Submission to the 2020 Strategy Committee
- Irish Dairy Board
Anne Randles
Secretary
Irish Dairy Board
Grattan House
Mount St Lower
Dublin 2
31st March 2010
Introduction
The Irish Dairy Board (IDB) welcomes the establishment by Minister Smith of a
consultative initiative on a 2020 strategy for the Department of Agriculture, Fisheries
and Food (the Department). Set down below are the priority policies and structures
the Irish Dairy Board believes, from a dairy export and marketing perspective, will
best enhance the future development of the dairy sector in Ireland.
The structure of the dairy sector in Ireland over the next decade will be shaped by a
combination of economic, political, business and environmental developments. It is
incumbent on all stakeholders, including government, to identify those factors that
will influence the future direction of our sector to 2020 and to take action or
formulate policy now to ensure our industry is fit for purpose and capable of meeting
the many challenges that lie ahead.
Amongst the developments certain to impact on our sector over the next decade are:

The abolition of quotas

The consolidation of the processing industry

The consolidation of the customer and of international competition in a more
volatile market environment

The further growth of Ireland’s export orientation

The sustainability agenda and the challenges arising from climate change,
food security and environmental management.
The potential impact and/or implication of many of these issues for industry can be
or will be directly influenced by government policy.
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The abolition of quotas in 2015
Ireland has significant potential to expand output between now and 2020
and this potential is key to determining the industry’s short and medium
term strategic thinking.
It is generally assumed that EU dairy quotas will be abolished by 2015; however
even in 2010, with the notable exceptions of Germany, Denmark and the
Netherlands, quotas now have only a limited role to play in the short-term
production decisions of most EU dairy producers.
The potential of Ireland to expand milk output from even its current base is
considerable.
Ireland is expected to be some 10% below quota at the end of the
09/10 dairy year but it is quite feasible that output and quota will converge between
now and 2015. This implies an addition annual volume of milk of about 720m litres 1.
Post quotas, it must be assumed that output in Ireland will continue to expand,
having regard to improved technology, producer efficiencies and developments in
genetics and breeding practices.
The implications for Ireland of this significant expansion in milk production are
widespread throughout the production and supply chain, spanning from the farm
gate, via the processing plant, to the global marketplace.
The role of the
Department in enhancing further the safety and high quality of Ireland’s dairy
products, to facilitating investment, through to negotiating EU dairy policy and
facilitating third country market access for our products, is critical.
1
The difference between 2009 output and the final quota, taking into account a series of increases
scheduled over the next few years.
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Consolidation of the Processing Industry
There is a clear need to examine now how additional milk will be processed
post the abolition of quotas. This examination should not be limited solely
to the issue of processing resources but also to funding and marketing.
The management and financing of processing capacity expansion will be a major
challenge for the Irish dairy sector, especially in the second half of the decade.
An
additional 720m litres of milk per annum, as mentioned above, equates to some
65,000t of cheese or 92,000t of WMP, or 32,000t of butter and 65,000t of SMP.
Recent investment, under the government funded Dairy Investment Programme,
means that adequate capacity exists to process this potential milk to 2015.
Capacity to produce additional milk, after the ending of quotas, is less clear. Any
substantial growth in Irish output, post the abolition of quota, could quite quickly
come up against processing capacity issues and more specifically its financing, unless
there is a significant move to ensure the most efficient use of current capacity and/or
a realignment of milk deliveries off peak. Because of the limited availability of
additional resources and some duplication and inefficiency issues, we welcome the
on-going debate on the restructuring of the industry.
While this debate must be led by industry, there is a role for the government to
facilitate these deliberations and ultimately to ensure the availability of resources to
fund any change. The growth in cheese production over the last number of years,
and the recent capital investment, has increased the funding requirements of the
industry during a period of crisis in our banking sector. It will be incumbent on the
government to ensure that there is adequate funding available to meet the working
capital financing needs of an industry in expansionary mode.
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The consolidation of the customer and of international competition
The challenges of customer and competitor consolidation must be addressed
if the Irish dairy sector is to have a long term future. The government has a
key
role
in
addressing
Ireland’s
competitiveness
cost
base
and
in
supporting companies’ in-market led innovation business strategies.
Ireland’s industrial cost base is out of line with its competitors and business is overburdened by regulation and red-tape in a number of areas. A full audit is needed of
these costs and the regulatory procedures that need to be reformed in order to
enhance the competitiveness of industry.
The industry’s capacity, capability and scale to deliver products and services as
required by the market are key to its competitiveness.
Growing Cheese and Whole Milk Powder (WMP) markets offer the best medium term
prospects, having regard to the IDB’s existing routes to market, international
consumption trends, opportunities for innovation and product diversification and the
urgent need to divert Irish milk away from butter and, to a lesser extent, Skimmed
Milk Powder (SMP).
Milk in Ireland over the next decade will continue to be produced off grass and hence
will remain seasonal. Market-led innovation and creativity which acknowledges the
seasonal nature of Irish production and our export reliance will be central in any
business development strategy. Major investment is needed in market research in
strategically relevant sectors to create a knowledge base on both current and future
customer needs that will give clear direction to the scientific R&D process.
Innovation funding also needs to be substantially increased in order to support a
clearly defined long term market development strategy, as well as the funding of
