Decision time for Irish dairy industry?

What is our plan, the vision as to where we want to be as a dairy industry in 10 years’ time?

How do we best market 10bn litres of milk? Critically, how do we maximise the farmer’s share of the market return?

It’s worth €150 per cow, €12,000 per average dairy farm and €210m for the industry.

Farmers take on all the risks, make personal investments and work hard but conversely the most secure incomes and pensions are for many others after the milk leaves the farm. Whilst many of these jobs are necessary, the question is, how many six-figure salaries can we afford?

To be quite clear, there is no envy or malice in me saying this, but the longer we stay as we are as an industry, and the more we increase output, then we are in effect ensuring more and more cost.

We produce a superb product for a growing world demand. Our current industry configuration is unique to Ireland. All significant dairy producing countries have moved to a more consolidated, more centralised structure. It’s time we did – or at least consider – doing the same.

I want to develop the principle of why we should study the options to secure a better share for the industry owners, the farmers.

Why don’t people want change? If you are content to forego €150/cow/year, then the no-changers have more to offer.

There have been some efforts to get elements of a more unified industry in the past. You would be surprised where objections and blockages come from.

I speak with some knowledge on this. Vested interests abound. Remember who owns the industry, even the two publically listed entities in the industry have farmer-controlled milk processing. Do not fear discussion on your future, but you must indicate interest.

Perspective

I’ve been farming since the summer of 1971. Since then, a lot of money has passed through the business. How much we can retain is impacted by many things, some within the farmer’s control and many outside.

Outside the direct control of the farmer is milk price. I wish to make some suggestions as to how we, the farmers, might exert some influence over milk price into the future. In my lifetime of farming, a modest increase of price of say 3c/litre would have had a massive total impact on profit.

I believe the 3c is the amount to be gained by achieving a more integrated structure of the Irish dairy industry and I’ve never heard the figure challenged.

Greater efficiencies from milk assembly, plus a unified approach to processing and marketing, combined with savings in costs and, vitally, a national strategy will reward us over time. If we multiply the 7bn litres produced nationally by 3c we get €210 million per year for all farmers.

Oppostition

In a rapidly changing world we must be clear as to who is the opposition; other Irish co-ops are not. The competing organisations are global. We can only fully compete with them by being global in our own outlook and scale.

It is not that there has been no change to the structure of the industry over the years. The processing side of the industry has undergone significant change over the years – the formation of Kerry Co-op, Dairygold, Glanbia and Lakeland. There has also been movement in the west and north. Is this enough to prepare us for what lies ahead? I suggest not.

Co-ops will say that they have processing arrangements with one another and some product production deals, so what’s the problem?

This is not enough. All of this is worthy, but has it prepared us to be senior players when the big games start? Has it prepare

d us for a post-Brexit world or for a lower CAP payment scenario? Most relevant of all, has it put us in the best position to market 10 billion litres of Irish milk? I don’t think so.

The recent examination of the processing side of the dairy industry by the Irish Farmers Journal is very revealing.

Irish dairy farmers have a lot to consider. The growth in production is wonderful for the country, but come back to the big question: is the return – the farmers share – as good as it could be?

When we compare our industry to other countries as the Irish Farmers Journal has done, we are missing out by as much as 20% to our international competitors.

The saddest aspect of all is that there appears to be ambivalence at best, or a total disregard at worst, by the co-op directors and chairmen as to what is needed.

As long as the problem is seen as a temporary one that gets attention once a year when the annual IFJ/KPMG milk league is published, and then briefly each month when the Irish Farmers Journal milk league is printed, then we have a serious issue.

This approach does not instil confidence that much will happen. We need to move away from the retrospectively monthly pricing strategy of co-op boards. This is no way to reward farmers’ endeavours.

Excuses

Action can only come from the owners of the industry, the farmers, through their directors and chairmen. Unfortunately the vision, as the chairmen were asked for recently, showed a distinct lack of ambition. All farmers should worry about this.

Excuses abound. Past investments, current product mix, recent deals, and a variety of other reasons are trotted out as to why a particular co-op pays what it does.

Frankly, I really don’t care a whit for excuses. History is there to record what did happen, but also to point us in the right direction, to help us avoid mistakes and to learn how to make the future better.

The growth in milk is a nationwide issue and the plan must also be. Now is not the time to be selfish or narrow in outlook.

We should remember that when Food Harvest 2020 predicted a growth of 50% more milk in the five years’ post quotas, there was widespread scepticism.

Many just did not believe that such growth would occur. As we now know, this figure will be easily reached by the planned date.

I fully support this expansion, but where is the plan? What are we going to do with this milk?

Much more to the point, who is going to make the most profit from it? The current model suggests it will not be the farmer. Sure, dairy farmers will take the risk, grow, invest, work smarter and harder, but still have a low return relative to others. This is not fair and not necessary.

Views

The views of some of the co-op chairmen towards Ornua expressed in the Irish Farmers Journal should give alarm to the members of their co-ops. It is clear that the co-ops that work closest to Ornua pay more than the ones that criticise it.

We as farmers have invested heavily in Ornua, IDB, Bord Bainne and the Kerrygold brand by way of a levy. I believe that this has been money well spent, a good investment.

The question is: can we exploit this good work and past investment to greater effect for the future? How do we best incorporate Ornua into a revised national strategy to avoid duplication and to maximise farmer return?

As an example of what a united industry could achieve, let’s look at infant formula. I have not seen any coherent, evidence-based argument, presented as to why we as an industry do not enter the infant formula market ie bring Irish branded product right through to the market.

Yes, of course it would be expensive and yes it has risks but just think of the prize.

I hear vague references to some behind the scenes discussions and I am aware of some modest activity, but the place for this debate is out in the open. This may just be the most important topic that Irish dairying has ever discussed.

Clapping ourselves on the back by saying that we supply the raw ingredient for 16% of the world’s infant formula market is all very well but we do so as we languish at the bottom of the international price league.

This topic and a united processing and marketing model needs serious discussion.

Who leads such a discussion?

My favourite option – one from each of the above, with an independent chair.

Mandate this group to explore all options and report back by an agreed date. The Dutch took this approach a number of years ago and they have developed a global superpower in FrieslandCampina.

The Dutch are farmer-owned like us, and are an exporting country, but enjoy a much superior milk price.

Fonterra has also been used as an example of what can be done, but objectors frequently pointed to their low milk price and if we look at the New Zealand price now, it is ahead of ours. Enough said.

I’m concerned that as we grow production but stay fragmented, some Irish co-op will be the target for a predatory take-over. In this case, the power we hold as owners will dissipate and fade. It has often been said that we need a crisis to provoke a discussion on industry change. I suggest that a much better idea is to do the talking from a position of strength.

All our current entities are small to medium in a global context. We need a model that processes milk in the most efficient sites, agrees in advance as to what products we will concentrate on and make best use of market intelligence and demand.

What now?

While we consider the options, we must remember that our international competitors are not standing still. It may not be about immediate gain. As farmers we may need to invest, to fund or prime the project. Would farmers be prepared to put up the money for such a project through milk price? Why don’t we ask them? A small investment now may return a high dividend for years to come.

Other farmer views, a discussion or conference on this topic would be helpful at this stage. In this forum those for, as well as against, and all views in between could be aired. We must be mature enough as an industry to have an open debate on this.

The return will not be immediate but as the Chinese proverb says about the best time to plant a forest is 20 years ago, or failing that, now. Today is the time to plant the trees for such an ambition.

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