Dairy boss insists milk industry storm will blow over
The dairy industry, which accounts for the majority of farming activity in Northern Ireland, is going through challenging times in Northern Ireland,
Global oversupply of milk, tightening demand and the ongoing Russia-EU trade ban have triggered further restructuring and consolidation within the sector which directly employs 2,300 people in the province.
Admittedly, Northern Ireland has had less cause to celebrate after the ending of milk quotas and their constraining effects were never felt as much here as in other member states. In fact, Ulster dairy farmers were able to utilise underproduction in the rest of the UK to nearly double their output since 1995. As a result, the province's dairy industry, which now exports more than 80% of the 2bn litres of milk it produces annually, has been export-oriented for two decades.
Milk quotas were introduced in 1984 to control milk production and stabilise both milk prices and milk producers' incomes.
Dr Mike Johnston, chief executive of Northern Ireland's Dairy Council, said: "Removing a production constraint hasn't been an issue. Where the bigger issue will come from is the effect of removal of quotas within Europe as a whole."
Indeed, it is the EU-wide removal of milk quotas, coupled with four adverse global factors, that has contributed to the 'perfect storm'.
Firstly, China, which has been the main international driver of EU milk exports in recent years, has seen demand slow due to having a massive stockpile of milk powder. Secondly, New Zealand, one of the world's largest milk producers and a major trading partner with China, has increased its milk production by about 9% leading to further pressure on global milk prices. Thirdly, the Russia-EU trade ban has dealt a hammer blow to dairy exporters, as nearly a quarter of all EU dairy products -worth £1.8bn - are exported to Russia each year. Finally, supermarket price wars are putting even more pressure on already falling milk prices.
Dr Mike Johnston admits the omens aren't favourable but predicts the 'perfect storm' will blow over when Europe's post-quota market settles down over the next few months.
"Global demand for dairy products has been growing at around 2%. "The problem that we have is that, globally, milk production has been increasing at a rate that is greater than that, probably at a rate of 3-5%. "There is an imbalance there. But from a short-term point of view it's too early to call. It's going to take another month or so before we see the true picture of what's happening to milk production in Europe."
But the ban on EU milk exports to Russia is definitely hurting the dairy industry, said Dr Johnston.
"The Russian ban did not help, and nobody knows if the ban is going to be lifted in July or extended."
Furthermore, the strength of sterling relative to the Russian rouble may also hamper trade, if and when the ban is lifted, Dr Johnston said.
Meanwhile, the price of milk for Ulster dairy farmers is plummeting so that many small producers are being forced to "call it quits", said Dr Johnston.
The short-term outlook for embattled dairy farmers looks challenging. The figures speak for themselves. According to the Dairy Council for Northern Ireland, the cost of milk production is now estimated to be 25 pence per litre (ppl), while the price per litre is currently 26ppl. Clearly, at these kinds of prices, only the biggest can survive.
Indeed, as a result of tightening margins, there are moves towards greater consolidation in Northern Ireland's dairy sector.
The milk supply business of Fivemiletown Creamery was bought last year by Glanbia Ingredients Ireland Limited and merger talks between Ballyrashane Co-op and Town of Monaghan are now "at an advanced stage".
A merger between Ballyrashane Co-op in Coleraine and the Town of Monaghan Co-op would create the second largest milk processor in Northern Ireland, behind Dale Farm, the dairy giant which saw its sales grow by 30% to £293m last year.
Ballyrashane has an annual turnover of £80m and employs around 150 staff. It buys 100m litres of milk a year from around 100 Northern Ireland farmers farmers, supplying milk to Spar and Vivo shops as well as Marks & Spencer stores.
Town of Monaghan has a turnover of €250m (£181m). It takes milk from 950 farmers, including some from farmers in Northern Ireland, supplying 460m litres yearly.
Nigel Kemps, chief executive of Ballyrashane Co-op, said the merger talks were "progressing in line with expectations".
He added: "Heads of agreement were formally agreed by both parties recently and we are progressing comfortably through our target timelines."
In a further boost to the industry, a new dairy export programme has been launched to help dairy companies drive sales in South East Asia, Middle East and Russia. The €625,000 (£351,000) initiative is the first of its kind across the UK's agri-food sector to secure EU funding.
As part of this new initiative, teams from Northern Ireland dairy firms Dale Farm, Fane Valley and Pritchitts - which is part of Lakeland Dairies - travelled to China earlier this month to promote the province's dairy products.