October 27, 2010

 

Irish milk output push seen costly 

The Irish Dairy Board (IDB) has warned that expanding the Irish milk output by 50% could cost the industry EUR850 million (US$1,176 million).

 

Earlier in the summer the Irish government launched a policy document called Food Harvest 2020 in which it set out a goal of doubling milk output over the next 10 years.

 

The rationale behind the big milk push is that EU milk quotas are coming to an end in 2015, opening the market to the possibility of significant expansion for the first time in years.

 

But reservations have been expressed about the feasibility of the plan.

 

IDB chief executive Kevin Lane said the plan translates into an extra 2.7 billion litres of milk for processing. To accommodate such an increase, he estimated that a EUR400-million (US$553-million) investment in processing capacity would be needed.

 

In addition, the dairy co-op chief said at least EUR250 million (US$346 million) would be needed in working capital, finance and additional facilities such as storage.

 

There is also the question of where the demand is going to come from. Lane said that any expansion plan must consider future milk price trends and returns for farmers.

 

He warned that production would have to shift significantly towards cheese and milk powder to make up for limited demand for butter. The question of where and how this extra product would be marketed also arises.

 

Lane said finding ways to market for the additional product, supporting brands and the funding of acquisitions would demand at least EUR200 million (US$277 million) in investment.

 

Meanwhile, Dairygold chief executive Jim Woulfe also warned that the 50% target may be stretching it a bit. He envisaged 30-40% as a more realistic figure.

 

He said the expansion plan would require "joined up thinking" on the part of the Irish dairy companies. This could for example see the creation of shared facilities to meet the need for additional processing capacity.