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
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%