Belfast Telegraph

Saturday 25 October 2014

Milk processors facing challenge

Northern Ireland's 21 commercial businesses engaged in milk processing are facing a radically changing marketplace

Northern Ireland milk and milk products generated a turnover of over £900m last year; second only to the business generated by beef and sheep meat of nearly £950m.

These two sectors, together, account for nearly half of all Northern Ireland's food production.

The 21 commercial businesses engaged in milk processing are facing a radically changing market place.

Not the least of the changes is the formal ending of the EU milk quotas in 2014. Recently, quotas have had only a marginal impact in Northern Ireland partly because the UK dairy sector has operated below the full quota allowances. However, the dairy businesses in the Republic of Ireland have operated much closer to the quota limits and this, in turn, has attracted some buying of northern milk by southern processors.

The expected ending of quotas has led the Irish authorities to re-assess the prospects and articulated an ambition to expand Irish dairy production, possibly, by up to 50%.

The range of responses by processors will be important for the continuing profitability of several thousand farmers who are milk producers. Some processors will revamp their capacity to handle larger volumes of liquid milk, process more butter and/or cheese, or expand production of milk powder. In total, this means seeking new markets, possibly with low profit margins, for standard commodity products.

Even with the green natural advantages of Ireland, north or south, dairy specialists are not optimistic that increasing quantities of commodity products will give a good return on the investment. Extra transport costs and tighter profit margins are a limitation. Nevertheless, there is an expectation that milk products may be able to increase their market share in selected EU markets, North Africa and Asia.

The search is widening to seek innovative ideas, whether products, processes or brands that can combine the generation of higher value added with a better market premium. There is a keen interest in the planned responses by the larger enterprises such as Dale Farm, Fane Valley and Fivemiletown Co-operative in NI and Glanbia and the Kerry group based south of the border which also have interests in the North.

The recent UK-wide Great Taste Awards gave a platform for several local processors. Top honours were won by both beef and dairy firms (although the beef preparations scored most highly), including Supreme Champion status for Hannan Meats, closely followed by McCartneys Butchers in Moira and the Cloughbane Farm Shop from Pomeroy. Dale Farm and Glastry Farm Ice Cream gained welcome recognition.

Linwoods also won awards for its special food products. In the local Chartered Institute of Marketing Awards, Linwoods, the Armagh based dairy, bakery and special food products company recently received the award for Marketing Excellence.

Linwoods has taken its marketing of milk and milk products into a more strategically segregated part of the market by introducing a newly registered trade name 'Super Healthy Milk' with the explanation that it is differentiated as Europe's first probiotic and vitamin enriched fresh milk. The claim to an enhanced product comes with the exclusive use of the Geneden BC30 strain of probiotic.

Another sign of the positive responses to the changing market place for milk and milk products has been the purchase by Dale Farm of the packet butter business of Fane Valley Co-op. Dale Farm has also been aggressive in product development through an increased range of cheese types and added capacity in its English plant in Kendal for the production of desserts.

In recent years the dairy sector in Northern Ireland has enjoyed the protection of an orderly market for off-farm wholesale milk sales through the recurring auction system. One of the critical future issues is whether the current milk auction system, organised by United Dairy Farmers, will continue to command the confidence of (and bottom line guarantee for) its registered milk producers or may need to be broadened.

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