Irish dairy moving to a ‘value not volume’ model

Dairy remains the largest element within Irish food and drink exports with over 1.7m tonnes of product shipped to over 130 markets worldwide last year.

This is a huge amount of product, yet many are calling for Irish dairy’s move to a “value not volume” model into the future.

Would this impact on dairy’s exports and their worth to the Irish economy, and what does such a model actually mean in the eyes of some of the experts?

Dairy Industry Ireland represents Ireland's primary and secondary dairy processors.

Its director Conor Mulvihill tells the Irish Examiner that over the decade to 2030, it will be “quite clear that the period of growth is over”, and that is “mostly driven because of environmental regulations”.

“We now have to pivot — and we have been pivoting — to more value-added.” The big concern was the capacity to process the increased milk pool over the last decade, with worry at times that “there wouldn’t be enough factory capacity to process milk at peak” and ensure “that every drop would be processed and nothing wasted”, Mr Mulvihill said.

“Now, we can focus on value-added,” Mr Mulvihill explains.

Where does Ireland go in terms of this? While there are success stories of a number of consumer brands like Kerrygold, Mr Mulvihill says “that’s not going to be our game because we just don’t have the domestic market”.

Therefore, in terms of value-added, it’s going to be specialised nutrition and functional foods that are key for Irish milk, according to Mr Mulvihill.

Ireland is a significant exporter of ingredients for functional foods like infant formulas, slimming products, sports formulations.

“That’s where the value-added is going to be,” Mr Mulvihill said, and there are two key elements for Ireland to be successful in that market.

“Number one is farmers retain their quality; the other piece is proof-points around our environmental metrics and that hopefully will deliver our right to compete in the market.

“If you’re selling to a Swiss company, they would have a preference like every company to take Swiss milk.

“So for us to even have a right to go in and supply them, we really need to have compelling proof-points in terms of quality, innovation and obviously the big debate at the moment is in terms of environmental metrics, which we do.” 

Mr Mulvihill believes Ireland “has a huge competitive advantage in that”.

“For a tiny country, we have developed the infant formula success story, we have factories supplying about 12% to 15% of the base powder for global infant formula industry,” he adds.

However, there was the unfortunate announcement recently of a proposal to cease operations of Nestlé’s Wyeth Nutrition infant formula factory in Askeaton, Co Limerick, by quarter one of 2026.

This has been described as “extremely concerning” for the region and the broader dairy sector, by the Irish Creamery Milk Suppliers Association.

ICMSA president Pat McCormack said that Wyeth Nutrition is a “major buyer” of the industry's product, and the association is aware of the “gravity of this threat” that plans of its closure pose.

“This announcement by Nestle via Wyeth is a very clear signal that the market is changing and that we will have to change with it if we are to maintain our pivotal role,” according to Mr McCormack.

Conor Mulvihill said the announcement is certainly a blow, especially for the over 540 employees of Wyeth Nutrition.

He said however that the factory is “going to remain open until 2026 and remains state-of-the-art”, so there is “still a chance it will be purchased by an entity who sees opportunity elsewhere – maybe in a different market, or in a different specialised nutrition segment like elder nutrition or wellness”.

“The global population and demand for high-quality protein and foods is only going one direction,” Mr Mulvihill said.

Mr Mulvihill expects in years to come to see a stable dairy herd of about 1.6m, and the goal “will be to drive on with any growth based on efficiency rather than herd number growth”.

“The way to grow is to add value.” Unfortunately, Mr Mulvihill says policy is “incoherent” with the goals of the dairy sector.

“Sustainability is not just environmental metrics, it also includes economic and social legs in that stool so we would be extremely critical of both Government and the EU of having totally incoherent policy metrics,” he explains.

“There needs to be a balance, and policy coherence is what we’re trying to achieve.” 

Mr Mulvihill says that Ireland has a dairy industry “that is the envy of the rest of the world”, with our lower carbon intensity per litre of milk produced and a family farm model.

Additionally, and despite “a bit of hammering at the moment”, “we have a society in general that is supportive of dairy farming and is part of the Irish national psyche for 6,000 years”.

“I’m really confident, but I do recognise we have to do substantial work to get our proof-points around environmental metrics — not just greenhouse gas emissions, but biodiversity and water.

“If we get a proper strategy with Government, factories, society, and most importantly the farmer suppliers, we can hit our environmental metrics while also protecting the economic and societal benefits of dairy.

“A big part of that is that move away from a volume-based approach which was a function of Government policy in the post-quota era and now moving towards a more value-added approach.” He added that research is “going to be key” in developing the sector into the future.

According to Bord Bia’s dairy ingredients manager Margaret Butler, the industry is “constantly looking to valorise their milk pool”, with processors and exporters extracting “as much value as possible from a litre of milk”, and paying that back “in a milk cheque to their shareholders — dairy farmers”.

Irish dairy products are “very favourably looked upon” across global markets, and “one of the key messages” that Bord Bia tries to highlight to consumers “who may not be familiar with where Ireland is on the map, let alone know how we do dairying” is the differentiation, Ms Butler explains.

“We are and we do consider ourselves slightly different in a positive way versus some of the other major milk-producing regions in the way in which we farm,” she says.

“Typically, we've got maybe smaller farm holdings than some of the other major milk-producing regions in the world and customers like to see that, they like to be able to tangibly link back to the product that they choose to purchase and consume.

“We're very adept at showcasing that in Ireland. We've got lots of credentials, we've obviously got our grass-fed dairy herds, which is a huge unique selling point for us.

“Things like that we're seeing coming through an awful lot in communications from consumers, and that really assists us in being positively differentiated from the rest.” 

While Ireland probably won’t hit the level of milk produced last year, Ms Butler says “it is crucial” that Ireland maintains a strong position as an exporter despite this ongoing transition to a value-over-volume model, which she said is very much already a focus for the industry.

“We hear constantly from those markets who are reliant on dairy imports that security of supply is a real concern that they have,” Ms Butler says.

She adds that these regions want certainty that “we’re not going to fall off the face of the earth when it comes to being a supply source for them”.

She says it is important as a net exporter of dairy products “to be able to intimately know who the customer is, what they want, when they want it”.

“They want reliability of supply, continuity of supply, security of supply.” She feels that Irish dairy is “one of the most sustainability produced”, and while there are a lot of changes coming down the road for the sector, they are “manageable”.

The drivers of dairy performance last year included exports of butter, which increased by 26% or €270m in 2022 to a record value of approximately €1.32bn, according to Bord Bia’s figures.

The EU, UK and North America remain the key markets for this product, accounting for 95% of exports.

Cheese exports increased by an estimated €260m in 2022 to a record value of approximately €1.3bn, rising by 25% on 2021's figures. EU markets accounted for over half of this growth with strong trade to France, the Netherlands and Germany.

Exports of fat-filled milk powder increased by an estimated €230m in 2022 to a value of approximately €920m, 34% up on a relatively slow performance in 2021.

Strong energy prices, coupled with a strong dollar versus euro exchange rate offered favourable trading conditions into the key West Africa markets of Nigeria, Senegal, and Ghana.

Exports of specialised nutritional powders increased by an estimated €70m in 2022 to a value of approximately €730m, 11% up on 2021's figures and arresting a five-year trend of declining export value.

Production challenges in the US served to drive import demand there and across the globe.

Exports of casein powders increased by €320m in 2022 to a value of approximately €790m, 68% up on 2021's figures.