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collaborative government, institutional and industry R&D spend in strategically
relevant areas. The efficiency and effectiveness of the delivery of the innovation and
R&D process must be improved and a strong focus on cheese and nutritional dairy
products must be central to any national strategy.
Ireland’s reliance on export markets
Over the next decade Ireland will continue to need a strong and vigorous EU
market support system that fully recognises Ireland’s export oriented
industry. Business efficiency will be directly affected by the approach and
effectiveness
of
the
Irish
authorities
in
policy
formulation
and
implementation.
As only a small proportion of global milk production is traded internationally (less
than 7%), small changes in supply or demand can radically and rapidly affect the
world price of dairy products. This impacts Ireland more than any other EU member
state, given our greater reliance on export markets. The IDB has addressed this by
building a broad base of markets and products, underpinning strong consumer
relationships with an internationally recognised and trusted brand - Kerrygold.
Product differentiation through branding is, and will remain, a central element of the
IDB’s business development strategy.
The consensual view is that the EU will continue to produce in or around 10% more
milk than it consumes and hence will continue to be a player on the world market.
As the EU’s largest surplus producer (as a percentage of total output) and with the
most pronounced seasonal production profile, Ireland will be more exposed,
proportionately, to the vagaries of the world market than any other EU member state
and will have a greater dependence on CAP supports (intervention, Private Storage
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Aids (PSA) and export refunds (and their opposite number: import levies). A strong
and vigorous CAP that fully recognises our export oriented industry will remain
essential for the best part of the decade under review, as will be the need for the
Irish authorities to adopt a collaborative business approach to their interaction with
industry.
The Irish government must ensure the availability of adequately resourced and
flexible dairy support tools. This is a priority policy goal, as is ensuring that all new
multilateral or bilateral trade deals are balanced and equitable and do not jeopardise
or disrupt the EU internal market.
The Irish dairy sector is dependant on the Department of Agriculture in a number of
areas including inspections, dairy hygiene compliance, the payment of export
subsidies and the negotiation and delivery of operable and efficient export
certificates.
While acknowledging the Department’s
compliance and control
obligations, the Department needs to “champion” the industry, including its cross
board aspects and identify what support services it can adapt or provide to improve
Ireland’s competitive advantage on the marketplace.
A partnership approach is
needed from government to ensure that the commercial imperatives of business are
proactively addressed in the interests of this important agri-food sector.
The
Department’s remit in this regard also extends to other areas of government or state
whose actions have the potential to add further restrictions or costs on industry or
which could impede the marketing of dairy products.
Of particular concern in this
regard are the bias on dairy fat consumption, the origin labelling of dairy products,
the complexity of advertising and labelling rules and environmental controls.
The
Department needs to promote the cause of Dairy across other departments, as well
as in Brussels, in order to ensure our interests are defended.
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The predominant feature of the dairy markets for the past couple of years has been
their unprecedented volatility. As EU and world prices converge, this will become a
more common occurrence. A widening and strengthening of Ireland’s branded and
value added product portfolio offers some security, but the IDB is also researching
and testing the viability of a European futures market for dairy products as well as
other risk management instruments. Government may have a role to play here. In
order for many of these new tools to be effective, there must be a significant
improvement in market transparency and, in the EU, dairy market statistical
information. This must be a key priority of the Irish government in its dealings with
the EU institutions.
The sustainability agenda
Efficient pasture based milk production can deliver a positive sustainability attribute
for Irish dairy products.
Over the next decade, sustainability and the challenges
arising from climate change, food security and environmental management must be
addressed through all aspects of business from production, through processing,
market access and marketing to the final consumer.
legislation is imminent.
Major carbon emissions
It is essential that this legislation does not hamper the
expansion or competitive development of the industry or impose additional costs
above those faced by our competitors in the market place.
Conclusions
The IDB, with a turnover in 2009 of €1.8 billion, brings over half of Ireland’s dairy
exports to market. About four-fifths of these sales are within the EU. Some 50% of
the IDB’s Irish exports are branded, predominantly but not exclusively under
Kerrygold. The balance is sales to the food ingredient sector value and is achieved
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through customer solutions development, differentiation, technical innovation and
scale efficiencies.
The fundamentals for Irish dairying over the next decade are positive but not without
their challenges.
Many of these will have to be addressed directly by the various
sectoral stakeholders from producers to exporters, however there are a substantial
number of areas where Irish government policy and intervention can, and in some
cases must, impact (positively) on the future direction, structure and efficiency of
the sector.
Key amongst these actions for government are:

Facilitating the industry as it puts in place the resources necessary to process
anticipated growth in milk output. Including:
o
Ensuring the proper regulation of Ireland as a clean, green sustainable
food island
o
Negotiating practical certification for Irish products on non-EU markets

Ensuring availability of affordable funding to meet expansion requirements

Addressing Ireland’s unsustainably high commercial costs base

Adopting a proactive and collaborative approach to innovation

Ensuring that the CAP maintains a strong export focus

Applying a collaborative business approach in the Department’s interface with
all levels of the industry

Promoting the cause of Dairy across other government departments as well
as in Brussels

Ensuring evolving legislation does not hamper our industry’s expansion
potential.
END
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