'The prices have to be realistic and there has to be a margin for everyone'
Published 11/05/2016 | 02:30
"The next 10 months are going to be 10 tough months," says the boss of the northwest-based Lakeland Dairies group.
After a week that saw the Co Cavan-headquartered co-op announce a crossborder merger, Michael Hanley is now eyeing up a milk pool of 1.1 billion litres which would make Lakeland the third largest processor in the county.
On a good note it has customers for all of the 240 million litres of extra milk from the newly acquired Northern Ireland-based Fane Valley co-op's dairy business. Yet in the face of the current 'supply verses demand' war it is naturally at lower prices.
"The dairy markets are tough, the background is tough. Dairy has always over the last 20 or 30 years been volatile, good days and bad days. But on average over the last 30 years dairying has raised a lot of families, it has educated a lot of families, it has paid a lot of bills, it has paid for a lot of investments," said Roscommon native Hanley (57) signalling a more positive note for struggling dairy suppliers.
"Dairying has outperformed all other farm enterprises whether they be tillage, beef or sheep, dairying has always outperformed and over the next five years we'd be very confident that dairying would continue to outperform all other farm enterprises."
Hanley feels farmers and processors have been unwittingly caught up in the geo-politics at EU level that has seen Russia ban EU produce.
"European farmers have seen a market for over 400,000t of dairy products evaporate in front of their eyes. They've a glass ceiling, they are looking in at that market and through no fault of their own they can't sell into that market," he says.
"China has been buying less and there seems to be less revenue about in the oil importing countries," says the man who started off in the baled silage business before working his way up from member relations manager with Lakelands in 86. As he took over as CEO in 2006, the business had recorded losses of over €13m in 05 and 06.
"It is a supply issue - supply verses demand. I'm disappointed that demand hasn't picked up more I would have expected that demand to be better given the lower prices for the raw materials," he says.
After decades in the business, he feels the infamous 'wall of milk' in the post-quota expansion will ease.
"I see Europe stepping back on the production front but it is going to be another five or six months before that happens," he says.
"Prices have to be realistic and there has to be a sustainable margin for all the stakeholders - at current prices there is no margin in it for milk suppliers."
Lakeland exports almost 100pc of its produce, with over 230 products sold to 77 different countries across the world.
You'll spot Lakeland produce in the small little packs of mini-butters and milk sticks served by the hotel trade, quick service restaurants, airlines, while you'll find its cooking creams used by chefs and the own brand icecream in supermarket fridges.
It exports casein to the US, with milk powders destined for Africa, Asia and the Middle East.
Hanley says its goal is to "sweat the assets" to get as many hours run-time as possible out of its plants, with a broader offering to the icecream, dessert and indulgence market with the purchase of the UK-based Coolicious brand last year.
Despite the difficulties in the marketplace, he described it as a good year for the business, with annual results for 2015 showing profits before tax had increased 10pc to €12.8m despite a slight drop in overall group revenues to €588.5m.
Under new accountancy regulations that have seen a number of agri-businesses reveal top level pay for the first time, Lakelands reported eight key managers received €1.65m in total last year while board members received only expenses.
He said Lakeland did not intend to break down the figures for key personnel any further. It also has €109m in shareholders funds.
The Lakelands chief described its milk price as "competitive" across the year, with the goal to pay "as much as we can for a litre of milk" while also retaining profits required for reinvestment in the business.
However, he feels steps should be taken at EU level to help farmers by suspending the superlevy. "A deferral of the superlevy for another year would be a major benefit to farmers," he says.
"You are starting to see a build up now, there is pressure on a lot of farmers now. Milk cheques are the smallest for January, February and March milk and costs are at their highest. We are seeing extra credit and we haven't been found wanting in the past in extending credit to farmers."