European Dairy Giants Optimistic Following Quota Removal

01 Apr 2015 --- Dairies around Europe are making plans for expansion and extra production as milk quotas imposed some 30 years ago are lifted today. In Ireland, the removal of quotas have been described as a ‘generational opportunity’, while in Germany, the largest dairy cooperative DMK has invested heavily in new facilities ahead of the quota removal.

Last week the US Dairy Export Council predicted that the quota removal would lead to an increase in milk production in the region of 11%, with most of the increases coming from just six Northern European countries. The report also suggested that much of the increased production would be processed further into dairy products like cheese and milk powder.

In preparation for the quota removal, Ireland’s largest dairy ingredients company, Glanbia Ingredients Ireland, has invested €235 million in facilities in Kilkenny and Cavan. The investment, with support from Department of Jobs via Enterprise Ireland, includes a new €185 million Nutritional Ingredients Plant at Belview in South Kilkenny - Ireland’s first Greenfield dairy site in more than 40 years and the largest infrastructure investment by an indigenous company in more than 80 years.

Currently Glanbia Ingredients Ireland processes 1.8 billion litres of milk, or 30% of Ireland’s milk pool, but it has ambitious plans for growth, particularly in the export market. Commercial Director with Glanbia Ingredients Ireland, Nick Whelan, said the company plans to increase its milk production by 63% in the next five years; “Our new Nutritional Ingredients Plant at Belview has been developed exclusively for the export market,” he explained. “We already export a wide range of dairy ingredients to more than 50 countries but we have ambitions for further growth, particularly to meet growing demands in Asia, the Middle East, Africa and Central America.”
 
The dairy industry purchases 90% of its inputs from the domestic economy, therefore this will particularly benefit farm families and rural communities, he added.

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’s green credentials also provide a differentiated positioning for us in the global marketplace,” Mr Whelan said. “Our pasture-based family farming method of dairying produces a highly sustainable range of quality ingredients that is much sought after by consumers overseas.”
 
Speaking at the opening of GII’s Belview facility on March 5th, Irish Prime Minister Enda Kenny said; “2015 will be the year of rural recovery because of developments like the one being announced today. This Glanbia facility will allow Ireland to maximise the job potential from increased production following the end of EU milk quotas. As such it is an important strategic development in the Government's work to secure the recovery.”

The German dairy cooperative DMK Group is focusing on the development of customised products for domestic and international markets in the area of dairy products and ingredients in order to be able to react very flexibly to market fluctuations even in the face of increasing quantities of milk.

In the past three years, DMK has invested more than €500 million in local plants and the development of advanced production and processing technology. One of the most modern and efficient milk powder plants is currently being built in Zeven (Lower Saxony), for example. In Edewecht (Lower Saxony), DMK operates Europe’s largest cheese factory, which is well-prepared to face the future, thanks to various expansion projects in recent years. Another example is the new mozzarella cheese factory in Georgsmarienhütte (Lower Saxony, near the border with North Rhine-Westphalia), with which Germany's largest dairy cooperative plans to meet the demand from growth markets such as Asia. In addition, at the Erfurt (Thuringia) location, it has invested in filling aseptic products, which are particularly suitable for export.

Today DMK processes 6.7 billion kg of milk at 17 dairy plant locations. Another 8 locations are available for the production of baby food, ice cream and health products. Overall, DMK has prepared itself for future market demands and the future of the cooperative’s members, with over 500 million euros of investment in production, processes and markets as well as value-adding dairy product processing over the past 3 years. It has thus managed to establish a powerful and cost-effective network of dairy processing plants by European standards.

In Britain, the National Farmer's Union (NFU) is being more cautious. NFU dairy board chairman Bob Harrison said that it’s difficult to predict what will happen once quotas are abolished.

He added: “Farmers and dairy processors here do have some concerns about how other EU countries will react to the ending of quotas. Some are rapidly increasing their output without an end market for these goods. With milk prices yet to show any strong signs of recovery, this could push farmgate milk prices down further in the EU, and stall any recovery in the dairy markets. It’s vital that expansion in any Member State is planned in accordance with available market opportunities.

“Here in the UK, it’s been low and volatile prices that have affected milk production rather than quotas – in fact the UK has been under quota for the past 15 years. Environmental factors will play a greater role across the EU in the future especially with plans for ammonia and methane reduction targets on the horizon. Weather and animal health issues, specifically bovine TB are also major factors affecting the UK dairy industry.

“We know a number of tough challenges lie ahead especially with prices but the long-term outlook is good, with growing demand and production opportunities. However, the next [UK] government and the EU must do more to ensure a sustainable future for the dairy sector and help make tools available for farmers to manage volatility. We also need UK dairy processors to recognise and promote potential markets both at home and abroad and look to develop new products such as sports drinks,” he concluded.