Dairy farm­ing fast be­com­ing an all-is­land in­dus­try

As a merger af­fect­ing the province’s farm­ers looms, will co-ops be con­signed to his­tory or is there a fu­ture for farmer-owned busi­nesses, asks El­lie Don­nelly

Belfast Telegraph - Business Telegraph - - Front Page -

As a merger af­fect­ing the province’ s farm­ers looms, we con­sider if co-ops will be con signed to his­tory or if is there a fu­ture for farmer-owned busi­nesses

Fur­ther con­sol­i­da­tion in the dairy pro­cess­ing sec­tor is “in­evitable”, ac­cord­ing to Conor Mul­vi­hill, di­rec­tor of Dairy In­dus­try Ire­land. His com­ments come as Lake­land and Lacpa­trick edge closer to an amal­ga­ma­tion. Lacpa­trick is one of the big­gest dairy co-ops in the border re­gion, as is neigh­bour­ing Lake­land.

At Dairy In­dus­try Ire­land Mr Mul­vi­hill rep­re­sents milk pro­ces­sors. He says that closer in­te­gra­tion in the in­dus­try is be­ing dis­cussed at all lev­els.

“From the Depart­ment of Agriculture to farm or­gan­i­sa­tions, peo­ple have been say­ing that con­sol­i­da­tion will hap­pen, but to­date it has not,” Mr Mul­vi­hill says.

“What has oc­curred here has been or­ganic growth. In Ire­land, peo­ple op­er­ate very lo­cally, and the co-op is a part of this, there is a lot of loy­alty at farmer level to­wards the or­gan­i­sa­tions. In ad­di­tion, the farm­ers own the co-ops.”

In Ire­land the dairy pro­cess­ing mar­ket is made up of a large num­ber of small co-ops — a lot of whom in turn use Or­nua to mar­ket and sell their pro­duce — plus four or five large play­ers in­clud­ing Glan­bia and Kerry. Many of them, par­tic­u­larly Lacpa­trick and Lake­land, are op­er­at­ing on an all-is­land ba­sis, tak­ing milk from up to 1,000 North­ern Ire­land dairy farm­ers.

The likes of New Zealand, Den­mark, and the Nether­lands each op­er­ate with one “super co-op”, Mr Mul­vi­hill points out.

Those giants, rather than lo­cal ri­vals, are the com­pe­ti­tion pro­duc­ers on the is­land of Ire­land ul­ti­mately face.

Ir­ish farm­ers are very well ed­u­cated and the mar­ket­place in Ire­land is “slowly” chang­ing, Mr Mul­vi­hill says.

He adds: “We cur­rently ex­port 90% [of dairy pro­duce] and we will be mov­ing to­wards 95% ex­ports. This will serve to drive com­pet­i­tive­ness.

“If, and when, the Lake­land Lacpa­trick merger is agreed, 80% of the milk in Ire­land will be in the hands of four huge pro­ces­sors, Kerry Group, Glan­bia, Lake­land, and Dairy­gold.”

That sen­ti­ment is echoed by Jim Mulqueen, part­ner at Grant Thorn­ton, who ex­pects con­tin­ued con­sol­i­da­tion in the sec­tor, as mar­gins come un­der in­creas­ing pres­sure.

“There are reg­u­lar dis­cus­sions among cer­tain co-ops around con­sol­i­da­tion,” he says.

“We also see op­por­tu­ni­ties re­gion­ally for maybe neigh­bour­ing co-ops, or co-ops with the same sec­tor fo­cus, to op­er­ate to­gether.”

The main rea­sons be­hind this, ac­cord­ing to him, is “typ­i­cally cost sav­ings and syn­er­gies”, all of which add to a busi­ness’s bot­tom line, and help a com­pany run more ef­fi­ciently.

“It’s not as sim­ple as tak­ing the profit of one com­pany and the profit of an­other, and hav­ing a big­ger profit.

“Some of it could be strate­gic in terms of lo­ca­tion, but typ­i­cally cost sav­ing, syn­er­gies.” Mr Mulqueen does not, how­ever, think that Ire­land will go the same way as the likes of Den­mark and New Zealand, be­cause the Repub­lic’s watch­dog, the Com­pe­ti­tion and Con­sumer Pro­tec­tion Com­mis­sion, will be watch­ing from the wings. “I could see some re­sis­tance at lo­cal level to in­creased con­sol­i­da­tion in the mar­ket­place, but I think that be­fore we get to hav­ing one or two super milk pro­duc­ers, the Com­pe­ti­tion Au­thor­ity will step in if they feel com­pe­ti­tion is be­ing eroded.”

“They are the ap­pro­pri­ate watch­dog, and they will en­sure that com­pe­ti­tion is main­tained.”

From a farmer’s per­spec­tive, Tom Phelan, chair­man of the Ir­ish Farm­ers As­so­ci­a­tion (IFA) dairy com­mit­tee, says that any merger be­tween co-ops has to de­liver for farm­ers, both in terms of bet­ter prices and bet­ter use of ex­ist­ing fa­cil­i­ties.

“In the fu­ture we have to fo­cus on adding value to milk — there is no point ex­pand­ing for the sake of ex­pand­ing,” Mr Phelan said.

The Laois man added that coops are demo­crat­i­cally run, not­ing that the Lacpa­trick merger is still sub­ject to mem­ber­ship votes, and the amal­ga­ma­tion be­tween the two will de­pend on the wishes of farm­ers.

“What the IFA want to see is the max­i­mum ben­e­fit got for the farm­ers, be it though merg­ers, ac­qui­si­tions, busi­ness co­op­er­a­tion and so forth.”

On the mat­ter of Brexit, Mr Mul­vi­hill de­scribes it is a “dis­rupter” for the in­dus­try, which will serve to “con­cen­trate minds”. How­ever, he says that it is hard to de­ter­mine whether it will lead to an in­crease in merg­ers and ac­qui­si­tions in the sec­tor.

“We would ac­tu­ally see cli­mate change and en­vi­ron­men­tal is­sues as the big­gest chal­lenge fac­ing the in­dus­try right now.”

Should a hard Brexit oc­cur, of par­tic­u­lar con­cern to dairy farm­ers and pro­duc­ers in Ire­land will be the ex­po­sure of Ir­ish ched­dar in the UK.

On this Mr Mul­vi­hill says that there has been a lot of in­vest­ment by pro­ces­sors away from ched­dar. In July Glan­bia Cheese, the joint ven­ture busi­ness be­tween Glan­bia plc and Leprino Foods, an­nounced plans to build a new moz­zarella cheese man­u­fac­tur­ing fa­cil­ity in Port­laoise.

A to­tal of €130m will be in­vested in the fa­cil­ity, which will have a pro­duc­tion ca­pac­ity of 45,000 tons per year.

Glan­bia al­ready man­u­fac­tures moz­zarella in a fac­tory in Moira, Co Down.

Sim­i­larly, Mr Mulqueen said that Grant Thorn­ton are see­ing a num­ber of the big­ger play­ers — the likes of Or­nua, Dairy­gold, and To­tal Pro­duce — look­ing be­yond the UK mar­ket to other re­gions.

“We see that larger com­pa­nies are quite well pre­pared for Brexit in terms of sce­nario plan­ning and so on, but some of the smaller play­ers in the mar­ket would still be adopt­ing a level of wait and see. They sim­ply don’t have the band­width and time, and will try and adapt as things hap­pen.”

It’s not just tak­ing the profit of one com­pany and the profit of an­other, and hav­ing a big­ger profit

Cur­rently, 90% of dairy pro­duce is ex­ported, and this fig­ure is mov­ing to­wards 95%

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