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Effect of Ireland’s Dairy Sector on the Economy

2418 words (10 pages) Essay in Economics

08/02/20 Economics Reference this

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Select a leading Irish exporting food company as a case study to illustrate contribution to economic growth in their relevant sector and the changes in global food consumption within that food sector. Additionally based on 21st Century Trends in the Global Food sector identify how the company is addressing these trends and how the predicted changes in future production processes and levels along with international economic and government strategies will impact on the company in the future.

Introduction:

I decided to do this assignment on Dairygold as I grew up on a dairy farm and I thought I would always end up as a dairy farmer but about 10 years ago my dad decided to change into the beef sector as our land wasn’t up to the task of dairy farming especially the way most of the farmers were expanding and at such a rate.

The big got bigger and the smaller either spent a mad amount of money expanding or diverted into the beef sector and got a side job with guaranteed income and my dad decided on the later

The dairy sector in Ireland has grown a lot in the last few years and continues to grow with a 22% expected increase in milk supplies between 2018 and 2025 according to Dairygold

Some background information on Dairygold:

Dairygold were established in 1990 after Mitchelstown and Ballyclough merged as the shareholders seen an opportunity to be stronger and they wanted to take advantage of the rich Golden valley farmland and produce premium dairy ingredients from there.

They are Irelands largest farmer owned co-operative and they established a strategic plan to develop opportunities abroad.

As the world’s population is projected to increase to nearly 10 billion in 2050 they have invested heavily in research, innovation and world leading facilities to produce premium ingredients.

Since the abolition of the quotas in 2015 they have a lot more milk through the gate which they want to make good use of and in turn offer better returns to the farmers supplying the milk and make better products for their customers.

They supply nutritional solutions for infants through to the active ageing.

Their 2017 figures are as follows:

Volume of milk supplies in liters 1.3 billion up 8.3%

Operating profit 32.4 million Euros up 85%

1,200 employees

7,000 shareholders

Money invested in the last 5 years is 162.1 million Eu

Net asset value is 335.5 million Euros

 

Revenue is 965.5 million Euros divided into:

76% dairy food ingredients 722.3 million Euros

23% agri business 220.3 million Euros

1% financial + property 11.9 million Euros

 

Dairygold product mix 2017:

 

Dairygold operates 2 primary Routes to Market, to maximise the commercial return:

Route 1 – Ornua, focusing primarily on the supply of branded product in the B2C channel, leveraging on their world renowned brands.

Route 2 – Dairygold Direct, focusing on key strategic B2B relationships, leveraging its technical competency and developing innovative customer specific products.

Food Ingredients

Dairygold supplies premium cheeses and dairy nutritionals made from milk whey and casein to the global marketplace, including infant formulae and protein powders.

By adding value through smart innovation, research and industry-leading processing techniques, their already nutrient-rich raw milk is being converted into top quality ingredients that will nourish the growing world.

 

Milk Powder

Dairygold is focused on adding value to dairy Ingredients by combining technical expertise and application insight. Their range of products include Full Cream Milk Powder, Fat Filled Milk Powder, Skim Milk Powder, Rennet Casein and a variety of whey products primarily 90% demineralised whey powder. Their Nutritionals Campus Mallow, manufactures Regular and Instant Full Cream Milk Powders and Fat Filled Milk Powder. Their Mitchelstown dairy processing center manufactures Rennet Casein, Skim Milk Powder and is one of the largest demineralised Whey manufacturing plants in Europe, with a specific focus on infant nutrition market.

Bulk Cheese & Butter

Their high quality, sustainable milk supply, allied to manufacturing expertise built up over many years, allows them to meet the market requirements for the highest standard of Cheese and Butter.

Their skilled Innovation team work tirelessly to ensure that their products are constantly evolving to meet the ever changing needs of the market.

 

Cheese Solutions

Dairygold provides quality cheese solutions to a diverse range of food companies, where flavour, functionality and value are key to their success. Their portfolio of cheese products is versatile and suitable for many different applications. They have invested in high-tech equipment and processing facilities to produce premium quality cheeses that are tailored to meet the strict requirements of modern manufacturing environments, rigorous accreditation standards and demanding consumer tastes. Their range includes cheddar cheese and specialty cheeses, as well as customised solutions for individual and exclusive client specifications. As cheese experts, they work with clients to ensure they supply their precise product requirements. They are renowned within the industry for their application knowledge and experience. They can provide simple block cheese through to soft cheese and liquid applications, and have an unrivalled ability to meet last-minute demands, while always ensuring premium quality and value. By being available to support and advise their partners and customers, they have developed long-term relationships, providing premium cheese solutions to the global marketplace.

 

21st Century Trends and how they are dealing with them:

Global Markets:

Turnover was up 25% to 153 million in 2017 reflecting increased sales volumes and increased selling prices.

Dairygold opened a Nutritionals campus in Mallow in Cork in 2017 which cost 87 million Euro.

