Dairy industry's challenge is to keep up with pace of change

In the final part of his series on the dairy industry, agriculture correspondent Seán MacConnelllooks at where policy makers believe the industry is heading

The pace of change in the dairy industry has become so rapid that, even in the three weeks this series has been running, major developments have taken place in a sector which had seen little change over the previous decade.

Last weekend was the closing date for the Dairy Industry Investment Fund, which had been announced some months ago by the Minister for Agriculture and Food, Mary Coughlan, who provided €100 million as an incentive for capital development in the sector.

Despite all the predictions that processors would be unlikely to want to expand their manufacturing facilities, it emerged that the fund, which has the capacity to bring about a €300 million boost in investment, was over-subscribed by a multiple of three.

While there is little hard information given on what projects are planned in what is a competitive process to be evaluated by an independent panel, a number of the projects are understood to be joint ventures between co-operatives that have had a poor record of co-operation in the past.

The decision on who will get what will be decided in the spring based on criteria such as the potential to increase gross output, to maintain or increase employment, how well a project fits into the strategic development plan for a company and the industry, and the degree of added value the development will bring to the industry.

Administered by Enterprise Ireland, the projects will qualify for 40 per cent grants for the developments, and around the Border, in the midlands and west the level of grant will be increased to 50 per cent. Projects must be costed at between €5 million and €25 million.

Projects likely to emerge under the fund include a €50 million cheese plant in the northwest involving a number of co-ops and the upgrading of facilities by Kerry Group and Dairygold within their own groups.

The second major recent development has been the number of farmers who have come forward to offer to buy and sell milk quota in the exchange system which has been set up by the Department of Agriculture, despite predictions that it was doomed to failure.

In an interview last week, Mary Coughlan said she was delighted to announce there were 5,500 applicants for the exchange system, which will be run by her department.

"There are 850 sellers and 4,700 purchasers. My view is that we have to move towards a market-orientated scheme and this is a policy change in the quota system which is of vital importance," she said.

She said the new system would allow people to scale up and there would also need to be efficiencies which would be vital for the industry to cope with the competition ahead.

A breakdown of the figures showed that approximately one in every five farmers in the country want to expand their operations and get a cut of the 125 million litres offered to the system.

"While you have people saying they want to get out of the business, there would appear to be a lot of enthusiastic farmers who want to expand by buying extra quota.

"They want to be efficient and as you see from the other scheme, there are companies willing to invest heavily in the industry," she said.

"That gives me great heart and we are driving that with new market opportunities for the sector, like early next year when we are going to Saudi Arabia trying to see if we can get into that part of the world again with butter."

Last Thursday, as Glanbia, the east coast-based food group, announced it was investing €27 million in joint ventures in Nigeria and China, Kerry Group told farmers it was not going to cut milk prices being paid to farmers from January 1st because of an upturn in world markets.

The Minister said one of the many advantages Ireland's dairy industry has over its rivals is that as a State we are well ahead of most of the opposition in terms of the area of probiotics - healthy foods for a healthy life.

"The Americans are not into probiotics as yet. They do not believe in eating bacteria that is good for you. They are in a more preventative mode and use the milk protein in a different way by adding supplements," she said.

She said there is also a growing niche market in organic milk and she had noticed the arrival of some of the international players into the Irish scene.

She said the drinks industry here is a major user of Irish milk and cream, and her department is working closely with the industry, monitoring its innovation as it seeks to promote new technology.

On the European front, Ms Coughlan said the EU commissioner, Mariann Fischer Boel, had thrown out the question of whether or not a milk quota system should continue, but the Minister was unsure that ending the quota system would bring full solutions.

"There are other things that need to be looked at out there, like efficiencies and scale, and efficiencies are not necessary scale. You can have small efficient people as well and become more market-orientated," she said.

She said that was what the commission wanted, but she did not believe there would be any major change in the quota system until March 2015.

She said the commission is focused on a number of issues, including the capacity of Chile to produce a lot more milk and an over-supply on the world market. She said we must all be acutely aware that consumers will drive the markets.

"There will be policy changes in due course at council level but my job is to prepare the industry here for any changes that take place," she said, adding that she supported the continuation of market supports such as export refunds.

On the World Trade Organisation (WTO), she said the pressure was still there for a deal in world trade, and that a deal would be better than a series of bilateral agreements.

"My political sense is that the American representatives are going to be more protectionist and are not going to reform the farm Bill in a way which we would expect as Europeans to reflect the WTO deal," she said.

"I am still of the view that no deal should be made which would have severe consequences for agriculture, but I also have to voice concern about bilateral agreements because if things go against you, you are in trouble. At least when you have a world deal, you know where you are at."

She said there was no ministerial contact in WTO, but officials were in touch and the French elections might have an impact as Pascal Lamy, the director general, was rumoured to be considering re-entering national politics.

"The commissioner is anxious that we do reach a deal but I say where we are at now is as far as we can go.

"We can go no further and my Government colleagues are of the same view," she said.

She said the most important work to be done in the sector both at farm and processing level is to prepare for the next 10 years.

"In the past we may not have had money.

"We now have the money and we now have the policy to provide a state of preparedness for both farmers and processors to get ourselves sustainable and on an even keel," she said.

"We don't know what the issues will be in 10 years' time but I want to ensure that whatever we have to do to get there we will do now.

"The view across the entire agricultural industry and politically is that in 10 years' time the food and beverages sectors will still be hugely important with an increase in world population.

"If we are competitive and at a quality level there will be huge opportunities because the world is, despite poverty, becoming a richer place with a greater capacity for people to buy."

She said that with all the changes we may have to go back to the fundamental principles of the European Union, which were about food security and feeding people.

With issues such as energy crops, climate change and continuity of supply and food air miles, we might find ourselves in 10 years' time looking at things in a different way.

Ms Coughlan's hope is that the family farm will be at the centre of European agriculture, with a strong commercial sector running alongside, but her view is that it is unnecessary to go down the road of factory farming or massive dairy units of thousands of cows.

• Series concluded