Quota removal: a generational opportunity for Ireland

The removal of milk quotas at the end of March has the potential to transform Ireland economically.¹ Quotas have been in place since 1984. The current farming generation have never known farming without quotas. It represents a momentous juncture — not just for dairy farmers but for Ireland’s export economy. According to international dairy analysts at Rabobank, global dairy demand is predicted to increase by 2.4% annually and Ireland has a distinct advantage in this regards, as Ireland has the capacity to produce in excess of 9t Dm/ha, whereas the rest of Europe cannot.

Ireland is in a very similar situation to New Zealand, with a large dairy industry and grass-based system naturally suited to sustainable dairy farming. When milk quotas were introduced back in 1984, Ireland and New Zealand both produced approximately 5 billion litres annually. New Zealand did not have to partake in a quota regime and now produce 17 billion litres of milk annually.

The removal of milk quotas gives Ireland a unique opportunity to increase milk production and bring an additional €1 billion into the Irish economy. Harvest 2020 has indicated an expected +50% growth in milk supply to meet demand by 2020. For the first time in 30 years, Irish dairy farmers can, in effect, increase their production without having to purchase additional milk quota rights.

Leveraging this generational opportunity: Glanbia Ingredients Ireland

• Ireland’s largest dairy ingredients company, processing more than 30% of the national milk pool, Glanbia Ingredients Ireland has invested significantly ahead of the projected growth in milk supply that will come about as a result of quota removal. An investment programme of more than €200 million included the building of a greenfield nutritional ingredients plant to infant formula-quality standards. This facility is the culmination of the largest indigenous infrastructure investment made by an Irish company in 80 years.
• The new plant will allow for the manufacture of specialised milk powder products and nutritional ingredients to meet the demands of multinationals in infant formula and other industries operating in Asia, North Africa and around the world.
• The facility will create employment for 1600 direct and indirect jobs, while contributing an estimated €400 million p.a. to the economy — with particular benefit to farm families and rural communities.

Sustainability

• Ireland’s green credentials provide a differentiated positioning in the global marketplace where our grass-fed, pastured and family farm method of dairying produces a highly sustainable range of quality ingredients.
• Glanbia Ingredients Ireland has prioritised sustainability as a key focus for its business with the introduction of its Open Source sustainability and quality assurance programme launched earlier this year, whereby all 4800 farmer suppliers will be audited to comply with core sustainability benchmarks.
• This dedication to a sustainable agenda has been rewarded recently with the winning of first prize for ‘Best Business to Business Partnership’ at the annual Responsible Business Awards ceremony in London for the ‘Sustainable Cream initiative’ in collaboration with Diageo for Baileys Cream Liqueur.

Risk management

• With the imminent removal of milk quotas in 2015, and the continued volatility experienced by the global dairy industry, the use of effective risk-management and hedging tools has never been more important.
• Milk price volatility is set to persist. This is due to an increase in the EU share of global dairy markets, coupled with new international climate and weather risks. There is also the increased risk due to exchange rate volatility and new global risks.
• Innovation around not just product but also pricing tools has been key to Glanbia’s success in recent years and this is an area they will continue to lead. Volatility in dairy prices is not likely to go away any time soon. Finding a way to limit customers’ exposure to that is key to business retention as well as driving new customer acquisition.
• Glanbia Ingredients Ireland has developed the Glanbia Price Volatility Scheme (GPVS), a unique initiative to counteract the negative impact of fluctuating prices on the market. The only scheme in the world to offer price stability during a period of 3 years, it’s completely transparent and helps to bring a level of predictability to a thoroughly unpredictable market.

Collaborating with customers and farmers

• Glanbia Ingredients Ireland has succeeded through a collaborative approach with large global customers where we engage on many levels and cross functionally. We believe that having the right calibre of talent on board to facilitate these complex customer relationships is key to driving more and better business.
• Glanbia Ingredients Ireland relies on 4800 farmers and Co-Op members for all of their raw material — they are the most important link in the chain. The company has been working hard with farmers during the last 18 months getting them ready for quota removal through a variety of advisory services ranging from sustainable farming through to financial planning and future proofing. They have a well-resourced team of Farm Advisers who are focused solely on providing farmers with the resources they need to develop their own businesses.
• By providing this additional processing capacity, Glanbia will be facilitating their 4800 milk suppliers in their ambition to avail of the historic opportunity presented by milk quota abolition.

Glanbia's plant at Belview

• With support from Enterprise Ireland, the €180 million development is the largest single dairy investment in the history of the state and it will contribute greatly to Ireland's export-led recovery.
• The €200 million investment in infrastructure in recent times by Glanbia Ingredients Ireland with support from Irish government represents the largest infrastructure investment programme by an indigenous company in 80 years, resulting in a facility of scale which is extendable. International expertise on hi-spec builds was brought in to work on this project. The plant is highly automated with a focus on best in class efficiency for water and energy usage and quality standards. The facility is a hygienic design and built to Infant Formula Spec and European Design Hygiene guidelines.
• Thanks to cutting edge microfiltration technology, the Belview Plant will produce a range of nutritional ingredients which are top quality and low micro, ensuring a suitable application across a range of infant and clinical nutrition industries. Our low micro Dry Blend powders will be used in some of the world’s most recognised infant formula brands from Stage One.

¹Ireland will be the main beneficiary of the removal of milk quotas from 2015, according to Kevin Bellamy, senior global dairy analyst, at Rabobank International. 'Removal of milk quotas in 2015 will allow the Irish dairy sector to establish itself as the low cost source of production for the Northern hemisphere, taking advantage of the growing demand for dairy products around the world. We would see Ireland as one of the key beneficiaries of the removal of the quotas.'