Agri food Innovation An ICOS Dairy Perspective TJ Flanagan

June 2014

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

1

ICOS Represents over 130 co-operative businesses and organisations in Ireland

2

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Irish Agri Co-ops were the innovation and the innovators of the late 19th and the 20th century.

• They were introduced to dairy from the 1890’s to bring individuals together

• to address market failure

• to compete with other butter suppliers (Danes, Finns etc.)

• to facilitate the adoption of new technology. (De Laval Steam Separator)

• The were introduced in livestock to break dealer cartels from the 1950’s onwards.

• They are being used now in forestry marketing, in water supply, in farm accounts, animal health, fishing…..

• We need to work hard to ensure that the model is still relevant and innovative.

Co-ops..….innovators?

3

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Co-ops continue to dominate primary dairy processing globally

• The model has shown the flexibility to facilitate growth internationally; Fonterra, Friesland Campina, Arla.

• The model has facilitated preservation of local structures and strengths; Valio and West Cork-Carbery.

• Evolution and “the Irish Model” has created a platform for growth and value creation; Kerry and Glanbia.

• The typical Irish co-op is a-typical of co-ops internationally

• We have a multipurpose model; milk, agri trading, etc.

• Tiers of membership

• Creates challenges when we try to focus on a particular sector

Co-ops..….innovators?

4

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

This is the real playing pitch….

5

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

How well are we prepared for the post 2015 expansion?

• What are the building blocks we need?

• Are they in place?

• How can Innovation bridge the gaps?

At farm level?

At processor level?

At market level?

Dairy; the Road to 2020

6

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

Farm level building blocks…………. Land Mobility

“In France, the average field changes hands every 70 years but in Ireland it does so every 400 years.”.. IFJ

• Taxation measures…no silver bullet!

• Cultural/pride/fear issues with older landowners

• Conacre system!!!

• Collaborative farming may be a solution

• We need to devise new structures to tempt these landowners to make land available.

7

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Capital • About €1 billion needed at farm level

• About 300k cows @ €3k per cow

• Banks have the money, but they’re cautious

• Farmers need to be cautious too

• Focus on costs and profitability

• Grass production • Huge advances

• Ongoing developments

Farm level building blocks

8

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Breeding and Genetics • ICBF, EBI

• Animal Health • AHI; Cellcheck, Johnes etc

• Sustainability • An Bord Bia SDAS

Farm level building blocks

9

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Processor, supplier relationships

• Clarity emerging

• New Milk Supply Relationship

• New and traditional Funding Arrangements

• Capacity • In place; Bailieborough, Ballyragget, Bellview, Carbery,

Charleville, Kanturk, Listowel, Mallow, Mitchelstown, Nenagh, Shannonside, Tipperary, Virginia…

• Move to higher value added; enriched powders and Infant Formula ingredients

Processor level building blocks

10

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

• Routes to Market

• IDB and Processor-Customer Relationships

• Customers are looking for our product

• We’re now on the global dairy supply radar

• Clear message on our offering

• Health

• Sustainability

• Global Demand Growth

• Underlying growth of 2-2.5%

• Supply-demand mismatches periodically

Market level building blocks

11

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

Milk vs Product price Volatility

12

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

Farmers survived 2008/2009 market crash but were not heavily borrowed!

We are about to see €1bn invested at farm level to facilitate expansion, much of it borrowed?

Can farmers survive milk prices in the “late twenties or early thirties”? (Kevin Lane, IDB)

Volatility will be the big issue

13

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

Processor/Marketer

• Get/stay close to your customer

• Invest in Innovation

• Look at tools to lock in price; back-to-back contracts, futures.

Government/EU

• Facilitate taxation measures to allow farmers to manage cash flow volatility

• Retain/utilise existing market support measures

Farmer

• Be prudent in borrowing for expansion

• Innovate for efficiency

• Consider all options re fixing prices/hedging

What can we do on Volatility?

14

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)

The outlook is positive for dairy in Ireland

• Farmers are ready, but they need land!

• Market fundamentals are positive, but we need help with volatility

We are efficient producers, but at 39c/litre….so is everyone else.

In Summary

15

Iris

h C

o-o

pe

rative

Org

an

isa

tio

n S

oc

iety

(IC

OS)