Increased scale at farm level on a dairy farm doesn’t always bring a better living. Margin is a better measure. When you get margin right you can think about growing scale.

The same can be said for milk processors. Some of the best processors can optimise efficiency by minimising costs, maximising premium prices, investing intelligently and marketing the product to the right people. Look west.

The relatively new boss at Ornua, Conor Galvin speaks to us this week in his first formal interview since his appointment (see p28). His new role comes at a time when his milk factory members have adequate, if not surplus processing capacity.

Their issue now is getting milk to adequately make a return on the investment. EU and Irish policy is creating this deficit.

This provides a conundrum for the Ornua boss. If Irish milk supply is back, in theory what volumes Ornua get will be back. This means reduced turnover and potentially reduced operating profits unless costs are cut.

Ornua doesn’t own a milk pool, unless it is inclined to maybe look to buy the Kerry dairy business.

Bigger issues

There are two bigger issues facing Galvin and his team. The first – the very concept of grass-fed butter is being challenged head on.

A tightening of the nitrates rules is forcing Irish milk suppliers to feed more silage and purchased concentrate. The evidence has accumulated over the last three years.

This shift away from grazed grass spells danger for the Kerrygold product. It needs a point of differentiation: it has nothing without that yellow carotene-infused butter. Any further tightening of the nitrates noose would spell even greater danger.

The second alarming issue is the investment in US and Chinese milk processing. The US dairy industry is going to grow at least 10% in the next five years. That growth story alone is bigger than what we produce on this island.

Most of that new US milk will come onto the global market. Aidan Brennan reports from the US this week that over US$7bn (€6.5bn) is currently being invested in US milk processing (see p38-39).

This week, a new Kansas cheese plant, in the unfortunately named Dodge City, is on the cusp of starting cheese and whey production. It has the capacity in one plant to take 260 tankers per day.

The US is one of Ornua’s best markets. We have Ornua members competing over there. We have milk lorries passing each other on the road here. Three of the top four processors are all collecting in over 20 counties each.

Grand plan

I know there are processing sharing agreements in place, but really, with the challenges to cost structures and with the changing world order, we badly need a grand plan. To start that we need to start talking to each other.

Real cost reduction is now needed. It has started in some of the co-ops. If we don’t, the dairy farmers are the safety valve in this equation. If the market doesn’t return enough, the farmers don’t get it, because all other costs are paid before the farmer. It’s the strength and weakness of the co-op.

Wexford, Town of Monaghan, and now Tipperary Co-op suppliers died with their boots on in an attempt to keep ‘local’ alive.

The success of the proposed new Arrabawn Tipperary entity won’t survive because of local – it will be a solid business plan, good management, cost reduction and achieving a margin for a premium product that will decide the success or otherwise of the new venture.

As the Ornua members grow and consolidate, it seems all they want to do is trade against each other. The frustrated Tipp Co-op suppliers speaking on Monday night felt they were left in the dark – that their representatives didn’t listen or deliver for them.

We don’t need to be having that discussion on a national scale. Galvin suggests Ornua can react to global market changes. If the US and China deliver their plan, if we continue to go backwards, and New Zealand holds its own, Galvin will need everyone behind him, not beside him on the shelf.