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.