Monthly Archives: March 2016


Another extract from my FH2020 review. One of many questions that should have been asked and analyzed when the strategy was put together.

Does anybody not appreciate that going global means that the Irish farmer is going to be going head-to-head with capital investment flows into agriculture from China, the Middle East and the wider financial world? If not, they should do as the desire to become a global player off a finite Irish production base is a questionable strategy.

In this extremely unequal contest the author would only predict one winner and it is not the Irish farmer. In the short-term there may be opportunities to plug the current gaps in the market but capital will flow into locations where agriculture is under-performing; thus snuffing out those opportunities to supply agricultural commodities from higher-cost, fragmented, small-scale, small-volume-producing farms located in western Europe or Ireland. It is also a situation, given the starting point, that any amount of land, farm or business consolidation will not rectify.

To cite the Farmers’ Guardian in January 2013 quoting Catherine Lascurettes, executive secretary of the National Dairy and Liquid Milk Committee of the Irish Farmers’ Association, “farmers would have to invest £1.5bn on their farms to deliver that 50 percent increase [in milk production], and that needs to be matched by a significant investment from other co-ops. Along with the huge investments necessary there are challenges over… farmer’s access to credit (which is worse in Ireland than the UK)”. In terms of credit provision, does Ireland after the banking crisis have banks willing to lend to agriculture, or even have the capability to fully appraise the expansion plans of agriculture? The author also doubts that Ireland has an up and coming Rabobank to service its farmers.

To place this into context one only has to scan the international agricultural and agri-food linked journals to see the magnitude of investments being made around the World into agriculture and food. As mentioned earlier, the Chinese appear to have ear-market five billion US dollars to address the issues with its infant-formula supply. In terms of magnitude, the Smithfield Foods takeover was similar. One has also heard of a three billion US dollar investment by the Chinese into the Ukraine and also their intentions towards large-scale investments in Australia and New Zealand. And that is not to mention smaller milk-powder related investments within the EU.

With regard to the Ukraine, an interesting article appeared in the Irish Farmers’ Journal dated 11th January 2013. It was a piece about a 300,000 (yes, three hundred thousand) hectare crop production operation that is just building its first [note “its first”] 10,000 cow dairy unit. Below is a quotation from the article.

The relevance to Irish farmers ofMriya’s Ukrainian operations Irish Farmers Journal (11/01/14). Even a simple analysis of Mriya’s operations poses some serious questions for Irish farmers, co-ops, farm organisations, food processors and agricultural policymakers so”. Hence the author, Brendan Dunleavy asks: “How many Irish farmers and agri-businesses can compete with large, completely integrated, well-financed, highly efficient, agro-industrial groups like Mriya? Are our much-vaunted low-cost, grass-based, livestock production systems enough?

In the context of this section of the review [of FH2020], the key words are ‘well-financed’. As to the various questions posed, one would tend towards a simple answer; ‘no’ to each one. And the last is literally the billion dollar question.

In the context of finance, the author would expect those involved in finance provision to be wary of funding what would in effect be a credit line to the farmer-suppliers of the downstream supply-chain entities. In this situation the financiers themselves would need to be very convinced that the business model of the processors showed that they could then compete in their chosen markets. There would also be the question of ultimately who carries the credit risk, the processor or the farmer? Such credit lines are made [formally] available but they tend to be in the developing world and are financed by the World Bank and its ilk. It is a very unlikely solution for Ireland.

The author himself has worked in the past with major agro-industrial investments [in particular those that now supply vast quantities of palm kernel cake to the New Zealand dairy industry] so the report in the IFJ comes as no great surprise. He has also worked in Eastern Europe so is well aware of the potential of the likes of the Ukraine.
The Ukraine is not a major milk producer (relative to its population) and it volume is a little more than double Ireland’s, but that does not mean that major agro-investments will be targeted at the domestic market. If major investments are, for example, Chinese or Gulf-financed, the produce may be destined for export from the start.

Ireland may be a major player in terms of its share of the global dairy trade but in the context of its resources it is an agricultural lightweight. If one considers dairy products [regardless of whether they are grass or cereal-fed] the Ukraine has about thirty times the arable land area of Ireland. Romania, another CEE with serious agri-food potential is currently reputed to have three times the arable area of Ireland lying derelict. In addition to a physical resource shortfall, Ireland (as mentioned earlier) has serious access-to-finance constraints. Its fragmented, small-scale farming base and slow-moving land market will also make it unattractive to major agri-business investors.




Just reading again some of what I wrote over two years ago [late 2013] when I wrote a review of Irish agri-food strategy. This I found particularly relevant when thinking about the root causes behind the current dairy crisis. They are a few paragraphs to note when one hears executives from the processing sector saying that nobody saw the depth of this crisis coming!

“With so much talk about the Chinese market for infant formula and milk powder, the author’s reaction was to investigate what its various suppliers are doing. In the past he has seen perfectly rational decision-makers all working with similar information all reaching the same decisions without fully reflecting upon the consequences of what may happen if they all make the same decision at the same time. The consequences can be dire.

Clearly New Zealand is the leading supplier into China and it has a free trade agreement in place. In 2011 NZ accounted for 75% of China’s milk powder imports. Since then the market has continued to expand and China has diversified its sources but what has the reaction been? Well in NZ Fonterra has just opened (December 2013) a new 2.2 million litres of milk a day, 85,000 tonne per annum milk-powder facility. It has also announced the development of another, new,marginally larger facility. All will, of course, be target at their export markets.

It appears that the Chinese themselves are directly investing in France and entering into joint ventures elsewhere in Europe. One press article states that one-third of Chinese milk powder imports in 2012 derived from production facilities that were by then directly controlled or had agreements with Chinese businesses that have a track record supplying their own domestic market. The USDA reports that Friesland Campina is investing in three new infant formula facilities and Arla Foods is planning to expand its milk powder sales to China. It also reports that in France nine milk-drying facilities are being built or expanded. Hence, the supply side is currently very dynamic.

Although nobody appears to be predicting that the demand for imported infant formula or infant-formula based upon imported raw materials is going to change anytime soon, there remains the question of just how long will this market boom last? Will Chinese government efforts to restore confidence in home-produced infant formula succeed?When will new Chinese, industrial milk production investments kick-in and impact upon the market? Will the Chinese companies investing overseas develop a supply-base that is sufficient to fulfill domestic demand and will the supply-base even include Ireland? How will foreign-owned brands fare into the long term? There are a lot of questions that a milk producer at the bottom of a supply-chain-to-China should be asking if the supplier that they supply [and maybe investing to supply more] milk to is specifically investing to supply the Chinese market.”