KPMG study reveals profit issue at co-ops
Report calls for new pricing model as Irish margins lag behind peers
The low profitability of the Irish processing sector may force it to switch to a different milk pricing system.
This is one of the conclusions that can be drawn from the KPMG study of the dairy sector that is to be finally revealed to leaders of the Irish dairy industry at an ICOS meeting in Portlaoise tomorrow.
The €450,000 study was commissioned in the wake of the Food Harvest 2020 report which set out a target of a 50pc increase in output for the Irish dairy sector. It selected 17 'peer' processors from Denmark, Holland, Germany, France and New Zealand to benchmark Irish milk processors' performance.
In a copy of the report's key findings seen by the Farming Independent, the authors state that "profitability in the Irish dairy sector appears low compared to international peers". It points to the seasonality of grass-based milk production systems and the resultant dependency of the industry on low-margin products as the main reason behind the relatively low revenues per litre processed.
However, the figures reveal that the gross margins are similar for co-ops selling either high revenue or low revenue products. The gross margin in both cases tended to range from 6-7c/l in 2009.
According to the report, while most of the peer companies studied internationally managed to turn a profit in 2009, Irish dairy processors on average showed a loss for that particular year.
The low margins in the sector will be the key challenge for the future expansion of the industry, according to the report.
Poor margins may also be responsible for the low marketing and R&D spend in Irish dairies compared to international competitors.