Farm Ireland

Monday 18 December 2017

Fonterra boss warns dairy sector to reform

Caitriona Murphy

Caitriona Murphy

The Irish dairy industry will be left behind if it does not restructure, claims the head of New Zealand dairy giant Fonterra.

Henry van der Heyden urged Irish farmers to take advantage of growing global dairy demand by creating a streamlined industry with one vision.

He insisted that funding for development of the Irish dairy industry would have to come from farmers or they would lose control of the business.

"If you believe in your co-op, then give it the funds," he said.

Mr Van der Heyden told farmers they would be amazed at how much cost could be taken out of the supply chain and additional revenue realised by creating an integrated dairy business with a single management team.

"By staying where you are, you will be left behind," he warned.

The Fonterra boss said a complete overhaul of the Irish dairy industry was possible within a five-year period.

"But it will be a tough, hard slog," Mr van der Heyden said.

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Integration of the Irish Dairy Board was key to the industry's development, he claimed, believing a co-op structure would best suit the development of the Irish dairy industry.

"Unless Irish farmers have more than 50pc of the country's milk production in a co-op, you will regret it," he warned. "Co-ops drive milk prices worldwide."

He added that dry shareholders and one farmer, one vote structures were incompatible with growing the business to its maximum.

Fonterra insists that its shareholders are active milk producers and contribute both milk and equity to the co-op.

He also urged farmers to change how co-op board members were elected, saying the focus should be on maximising milk value, not on regional representation.

Mr van der Heyden was speaking to almost 200 dairy farmers gathered in Kilkenny for a conference hosted by the Dairy Discussion Groups of Ireland.

He outlined the dairy demand figures that Fonterra was using as its basis for expansion between now and 2019. Dairy demand within China was set to grow by 36bn litres of milk, while demand in India was set to rise by 45bn litres. New Zealand milk production looks set to increase by 4bn litres in the same period.

Joe Gill, director of research at Bloxham Stockbrokers, warned farmers to be wary of taking on too much debt in dairy expansion, both on-farm and at processing level.

"It cannot be a debt-driven investment because that would destroy the business in a short period," he said.

"The optimal structure is to have large-scale processing facilities with modest debt focused on bulk products.

"It also means fewer, larger farmers with low levels of debt," Mr Gill said.

He said that Ireland should stick to producing bulk commodities, not value-added branded products.

Meanwhile, former IFA president Padraig Walshe said it was time to resurrect last year's Glanbia proposal to buy the Irish processing and agri-business arm from Glanbia plc.

"It's time to get back in control of milk processing," Mr Walshe said.

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