Rationalisation in line for Irish dairying

By Hugh Oram

DUBLIN - The Irish dairy industry, having gained a seven-year breathing space after the recent reforms to the European Union's Common Agricultural Policy, is preparing for longer-term rationalisation driven by the World Trade Organisation's (WTO) likely future demands for freer trade.

It will result in a much tougher climate for Irish dairy farmers after 2007, says Dr Liam Downey, chief executive of Teagasc, the state-run farming research organisation.

Some industry analysts say that in 10 years, WTO pressure could halve the present milk price to farmers of around sterling IR1 a gallon. That equates to 51 cents a litre compared with around 30 cents a litre New Zealand farmers receive.

Dairying and the whole agri-food business is still vital for Ireland, accounting for 13 per cent of GDP, 12 per cent of total employment and one-third of net foreign earnings. It is more important to Ireland than to any other EU state.

In trying to adjust to the pressures, Ireland is very unlikely to follow the New Zealand example of moving to one mega co-op, says Dr Noel Cawley, managing director of Bord Bainne/Irish Dairy Board, the dairy industry co-op.

"Irish farmers like a certain degree of competition between processors, so the New Zealand example couldn't happen here."

The Irish Republic produces about five million tonnes of milk a year, half the New Zealand output. John Tyrrell,director-general of the Irish Cooperative Organisation Society (ICOS), the umbrella organisation for co-ops in Ireland, says that 72 per cent of milk is processed by four groups, with 95 per cent being handled by just 12 groups.

The 1990s have seen significant processor rationalisation, so that the number of dairy co-ops has fallen during the last 20 years from just over 50 to around 35. The most recent big regrouping has been Avonmore and Waterford over the past two years, to produce the lacklustre Glanbia.

While Mr Tyrrell says that Ireland is a "quite efficient lower cost producer", the Irish industry's profile differs greatly from New Zealand's.

Some 33,000 farms in Ireland are producing milk, compared with 15,000 in New Zealand. The average number of cows per farm in New Zealand is 220 while in Ireland it is just 39. The Irish national cow herd is 1.26 million, compared with 3.22 million in New Zealand.

About 80 per cent of milk products are exported, led by butter, compared with New Zealand's 90 per cent. Some 60 per cent of exports are handled by Bord Bainne. In European terms, Ireland is seen as a relatively efficient milk producer and processor.

Irish dairy farmers did better than expected from the latest common EU policy reforms. But a recent analysis by Teagasc shows that the expected decline in dairy farmers over the next few years will mean that farm incomes will remain at 1998 levels.

Pat O'Neill, the recently retired group managing director of Glanbia, is now heading an industry-wide committee that has been set up by the Irish Government to forecast future trends in Irish agriculture and food production, up to 2010.

Mr O'Neill says that the number of milk processing plants in Ireland needs to be reduced from the present level of some 35 to seven, if the industry is to be internationally competitive. The industry also needs to take into account the intense consolidation of retailing, in Ireland and the rest of Europe.

Across Europe, 20 retail groups now account for half of all food sales. Irish Food Minister Ned O'Keeffe expects further pressure on export subsidy volumes and the level of tariff protection, creating more pressure for closer alignment of EU and world prices.

Dr Downey of Teagasc says that the stability the Irish dairy industry has been given until 2006 must be used to build a competitive and innovative production and processing industry.

Technology developments by Teagasc researchers in recent years have the potential to increase dairy farmer incomes by 25 per cent. In grass management techniques alone, new Teagasc technology can boost annual income per cow by sterling IR150 ($340).

But as Mr O'Neill says, the Irish dairy industry runs a big risk of becoming uncompetitive. Over the past 15 years, the pace of change within the Irish industry has not kept up with what has been happening in other countries, notably Australia, New Zealand, the United States and the Netherlands.

He believes that the dairy sector in Ireland needs a whole new gameplan to meet the needs of farmers, dairy companies and customers to reduce dependence on commodity markets.