Co-op mergers key for dairy expansion – minister

Partnership and preparation is key for Ireland’s dairy expansion. This is according to Agriculture Minister Simon Coveney who spoke at the ‘Agriculture and Food – Irish Growth Stories for 2014 and Beyond’ conference, organised by  Bank of Ireland in Kilkenny this evening. He also spoke on a reworking of milk prices and dairy co-op mergers to met the challenges of possible price volatility post-quota head-on.

“Conferences like this and speakers here today are essential so we all understand what part we have to play in this journey, because ultimately the journey that the food industry is on at the moment is a partnership. If any one element does not fulfil their role in the potential of the industry well that we have a problem,” the minister cautioned.

“If I don’t fulfil my role as somebody who has a responsibility to design and implement policy, to get the necessary budgets you need to support expansion and growth and maintenance of food production systems in a sustainable way. Well then we have a problem.

“If farmers do not manage and plan and expand for growth, we have a problem. The processing sector need to invest in both finance and people to insure they are ready for that growth expansion.

“And if the arms of the State and the businesses who are working with them at home and in particular abroad are not finding new outlets for Irish food and drink to fulfil the potential of the significant increase in volume we are going to produce and what we are going to achieve and hit the targets and in fact surpass the targets.”

The minister called on the banking system to provide capital and support to farmers, and stressed the premium dairy sector.

“First of all the market is there. This is not about selling commodity food stuff across the world to anyone who is willing to by it. It is finding the premium sector of the market, the top buyers who are willing to spend the most on food and ensuring we are competing in that space so that Irish premium products that people are willing to pay more for that is how you are going to get the maximum amount of money for your produce whether it is beef, poultry, pigs, dairy product.”

According to the minister, Ireland has been essentially operating in a straightjacket as an industry since the mid-Eighties. “Because we have not been allowed increase the volumes we produce. And we are about to, in less than 18 months time now, we are going to have the combined challenges of not only maintaining the drive towards bringing more value to our product and getting more producers, we are also going to have the added challenge and huge opportunities of rapid expansion in terms of the volume we can produce and that is exciting.”

In terms of possible challenges ahead, the minister looked to New Zealand as an lesson to learn from.

“Look at New Zealand since the mid-Eighties, it focuses the mind. Back in the mid-Eighties when quotas were introduced as a European supply control policy to keep prices artificially high. New Zealand and Ireland both produce the same amount of milk. We both produced five million litres per year. New Zealand now produces nine billion litres of milk per year with the same natural resources they have in the mid-Eighties and they dominate world markets in terms of trade and milk markets. And they set international prices in terms of dairy product. So Ireland has the capacity to deliver that type of growth. We are planning to deliver 50 per cent growth in five years, but we will continue to go beyond that to grow, expand and build for more efficient, more profitable dairy industry out of this country.”

He noted some of the mistakes New Zealand made on that journey. “If you look at the debt levels many farmers in New Zealand have to carry. Many farmers will be working for their banks now rather than themselves. So we need to learn from the mistakes and not undermine the ambition of what can be achieved. And that is why I cannot emphasis strong enough that those of you who are dairy farmers or linked to dairy farmers, this is not simple about volume growth.”

He said the prime key is efficiency. “There is no point growing an inefficient business. This is not about turnover. It’s about profit so we much focus on that and we are with our dairy discussion groups, through Teagasc and private advisors and through dairy farmers themselves.

“Challenges will come our way, it will not be plain sailing. There will be peaks and throughs to dairy pricing as dairy pricing becomes more volatile not less and we need to try and insulate Irish farmers and processors and the dairy industry from those seismic shocks. We need to look at milk pricing in a different way in terms of structures that we have in the past.”

The minister also encouraged new pricing models to met the challenges of possible price volatility.

“Look at putting a portion of your milk into long-term pricing models that may give you the highs in the years that we have just had that certainly insulates and protects you from the lows like 2009 so you can plan, build and borrow,” he said.

“Likewise the processors who are adding value to your milk, the processors you owe, can also benefit the industry working with policy makers. They need to look at new pricing models to ensure that if there is a temporary collapse in milk prices post 2015 of whatever reason, whether the market gets spooked, the production increases temporarily than a faster pace that demand is increasing, we need to be insulated and planning for worst-case scenario at this stage for what area of expertise.”

He also spoke on the importance of new ways of milk supply production and stressed the importance of exceptional quality.

“I cannot emphasis the importance of farmers willing to open their minds to new ways of supplying and being paid for milk. Kilkenny and Glanbia are leading the way in this area, as they have been, a genuine market leader in terms of pricing models that are successful and will be replicated in other parts of the country in the not too distance future.

He continued: “I think we need to have exceptional quality. As of December we will be launching the National Dairy Quality Assurance Scheme. The dairy industry is behind the beef industry on this issue. We want have run a beef quality assurance scheme for a number of years now. About 80 per cent of farmers are now in that scheme. The vast majority of beef processed into our processing facilities now, is quality assured beef. In some factories they do not want to accept meat that isn’t because if undermines their relationship and reputation with their customers. So we have to get to a point as a country, where are the food we produce is essential quality assured and internationally certified. And that is what we are doing now with the 17,000 dairy farmers that we have.”

The minister also sent a clear signal to processors to form partnerships.

“My message to processors and farmers, who own many of those processors, we do need to think and talk about scale and the importance of scale and partnerships of consolidation within that industry.

“I am not suggesting we follow the New Zealand Fonterra model, but I am suggesting that perhaps we look, some of our companies are investing very, very heavily, in proper investment in drying we need to make sure they are used to their full capacity as an industry rather than individual companies and co-ops. It’s a hard discussion but it is an honest discussion that is needed.”

The minister also insisted Irish banks are well capitalised and want to invest in Irish farmers.

“Irish banks see this industry as an exciting growth industry. They see it as worth taking a punt on, of lending money to facilitate that expansion, but farmers also need to play their part in this.

“In terms of significant investment, farmers need to be businesspeople with a rational business plan to avoid the mistakes of New Zealand. I don’t want to be back here in five, 10 years time with farmers coming up to me saying they have massive debts that they just can’t service.”

In conclusion the minister said the most important thing for Ireland at the moment is building and maintaining a reputation for producing the best milk in the world

“We all know how to measure milk quality. Some are getting more than 50 cent a litre for your milk at the moment, some 29 cent. We understand and know about milk quality. All of our farmers are moving up that quality ladder, all it takes is one significant scale around quality and all of a sudden our reputation will be difficult to defend and that is why I will be pushing farmers very hard for responsibility on quality and management of diseases.”

This article was updated at 6.14pm due to a systems error, we do apologise.

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