Co-op planning to reap the ’Gold in dairy’s future
Published 18/03/2014 | 02:30
Dairygold CEO Jim Woulfe is in bullish form. In fairness, he has every right to be. Since he assumed the mantle in Dairygold five years ago, he’s seen the fortunes of the farmer-owned co-op go from one that was barely making a profit to the point where profits are surging at a phenomenal 25pc a year.
Granted, timing is everything, and it’s definitely easier to run a milk processing company when global demand is at an all time high, but the Limerick native’s time at the helm of the country’s second biggest dairy co-op hasn’t been without its challenges.
With plans to sink €120m into added processing capacity already well under way, the dairy boss has already successfully chartered his way through negotiations with banks, customers and suppliers on how the co-op will deal with the projected 57pc increase in milk supplies that is due to materialise on it’s Munster farms in this decade.
The projected spend on two 7.5t/hr milk powder driers has generated some criticism, especially when contrasted with the €5m that North Cork co-op spent on installing a 2t/hr drier just up the road from Dairygold’s big investments.
“The types of driers and bagging plants that we are investing in are top of the range in order to cater to our premium customers, such as infant formula manufacturers.
“You can’t install second-hand equipment or dated technology and expect to generate the kind of premium priced product that we are targeting,” claimed Mr Woulfe.
He also dismisses any suggestion that the terms or conditions of Dairygold suppliers’ contracts should be revisited in light of the increasingly favourable terms that Glanbia suppliers are being offered.
“We take those contracts (entered into by Dairygold suppliers) very seriously so we’re not going to start changing the terms at this stage,” he said.
“Over 97pc of suppliers have signed up to both the contracts and the expansion plan that we put before them. The other
3pc can go elsewhere if they want a different offering,” a confident Mr Woulfe told the Farming Independent last week.
Cranking up output
To an extent, the ship has already set sail on the expansion front. By cranking up the output of existing facilities, the co-op has already increased it’s |weekly processing capacity by 3.7m litres.
It has also collaborated |more closely with it’s biggest neighbour, Glanbia, by off-|loading excess milk to the Kilkenny giant’s plants over the last year.
The favour will be reciprocated over the coming months when Dairygold process additional milk from Glanbia in their new butter and skim milk powder facilities at Mitchelstown.
“We are in the final stages of commissioning our €35m plant That will increase our weekly capacity by another 5.2m |litres. that will be able to handle some of Glanbia’s additional volumes until their Belview plant comes on line,” explained Mr Woulfe at last week’s Teagasc dairy expansion seminar.
By the end of next year, Dairygold hopes to have the second stage of its three-stage plan completed with a new drier at Mallow that will tack on a further 7.5m litres of weekly processing capacity.
That burst of investment activity will get Dairygold over the initial bulge of milk expan
sion, with a 17pc jump in 2015 projected to fall back to a 4.5pc annual growth rate up to 2020.
“These figures are based on both what our suppliers have told us and what the experience has been in places where there have been no quota restrictions, like New Zealand.
However, Dairygold have already secured the finance to allow them to build another 7.5m litres of capacity to come on stream by 2020 – what Mr Woulfe refers to as Phase III at Mallow.
If all completed, Dairygold’s peak weekly processing capacity will have been revolutionised from 29m litres to just under 53m litres.
“We want to keep our peak supply month at less than 14pc of our annual total, so we envisage bigger growth in the shoulders in the spring and the autumn through earlier compact calving and a longer grazing season,” explained Mr Woulfe.
February looks to be key to this move, with it’s relative contribution to the annual totals expected to increase by 50pc in Dairygold’s plans.
“The reasons behind the expansion are almost clichéd now – population growth, increasing food spend, drift to western diets – and the |centres for growth remain in the developing economies of Asia, India and Africa,” said Mr Woulfe.
Mr Woulfe readily admits that consumer preferences in
these target markets are not suited to a huge chunk of Dairygold’s product mix, which currently channels two thirds of it’s milk volumes into butter and cheese.
“The rapid growth markets are not really for cheese or butter but we’re not too worried about this.
“As they move to more westernised diets, demand for butter and cheese products will increase.
“In the meantime, we need to continue making cheese to keep products like whey flowing. In fact, we basically made cheese this year just to get our hands on the whey,” admitted Mr |Woulfe.
Currently, 26pc of Dairygold’s milk goes into cheddar, 11pc into specialty cheeses, 9pc into infant milk formula, 32pc into casein and butter, with the rest going into skim milk powder, and fresh milk products.
However, Mr Woulfe did sound a note of caution for the farmers looking to jump on the expansion bandwagon.
“We were really shocked by the fact that a full 59pc of our suppliers were unable to provide accurate information as to their costs of production for the previous year when we asked them in the survey,” he said.
“That would have huge implications on cash-flow if you are considering expansion, and yet a significant majority of our suppliers are planning to expand,” said Mr Woulfe.
He believes there also needs to be a national initiative to develop a volatility management tool in the form of an income equalisation bond that allows farmers to park part of their milk sales in the co-op during good times.
“I’m not a big fan of some of the ideas floating around to manage volatility because they don’t add value to the milk.
“I get the sense that the Government are open to working with us on this, but we need to push the initiatives,” he said.