challenges in the post-quota future.

EL: The New Zealand dairy industry has scaled exponentially in the last three decades. How big is enough and can New Zealand get too big to fail?

IP: The average dairy herd in New Zealand now stands at 400 cows. But even at this, we need to watch out as Russia, Brazil and Ukraine are now starting to produce. To maintain dominance, New Zealand needs to grow and it will grow fast. But it needs to do so while using less of the natural resource. The dairy sector heretofore has grown by farm conversion. We can’t convert more land to dairy, so we need to intensify production, moving to a more housed dairy system with supplementary feeding.

EL: How is dairying perceived among rural communities with New Zealand’s large factory corporate farms?

IP: There are two types of farmers in New Zealand. 60% are lifestyle farmers who farm for the three Bs — the BMW, the boat and the batch (that is the beach-house). They grow to a certain size, hit profitability, attain the three Bs and find that there is no point striving for more. The other 40% are large corporate farms.

This has been a challenge. With immigrants, there is less association with land and New Zealand is known for its idyllic way of life. There is a mismatch.

We need to build more understanding of the primary sector into urban minds.

We can use social media to do this effectively. Normally, the primary sector only appears in media when something goes wrong and, hence, the term ‘Dirty dairy’ in New Zealand.

EL: New Zealand is strong in China; how can Ireland compete as a small distant player in this market?

IP: Ireland cannot ignore China — in the east, it is the centre of wealth and where the population growth is. New Zealand is overly focused on China and this may not be a good thing. We were the first country to have a free trade agreement with China.

Ireland should not forget niche markets like Japan. There is a need for a portfolio of opportunities when things get difficult. But don’t play in every market for the short-term gain.

EL: China is investing all over the world to secure food to feed its population. Are they investing in New Zealand?

IP: The Chinese are buying farms in New Zealand and in Africa, focusing on buying production assets. They are also building processing capacity.

EL: What effect do you think the recent policy changes in China will have on dairy demand?

IP: China is relaxing the one-child policy because the demographics are not working well economically. It wants to stimulate demand to get a sustainable domestic market to support the economy.

The Chinese economy is still reliant on exports to drive it. The risk is that as the cost of doing business in China goes up, businesses will leave it to the next low-cost producer. The effect will be that domestic demand will increase as the middle class grows.

EL: 2013 was a year of food scares. Did Ireland manage them differently to New Zealand?

IP: Ireland handled the horsemeat scandal well from an international perspective. Because of the way Ireland told the story, the integrity of the primary sector was maintained.

The same cannot be said for botulism in New Zealand. In New Zealand, we didn’t focus on how consumers would view it.

We must understand the need to communicate correctly in today’s world.

EL: Retailers are reacting to austerity by bringing prices down to pull customers in. Does this pose a threat for the New Zealand dairy industry?

IP: We don’t have the same austerity issues as Ireland. However, the own brand challenge is similar. But this can also be seen as an opportunity and we must figure out a partnership with the retailer.

Marlborough Sauvignon Blanc wine has done this well in New Zealand, getting a good price while maintaining volumes. It is how to create a business model remembering that you don’t need to invest in marketing and brands. There is no point having lots of brands — have one.

Own brands can be good/better/best. See where you can partner and make money and don’t have a closed mind about not selling cheap.

EL: Is exporting liquid milk with 90% water the next opportunity in a world scarce in water?

IP: The big focus in New Zealand at the moment is in UHT. The price difference in the market is huge. The consumer is also more confident. The product has integrity of production compared with reconstituted milk. The consumer doesn’t trust the integrity of local reconstituted supply.

EL: How important is consistent year-round supply?

IP: As a niche player, Ireland needs 360 days of consistent supply. With shoulders this is like buying real estate in a supermarket shelves and then we are gone for four months.

To get sales, you need it on the shelves for 12 months. This is where we need global supply chain solutions.

The premium Kiwi fruit brand, Zespri, is not all from New Zealand, but not everyone realises this. This is all about preserving space and giving return on the shelf and making margins. We need to have brand value conversion.

Trust the Irish brand and use the integrity of the brand in production.

EL: In what direction do you see prices going?

IP: We don’t see price dropping away dramatically. There has been a step change driven by growth in Asian demand. On the supply side, there will be higher peaks and definitely sharper shocks.

EL: Costs of production are rising in New Zealand. What does this mean for the future?

IP: The cost of milk production increased threefold between 2000 and 2012 in New Zealand, mainly due to land and labour costs. New Zealand is the largest low-cost producer of scale. Ukraine and Russia will be below New Zealand in the future.

The challenge for New Zealand is to continue to preserve its premium position at the lowest price.