Farm Ireland

Wednesday 25 April 2018

Sides divided on way to pay for dairy expansion

Declan O'Brien

Declan O'Brien

Sharp differences on how to fund the required expansion in milk processing capacity emerged at last week's ICOS conference.

ICOS dairy policy executive TJ Flanagan pointed out that the industry was undercapitalised and an agreed mechanism was required to cover investment costs.

Mr Flanagan proposed that new entrants to the sector and existing co-op members who planned to expand beyond agreed supply limits should pay for any additional investment in 'stainless steel'.

The ICOS executive suggested that contracts/agreements between milk suppliers and processors which would allow farmers deliver a given volume of milk each year based on their 'peak day' supply.

He claimed that basing the contract volume on peak day supply could allow existing suppliers to grow milk production on the shoulders of the supply curve. Access to spare processing capacity within each co-op would be allocated on a priority basis to:

  • Existing supplier shareholders who would be given three years to reach supply targets;
  • Existing co-op members who are not milk suppliers;
  • Existing suppliers who are not co-op members;
  • New entrants.

To fund investment in additional processing capacity, anyone who wished to supply milk beyond their contract arrangements would have to pay 30c/l.

This charge could be paid on a 3c/l basis over 10 years or as an up-front payment -- an additional 250,000 litres would cost €75,000.

However, responding to this proposal, IFA president John Bryan said any expansion of dairy production as set out in the Food Harvest 2020 report must not impose disproportionate costs on producers.

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Mr Bryan said the 30c/l cost was "massively excessive". Based on recent investments carried in the north-east, he said the processing and other off-farm investment required should not exceed a quarter of that figure.

Mr Bryan said farmers could not be asked to carry the off-farm cost of dairy expansion.

"A combination of profits from plc companies and co-ops, Government support from Enterprise Ireland, low-cost loans and tax incentives have to be put on the table before any extra cost is imposed on farmers," Mr Bryan said.

This view was echoed by Macra na Feirme's Edmund Connolly, who said the industry had to be careful not to introduce systems that would hit new entrants and force them to carry an unfair share of any expansion costs.

AIB's Michael Dowling insisted that part of the investment charge in processing facilities had to be carried by new entrants and those who expand milk production, but he said it was unreasonable to expect them to pay the full bill.

Irish Independent