Even though the Cork market once set the wholesale world price for butter, for more than a hundred years after the Napoleonic war, beef took precedence.
Much of that economic story of milk in Ireland goes back to the economist Raymond Crotty, whose controversial theories in the 1970s and 1980s linked British colonisation and developments in agriculture to Ireland’s industrial failures. Controversial or not, few before or since could write so pungently on these matters.
«Demand in the metropolises shifted from energy-rich bread-and-butter to protein-rich beef and mutton; or from labour-intensive grain and milk to labour-extensive sheep and cattle,» he wrote about the situation after the wars. Over the next 150 years the price of cattle rose three times as fast as that of butter.
The expansion of the dairy industry dates really from the 1970s, propelled by changing demand and prices, EU membership and turning inefficient cooperatives into large farmer-owned commercial enterprises.
Mr Crotty and others believed that this historical pattern meant that unlike, say, Denmark, the country with which it is often compared, Ireland did not in develop an agro-industrial sector built on supplying the equipment and production facilities needed for dairying,
But more history is about to be made. Next month, the EU milk quota system comes to an end. Farmers will be able to produce as much milk as they wish. At last week’s Institute of Taxation dinner, Finance Minister Michael Noonan described this as an «absolute game changer», saying government would have to make sure that those who needed land to produce more milk could acquire it.
As part of that game, today the dairy company Glanbia will open the largest investment by an Irish company in 80 years, with the honours done by the Taoiseach, EU Agriculture Commissioner Phil Hogan and ministers Richard Bruton and Simon Coveney.
Its subsidiary, Glanbia Ingredients, will manufacture specialised milk powder products, especially for infant formula feed. The company already processes almost a third of Ireland’s milk production – nearly two billion litres – and this is meant to expand significantly, as the dairy sector takes advantage of the end of the quotas.
There has been much gleeful rubbing of hands over this enormous change in the milk regime. A government-sponsored programme, Harvest 2020, looks to increase production by more than 50pc to meet anticipated growth in world demand.
The big dairy companies formed from farmer co-ops have the scale. Their farmer shareholders have done well and, most of the time, been realistic about the balance between the price paid for milk and the profits to be earned by the companies. Part of the trick has been to split the co-op from the listed company and pay farmer-owners partly in dividends and partly in better prices for milk.
Last week Glanbia itself announced a 7pc increase in revenues to €3.5bn and gross profits of €245m for 2014. That is a modest enough ratio but last year was not the easiest, showing both the difficulties of the old quota regime and the dangers of the brave new world which will replace it.
Prices will determine the success of unlimited production regime. The benefit of co-op ownership and political clout have not been enough to prevent dairy and beef farmers periodically complaining that they are producing at a loss. The could be in worse trouble if they seriously over-produce into a falling market.
The vagaries of commodity markets were on full view in 2014. Falling oil prices, for instance, are bad for global dairy consumption because the purchasing power of oil producers declines. In the case of Russia, this was exacerbated by retaliation for EU sanctions over Ukraine.
Economic weakness obviously has a negative effect, both in the EU itself and elsewhere. There was a particular problem with China – as always the great hope of expansionists everywhere. For the moment, the Chinese authorities are keen to take a break from the runaway growth of recent years. Imports of dairy products in the third quarter were down almost 50pc on 2013.
Glanbia hopes to limit price volatility by offering both suppliers and customers three-year fixed contracts. But as managing director Siobhan Talbot says, one cannot predict just how volatile the milk market will be after the lifting of quotas. She, and others, have to watch both sides. Many Irish farmers are still in a position where they can switch readily from milk to beef, and vice-versa, depending on how prices are going.
Milk producers in Ireland are among those threatened by a last kick before the super-levies expire. At 28c per litre, the levy on over-production this quarter would wipe out the selling price. Producers may well look forward to a situation where even weak prices do better than that for their marginal production, but being able to produce more milk is not of itself the solution to all ills.
It isn’t the stuff you pour into your tea, of course. Products like that from the new plant have high value and a certain protection from the ups and downs of the market. Industry people say that Ireland has a competitive advantage in such products, because the manufacturers like to sell on the basis that the dairy ingredients are from grass-fed, traceable animals – both areas in which Ireland is a leader.
There was a time when the future was seen as having Irish final manufacturers. That is no longer seen as a realistic road to growth. Ingredients have become the thing, with Kerry Group setting the pace. Ingredients business can grow faster than the things of which they are part, with new ones always on the way such as milk powder fortified with vitamins and other things which no health-conscious, performance-driven 21st century consumer can do without.
The potential is clear, but we must be realistic. Immediately after the Crash, when agri-business alone seemed to be flourishing, there was naive talk about it being the future for the Irish economy. (Not quite as naive as growing your own vegetables to save money, as this embittered gardener could have told them, but unrealistic just the same).
The €9bn of food exports last year is offset by €6bn of food imports. The €3bn surplus is less than a tenth of the total trade surplus, and 2pc of national income. On the other hand, we know that much of that trade surplus flows out again from multi-national companies, while agri-business output supports more jobs than most, so it is more important than the figures suggest. But not important enough.
That economic history left Ireland short of the engineering skills which allowed countries like Denmark industrial spin-off from farming. But we need not have that handicap when it comes to today’s information technology engineering.
The new Glanbia plant is supported by Enterprise Ireland, which is also furiously involved in the emergent IT sector. Progress has been made in links between industry and academic institutions but assessments from the likes of the OECD and IMF still rate the country poorly in these areas.
At that same dinner, Mr Noonan was optimistic that Ireland could continue to lead the field in attracting foreign investment under any new tax regime. I hope he is right but, even if he is, it is not enough. Milk on its own may not be enough, but neither will multi-nationals.
Source: The Independent
