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Independent.ie

Saturday 3 December 2016

Mapping a future for more expansion

This week Irish Dairy Board chief executive Kevin Lane talked to Declan O'Brien and outlined his vision for the dairy sector in a post-quota era

Published 17/05/2011 | 05:00

Q The Irish Dairy Board (IDB) has played a central role in the development of the Irish dairy sector by marketing Irish dairy products around the world. What do you see as the future role of the IDB?

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AWe have a focused vision of what we need to develop to serve our members -- that is to build and create routes to market and value for our members. The uplift in milk output forecasted under Food Harvest 2020 presents an opportunity for the Irish dairy sector to expand output for the first time since the introduction of milk quota. On the marketing side, this will require experience and knowledge in developing new markets and products, and building on our existing international marketing footprint.

The IDB's mandate is to market products on behalf of its members. Our efforts will be focused on developing a greater presence for Irish dairy products on the international stage.

QThe growth plan for the dairy sector has been set out in Food Harvest 2020. Is the target of a 50pc expansion in milk supplies over the next eight years realistic and/or achievable?

AThe target of a 50pc increase in milk volume by 2020 is regarded by many commentators to be optimistic. The growth will obviously be milk price and cost dependent and will be very regionally diverse.

Q You have put the total cost of a 50pc expansion at €850m, with €400m needed for additional processing capacity. This is far higher than some other industry commentators. Do you stand over those estimates and can you explain your rationale?

AYes, we stand over our figures based on the analysis we undertook. We calculated the €850m on the following basis. We took the €400m figure as published in the Food Harvest Report for processing. We looked at forecasted milk output and calculated that the working capital required to fund this was in the region of €250-300m on an annual basis. In terms of developing market infrastructure and investment, we put an additional €200m figure on this. Of course, these financial projections carry a health warning in that milk price will determine the quantity of milk produced. Our numbers do not include the costs involved at farm level, which are also considerable.

Q Given the limited potential for growing butter sales, a 50pc increase in milk output will necessitate the production of an additional 300,000t of cheese and 100,000t of whole milk powder (WMP). Is there an outlet for this extra product? Where are those markets?

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ALooking at the global dairy market, reports indicate that global demand for dairy products is growing at 2.5-3pc a year. Broadly speaking, Europe is a mature market for dairy products, with medium-term growth forecasts indicating growth of about 1pc a year. Developing markets are forecasted to show increased demand for dairy product of about 3.5pc.

Looking at the supply side, the medium-term growth forecasts to 2015 are showing growth in EU milk output of about 1pc a year, New Zealand production by 3-4pc, India by 3.5-4.5pc and China by 6pc plus.

We have built and established routes to markets in some of these growth regions but this will need to be developed further in the years ahead. Remember, every kilogramme of product produced will be exported.

We are ready to commit the resources. Farmers in Ireland are preparing for growth; in speaking with them, they have plans in place and we, as an industry, need to develop sales and marketing channels for them.

Q Will future expansion in milk supplies hit the price paid to farmers?

AIt is likely that it will be. For example, at today's level, demand burn-off and price increase recovery is challenging with consumer resistance.

Q Last year, the Chinese market for milk powder grew by 84pc and it accounted for 63pc of New Zealand dairy exports. Should the IDB be targeting this market and, if so, how will it establish a foothold there?

AChina is a dynamic market with a growing urban population, which presents good opportunities. Its economy last year grew by just over 10pc.

Imports of WMP into China last year grew by close on 80pc, to 330,000t. New Zealand is geographically well placed to supply dairy ingredients to China and it also has a free trade agreement in place.

The IDB has had a presence in China for a number of years and, last year, we opened an office in Beijing focused on mainly developing the IDB's ingredients business. Kerrygold can also be found in the chilled food cabinets in selected urban centres in China. Overall, the IDB's exports to China are small but are showing encouraging growth year on year. We are developing a more ambitious plan, with our members, and this will be incorporated in our five-year outlook.

QIDB's competitors in the form of Fonterra, Friesland Campina and Arla have massive firepower in terms of personnel on the ground in emerging markets. How does the IDB propose to compete with this?

AWe have developed a strategic growth plan for the business and we are determined to deliver on this for Irish dairy farmers. The dairy sector is poised for growth and, as the marketing arm of the sector, we are willing to take this opportunity on and deliver for Irish farmers.

Yes we are facing significant competition. The dairy companies you mentioned are farmer-owned dairy co-operatives, with sales ranging from €6.5bn to €9bn. Our job is to market Irish dairy products on behalf of Irish dairy farmers. We have a great team in the IDB, both in Dublin and around the world, and I know that they are ready to do this.

Q Kerrygold has been the cornerstone of the IDB's marketing strategy. Will it continue to be the vehicle to grow sales?

AKerrygold is part of our growth story and it is an important part of our brand strategy for the future. We are in the middle of a global rebranding programme for the brand.

Q Should Ireland target investment in consumer foods and go the 'added value' route, or should its future be as a supplier of ingredients?

AIreland has to pursue parallel strategies, one for consumer foods and one for ingredients. The overarching strategy has to be to obtain the maximum return from every gallon of milk produced by Irish dairy farmers. How can the industry do this?

We must add value, be it through greater efficiency or innovative solutions.

For consumer food products such as cheese and butter, investment in brand development and innovation is vital. Focused marketing initiatives in selected markets are important in developing this business.

On ingredients, Ireland produces some of the highest-quality dairy ingredients in the world and this must be developed further in the future. The IDB has the most developed supply chain for exporting products on the island and this will be important in the development of the industry in the years ahead.

Q Traditionally, the level of R&D spend in the Irish dairy sector has been low by international standards. What level of R&D spend do you think Irish dairy sector should be targeting?

AYes, investment is low compared with our international peers. But a closer examination of these dairy companies shows they have large consumer food businesses that require a higher level of investment in R&D. R&D will become a great part of the Irish dairy sector in the years ahead.

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