Another return to my early 2014 review of the Irish national agri-food strategy. It may be interesting to read in the context of the current, over-supply created problems in the dairy sector.
The following quotes are extracted from the three ruminant-livestock farming sector FH2020 recommendations:
- “In order to remain competitive, the Industry should ensure that processing capacity in the beef sector matches producer output. This should be a guiding objective both for any State intervention in the sector and for industry participants”, (from the beef sector recommendation, FH2020, pg40)
- “The processing sector must ensure that processing capacity meets the expected increased milk supply post quotas”, (from the dairy sector recommendations, FH2020, pg42)
- “In order to remain competitive, the Industry should ensure that processing capacity in the sheep meat sector matches producer output. This should be a guiding objective both for any State intervention in the sector and for industry participants”, (from the sheep sector recommendation, FH2020, pg44)
On reading the above, one could be forgiven for concluding that the FH2020 is, for all its use of market-responsive terminology, a supply-driven strategy. A fundamental recommendation is that downstream supply-chain partners must ensure that they invest to process whatever the upstream primary producer produces.
The above does contradict many statements and other recommendations within FH2020; for example, [acquiring an] “in-depth knowledge and understanding of consumer preferences and trends will help agri-food and fisheries businesses better predict and prepare for their future opportunities (FH2020, pg29].
It is possible that the initial three statements were as a result of a compromise position reached when agreeing the FH2020 strategy. It is not difficult to envisage a situation where the farmer representatives involved were adamant [rightfully so] that if the strategy was to demand that farmers were to expand, that a similar demand should be made of those downstream. It is interesting to note how it has played out in reality in the dairy sector.
A characteristic of the milk-processing sector is that a significant proportion is made up of farmer-owned cooperatives. The consequences of this are that “in keeping with its co-operative ethos’, Dairygold added, it has committed to accepting all the milk its members will produce” (Dairygold cited in the Southern Star). The quote was made within the context of Dairygold investing to expand to accept the milk that its suppliers have indicated that they will be supplying post milk quotas and up to [coincidentally] the year 2020.
A similar situation has occurred with respect to the creation of the Glanbia Ingredients Ireland (GII) joint venture between the Glanbia plc and the Glanbia Co-operative Society. The JV was established to create the processing capacity to process the expected 60% [coincidentally also by 2020] increase in milk production from the Society’s members. It is interesting to note that the Glanbia plc [the original downstream partner] chose to focus its own resources on its highly successful international growth strategy rather than investing in milk-processing capacity.
It is not entirely surprising to see such a supply-driven situation. A characteristic of Irish agriculture is that it is largely geographically remote from its markets. It has also evolved a highly seasonal milk supply based upon the production of milk from grass. In recent years the latter appears to have evolved from a problem into a virtue and, to an extent it is [assuming that the industry can deliver high-value, grass-fed products to customers]. The history is, however, one where milk is produced in spring and summer for processing into low-moisture content, storable and easily shipable commodities (butter, cheese and milk powders). The milk-processing industry has developed to add significant value to these base commodities [via the ingredients and nutritional markets] but, at the farm level, it still seems to remain largely about the production of basic milk solids from[mainly grazed] grass.
A concern with FH2020 is that by emphasising so clearly a 50% increase in milk production by 2020 target, it has actually led to a further embedding of the very problems that were highlighted in previous strategy papers as major concerns; i.e. the industry’s reliance on selling commodities derived from highly seasonal milk. It appears now to have become acceptable, even preferable, to expand specifically to supply seasonal milk. The Irish dairy industry’s fascination with all things New Zealand is certainly taking the industry yet further down this route.
A further quote from FH2020, reiterates this situation thus, “the industry at all levels must engage on alternative options for financing the expansion in capacity to process anticipated volume growth, including investigating efficient solutions to the processing of milk during the period of peak seasonal milk supply”, (FH2020, pg42). Hence, does one conclude that the Irish dairy industry has actually moved further in the direction of being supply driven?
To what extent FH2020 is responsible for this is, or course, a question that is open to debate.