Ireland is not the only country planning on increasing its milk production levels post-quota.
Anne Randles, Secretary and Director of Administration at the Irish Dairy Board, tells the Irish Farmers Monthly that more consolidation in the industry should take place
The potential to increase our milk supply by 50 per cent is not a massive jump, she says. In fact, she says a lot of pent-up output potential exists already and farmers are building capacity, while processors and the IDB have invested heavily in capital and market development. However, the IDB, she says, is cautioning farmers about expanding too quickly without regard to the market situation or to the costs of expansion. “Income volatility must be factored into any expansion plans.
Ireland must also remain competitive, so we can’t allow production costs to increase, as it will affect our ability to sell abroad. Moreover, given the cooperative nature of our industry, farmers will ultimately have to pay for the additional costs of processing and expansion and this needs to be factored into milk producers’ expansion plans.”
On the processing side, she says, further cooperation and consolidation could take place, but it must be industry led. “We would like to see greater consolidation of the processing industry but that’s for the co-ops to decide for themselves. There is already good cooperation among the processors and that will continue as greater volumes start to come through.” Despite this, she says the IDB is very excited about the post-quota era that lies ahead for the dairy industry.
While Ireland aims to increase dairy production levels by 50 per cent, the Netherlands is looking at a 20 per cent increase in production. Northern France, Germany and Denmark will also be players who are looking to grow their export markets. While Poland was often touted as a serious competitive threat to Irish dairy farmers, Anne says it will be another few years before Poland maximises its production potential.
Compared to Germany, France and Denmark, Ireland’s volumes for export are not that significant. According to Anne, Ireland exports approximately 4m tonnes in milk equivalent terms (+80 per cent of total production). Seventy five per cent is exported to other EU countries while the remainder goes to countries outside the EU such as the US, Mexico, North and Sub-Saharan Africa, the Middle East, Russia and the Far East. The IDB has identified Russia, China, Africa and the Middle East as key growth markets for Irish dairy products post 2015.
The main consumer brands the Irish Dairy Board has launched abroad are Kerrygold, Dubliner, Pilgrim’s Choice and Beo. Dubliner cheese is a very important asset to the IDB in the US market, while Pilgrim’s Choice is the second biggest cheddar brand in the UK.
The IDB has also grown sales of Beo, a powdered fortified milk that is sold into the African market. The IDB’s non-branded offering includes cheese into the UK and South African markets for retailers own-brand cheese and into the food service market globally – for pizzas, ready meals etc. Another area the IDB supplies into is blended products, such as powder and cheese solutions for food manufacturers. “Many customers are looking for dairy-based ingredients solution, and we can provide that in a variety of format and functionalities.” When it comes to cheese, the IDB can supply almost anything to customers, she says. “We have a lot of different technologies to provide the exact cheese product for a customer, be it a certain melting point, flavour or functionality, for example cheese for pizza, sauces or fresh cheese for desserts. It’s a similar story for powders and dried-dairy blends.”
Unknown to many Irish consumers, Kerrygold sells a number of branded products in Germany that are not available on the Irish market. Today in Germany, it sells Kerrygold butter, Kerrygold extra (salted or unsalted in different pack sizes), Kerrygold extra liquid (a cooking blend), Kerrygold cheeses and Kerrygold butter specialities. Its success means that it sells close to 200m packs of butter in over 23,000 outlets each year – enough butter to stretch from Dublin to Berlin, 14 times.
Since its launch onto the German market in 1973, it has become the market leader in butter and the premium butter on the market. Germany is Europe’s largest dairy producer and, with milk production volume of 30m tonnes in 2012, it makes the success of Kerrygold in Germany all the more remarkable.
The range is not available in Ireland as the IDB’s remit and focus in innovation is on export markets and the logistics of bringing such products to the Irish market would be challenging, according to Anne.
“In the domestic market here we franchise out the sale of Kerrygold to our members. Overall our focus is on the export side. If an alternative product is available on the the Irish market, such as, Kerrygold spreadable, it has either been supplied directly by the manufacturer or enters the market via a UK retailer’s own distribution channel. But, overall, the Irish consumer does not get to enjoy the full range of our Kerrygold products, as they are developed for the export markets.”
One territory the IDB does have control over is its distribution in the US, where it purchased a speciality-food distribution company nearly 30 years ago.
At the time, according to Anne, it was bought as a potential route to market for Irish dairy products in the expectation of additional market access coming Ireland’s way from the GATT trade negotiations. “Owning a distribution company, pre GATT, was considered a good route to market. However, the GATT Uruguay Round didn’t result in any additional market access for EU butter to the US. We now have direct supply arrangements with the multiples in the US for Kerrygold but the main issue with getting Kerrygold into the US remains the high duties we have to pay on import,” she says.
“The US is one of the most exciting markets for us. It has seen double-digit growth for the last decade. It’s a bit like Germany – Germany and US consumers have a real affinity with Kerrygold. It’s all about being a premium quality product, offer something more, and Kerrygold provides that for its consumers.
“These consumers are prepared to pay a premium for quality food. They recognise the purity and high quality of our grass-based butter and cheeses. In the US, Kerrygold is not necessarily targeted at the Irish community, she says, but at the gourmet ‘foodie’, who appreciates the value of high-quality products.”
It has the largest distribution footprint of any imported butter in the US and it’s the largest imported butter brand. Plans are also a foot to start advertising Kerrygold on US TV which, according to Anne, is a major development in the marketing of the brand in the US. “Kerrygold has reached a critical point in sales volumes where we can justify the cost of regional TV campaigns.”
She says the future potential for Kerrygold in the US is strong and would be greatly helped by a transatlantic trade partnership. “At the moment, there are fixed volumes of cheese which can enter into the States at low or preferential import duty rates, and anything over that is subject to the full duty, which is very high. The high cost of importing cheese and butter is what is holding us back in the US.”
Other markets with potential for Kerrygold include the Middle East and Africa she says, more so than Asia. “We have a good presence in Algeria and a number of countries in Sub-Sahara Africa, including the Democratic Republic of the Congo, the Congo, Angola and South Africa. Our new Africa strategy will allow us to build from South Africa, where our new team is based, and there is great growth potential out there for us.”
Unlike Asia, the African market has the added advantage of already having dairy as part of the general diet, she says, so there is great potential for demand growth as incomes rise.
“The Middle East will see a lot more opportunities for us as well. We have been exporting into Egypt for several decades now. We already have an office in Dubai and we are looking at investing also in Saudi Arabia so our coverage of the Middle East is now quite extensive.”