It is a state of the art processing facility that will increase their presence in the International market

In 2017 they also opened an office in China to deal with its Chinese customers and the broader Asian markets

Their cheese ingredients businesses in the UK and Germany had another successful year, delivering increased sales with strong operational and financial performances

The businesses based in the UK and Germany are focused on B2B activity and provide routes to market for Irish product.

Both businesses provide key routes to market for cheese manufactured at Dairygold’s Mitchelstown and Mogeely facilities.

The overseas businesses performed ahead of expectations despite the challenges of recovering increasing raw material prices. 

The businesses continue to enhance the strong relationships they have developed with key players in the industrial and food service sectors, by providing innovative cheese and ingredient solutions along with excellent service.

They also exhibited at a number of strategic global food industry exhibitions including Gulfood in Dubai, Food Ingredients China (FIC) and Food Ingredients Europe (FIE) in Germany.

 

Brexit:

“Dairygold is ready to fight its corner in relation to cheddar exports ahead of upcoming Brexit negotiations”, according to Dairygold CEO Jim Woulfe.

Following the Brexit vote in 2016 there is a lot of uncertainty in the Irish economy and the dairy industry

For Dairygold, circa 30,000 tonnes of cheddar, equivalent to circa 300 million litres of its milk pool is utilised in the production of cheese for the UK market.

Dairygold are planning for a “hard Brexit” but hoping it won’t happen.

If it does there could be a significant import tariff on Irish cheese and the thinking is that the UK would become more self-sufficient if this were to happen

Dairygold is focused on developing alternative routes to market and on product diversification to reduce its exposure to the UK market.

Sustainable Dairy Assurance Scheme (SDAS)

 
All of the milk that was supplied to Dairygold in 2018 was from SDAS certified farms.

The Bord Bia Sustainable Dairy Assurance Scheme was developed in cooperation with milk producers, processors and regulatory authorities. It was designed to assist in securing new and existing markets for Irish dairy produce as farmers look to increase milk production since the abolishment of quotas in 2015 It sets out the necessary criteria to produce quality milk and in addition the scheme has also been designed to assess and record data to demonstrate the sustainability of Irish dairying in a systematic way at individual farm level.  It will therefore provide the necessary proof to customers of dairy products that milk has been produced under both Sustainability and Quality Assurance criteria.

The primary objectives of the Scheme are:

-          To demonstrate to customers of dairy products that milk is produced sustainably under an accredited scheme

-          To provide a uniform mechanism for recording and monitoring

-          To set out the criteria for best practice in Irish dairy farming

With the SDAS in place Ireland will be the only country systematically measuring and improving its environmental performance at a national scale. The scheme is fully accredited under ISO 17065.

All dairy farmers with a valid herd registration can apply for this scheme and will have to be evaluated by an independent auditor and will need to meet certain criteria set by Bord Bia to obtain a certificate

Carbon intensity from Dairygold farms has improved by 7%

Energy efficiency from powder processing has improved by 3.4%

Waste to landfill from cheddar production has improved by 2.4%

 

Dairygold continues to invest in its future by developing existing and new products, improving processing capacity and efficiency, identifying new customers and routes to market, developing and working with its people on its future strategy to sustainably maximize returns to its Members.

Understanding the importance of their members

Dairygold offer a voluntary fixed milk price scheme due to the volatility of the market so the farmer can be sure where they stand and in turn can plan their finances better

They offer discounts to members in their “Buying For” initiative which was launched in 2016 by offering discounts home and farm fuels and by offering home, farm and vehicle insurance packages

They have a Loyalty Reward Scheme in place for customers and suppliers

They have a member upskilling program to help members to better understand the society and the dairy industry and the markets along with agricultural policies, finances and business

The have developed “Leanfarm” which adopts the principle of Lean to improve safety, reduce physical labour and have a positive impact on farmers quality of life and wellbeing

Strategic Direction to 2025

There is an increasing global demand for cheese and dairy protein and Dairygold plan to take full advantage of this by focusing mainly on these 2 specific markets and continuing to make investments in its operational and commercial capability and infrastructure to meet the growing market requirement, particularly in the developing world and to accelerate its journey and create more functional and complex products to meet the growing market demand.

HTF MI released a new market study on Global Full Cream Milk Powder Market predicting a significant demand by 2023

Conclusion

There are a lot more alternatives to milk on the market these days like:

Soy milk

Oat milk

Rice milk

Almond milk

Flax milk

Coconut milk

It’s up to Dairygold to keep coming up with new and innovative products and to stay ahead of the curve to keep its current customer base and continue to get new customers in the future and so far in my opinion they are doing a pretty good job but similarly to the milk prices consumer change can be also volatile so who knows what’s around the corner.

The weather will play a big part in this as if the weather is too extreme like 2018 then there will be fodder shortages and in turn this will drive up costs for farmers and make it unsustainable to make a profit so by paying a decent price for milk and educating its members Dairygold are helping their future.

References:

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