Developing a decarbonised dairy-processing sector

Milk production in Ireland has been declining for the past few years. We have gone from a peak of 8.8 billion litres in 2022 to 8.3 billion litres last year. And, despite better market and climate conditions in 2025, production is still not likely to reach 2022 levels.

Indeed, most commentators would suggest that a combination of carbon-emission targets and Nitrates Directive constraints would put a cap on annual Irish milk production at 9 billion litres no matter how benign price and weather conditions might be.

So, notwithstanding the absence of formal production quotas, environmental constraints continue to set a production limit. And, again, the question arises: do we respond by consolidating and building scale through mergers and acquisitions in the Irish dairy sector?
Recent annual reports from Irish dairy companies relating to the 2024 accounts, while highlighting the improvement in profit margins in that year, also commented on the age-old question of mergers and economies of scale.

European strategies 

Consolidation is not just an Irish dairy issue. In April this year, Arla Foods and DMK Group, a German dairy cooperative, announced plans to merge, thus creating the largest farmer-owned dairy cooperative in Europe. This new entity comprises more than 12,000 farmer members and a combined pro forma revenue of €19 billion. 

Moreover, as illustrated by Figure 1 from Rabobank, while there can be commentary at times about Irish dairy giants in the media, the reality, as revealed in Rabobank's annual global report on the dairy sector, is that there is no Irish dairy company in the world top-20 list of milk processors as measured by volume throughput, revenues and profits. 

The 2024 official turnover figure for Tirlán, which processed almost one third of all milk produced in Ireland last year, was €2.66 billion, approximately half the turnover of the 20th global company, reflecting the de-merger of Tirlán/Glanbia in 2022. 

Figure 1: No Irish dairy company features in the world top-20 list.

Consolidation rationale

The other key factor driving the question of mergers and consolidation, I  would suggest, is the requirement to decarbonise the milk-processing sector under Ireland’s climate-change commitments.

Because the dairy and food industry is such a significant part of Ireland’s industrial output, the national commitment to decarbonise industry or even take the first step to reduce emissions from industry by 30 per cent before the end of 2030 cannot be met if the dairy/food sector does not decarbonise.

Furthermore, the profile of Irish dairy processing is heavily skewed towards drying of milk to access ever-more functional milk powders. Hence, energy costs are a major factor in determining decarbonisation strategy in the Irish milk-processing sector. Alternative non-carbon, renewable energy sourcing and utilisation is critical if decarbonisation targets are to be met. 

Enterprise Ireland estimates the investment cost associated with this first round of decarbonisation – that is a 30 per cent reduction by 2030 – through replacement of the current natural gas-dominated processing capability by renewable technologies, at just over €1bn. Moreover, while there is grant aid of up to 40 per cent allowable under EU environmental aid schemes, the specific grant limits mean that the effective grant would amount to 10-15 per cent of the total costs involved in the energy transition.

In addition, the best estimate of renewable electricity prices post decarbonisation is putting Irish prices at a significantly higher level than was the case with natural gas and, indeed, at a much higher level than dairy competitor countries in the EU such as France, Denmark or the Netherlands.

Competitiveness challenge

The good news is that there is an increasing awareness in Government that the overall decarbonisation/renewable energy transition could pose a very significant competitiveness challenge not just to the Irish food sector but to data centres and Ireland’s much cherished pharmaceutical sector.

Recent policy statements from the Department of Enterprise, Trade and Employment have expressed concern about this competitiveness challenge and further highlighted how other EU countries are using much more relaxed State aid rules to subsidise their green electricity transitionand, thereby, increase their competitiveness with Ireland for inward investment.

From an Irish dairy industry perspective, while it is good to see better engagement from Government in tackling competitiveness challenges, it must be remembered that unlike, for instance, the pharma sector, the dairy industry does not have selling power to pass on increases in energy costs through higher pricing and, as already highlighted, is effectively prevented from increasing throughput as a way of reducing unit costs because of environmental constraints. There is no rising milk throughput tide, then, to lift all boats in Irish dairy in the near future.

Safeguarding a key economic driver

So, even if consolidation is not the sole intention or preferred strategy, a much stronger financial incentive is required if the dairy sector is to continue to provide the huge economic impact it has delivered post quota abolition. In the absence of financial support to decarbonise, money that could go to improving emissions-reduction capabilities on farms, or be invested in new value-added products or processes, will be swallowed up by high-cost energy. 

Very clearly the issue of consolidation, mergers and acquisitions, as signalled by the Tipperary/Arrabawn merger in late 2024, is a live issue.

A consolidation initiative could mean a root-and-branch examination of the Irish dairy model from farm to fork, including an examination of the role of Ornua. Under the current mode,l around 18,000 dairy farmers produce 8.5 billion litres of milk, which is then processed and marketed by a range of co-op /dairy processors and Ornua. It is a uniquely Irish solution but, in reality replete with multiple overlaps and synergy deficits.

At a minimum, consolidation could mean solely concentrating on the most efficient post-decarbonisation milk-processing structure, with a specific focus on delivering the benefits of rationalised processing capability, as was proposed in the past with the large dryer concept. Whichever approach is adopted the process needs to start soon.