7 June 2002

IRISHFEELPRESSURE, TOO

Like their UK counterparts, Irish dairy farmers are living

in uncertain times. Depressed export markets, cheap

liquid milk imports, structural changes, concerns

about quota… where will it end? farmers weekly

Europe editor Philip Clarke talks to Irish Dairy Board

chief executive Dr Noel Cawley

Q The structure of dairying in the Irish Republic is very different to the UK. Production is seasonal and co-ops dominate. What is the role of the Irish Dairy Board?

A The IDB was set up in 1961 as a statutory marketing board, handling 100% of exports on behalf of all dairy co-ops. Since then it has become a voluntary organisation, but we still deal with more than 60% of the countrys export trade, selling about k1.8bn (£1.1bn) worth of butter, powders, cheese and other products. The IDB also owns the Kerrygold brand. Were not a price setting organisation, but our butter and skimmed milk powder price gets wide publicity and is used by many dairies inside and outside Ireland as a basis for producer prices.

Q Questions have been raised about the IDBs performance. Could it do better to improve returns to the Irish dairy sector?

A We are not immune from criticism, but neither can we buck the world market. Our share of export trade has remained steady for five years, showing that we are doing a pretty good job. Our Kerrygold brand earns a significant premium from the export market and we have almost doubled branded sales in the past 10 years. At the same time, commodity sales have dropped from 54% of our sales to just 27%.

Q The structure of Irish dairying has changed in recent years, with the advent of PLCs and co-op amalgamations. Do you see this accelerating as markets become more globalised?

A Ireland exports about 80% of its milk production, so we are already operating in the global market place. But prices are under pressure and everyone needs to cut costs. There is no doubt we will see more plant sharing between co-ops and perhaps mergers too. Whether there will be more PLCs formed, Im not so sure. Going down that route is more of a financing issue than an efficiency one.

Q Times are hard, particularly for producers. Just what is going on in the product markets and is there any hope – starting with butter?

A Its simply supply and demand. The taps have been on world wide over the past six months and the buyers just arent there. Butter is going into intervention in 10 EU countries, including 30,000t in Ireland, and in the US. Australia and New Zealand have been aggressive in third country markets and Russia is no longer buying much as consumers turn to cheaper margarine. EU butter prices have dropped 12% since last September to just k3000/t (£1845/t). Our projections point to a worsening EU butter surplus with prices pegged to intervention this year.

Q What about the market for skimmed milk powder?

A Equally bad. Powder is pouring into intervention across the EU and will reach the 110,000t maximum allowed well before the scheme closes at the end of August. And there is already a big overhang of 400,000t in the US. To some extent the commission in Brussels only has itself to blame. Faced with a growing surplus it has been far too slow to react, increasing export refunds too little and too late. Powder markets will take a long time to turn around. The best chance is if Brussels does something to help the internal market, rather than chase exports.

Q Any chance of some better news on cheese?

A Cheese exports actually had a good year in 2001. The combined effects of foot-and-mouth and BSE meant many consumers switched out of meat and into cheese for their protein. But that has run out of steam as interest in red meat has returned and rising prices have stifled demand. Supplies have also increased as manufacturers moved out of butter/powder production and into cheese. Despite the weaker k and stronger £, its becoming difficult to compete in the export market and there are more imports coming in from eastern Europe.

Q So what does this mean for producer prices?

A Farmgate prices will have to adjust downwards just about everywhere in Europe. For butter/powder manufacturers in Ireland, our basic price currently stands at a UK equivalent of 18.56p/litre, compared with 19.77p/litre last year and 20.1p/litre in 2000. The drinking milk sector is also feeling the pinch, with large volumes being imported.

Q What lessons do you think British producers can learn from their Irish counterparts? Prices are pretty bad in the Republic just now, but in the UK they are catastrophic.

A Make no mistake, there is a lot of sympathy for the plight of British producers, despite the fact it is cheap milk from Northern Ireland and the mainland that is pushing down Irish values. The turmoil of the past few years in the UK just shows what happens when if you lose control of ability to process your own milk. We are now starting to see the emergence of processing co-ops in the UK, which should help dairy farmers survive.

Q Finally, this summer sees the mid-term review of Agenda 2000, with milk reform one of the issues up for grabs. Do quotas have a future?

A I think quotas are looking more secure than ever. There is not enough political support to get rid of them and as the current downturn in dairy markets starts to hit producer prices in places like France, Germany and the Netherlands, the pressure will be to increase support for the dairy sector, not remove it. &#42

Butter and skimmed milk powder are going into intervention

across Europe and producer

prices will remain under

pressure, says Noel Cawley.