IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
IDIA
The Irish Dairy Industries Association (IDIA) represents the Irish primary and secondary Dairy
Processing Industry. A member of the Irish Business and Employers Confederation (IBEC), it is
affiliated to Food and Drink Industries Ireland (FDII) and at European level to the European
Dairy Association (EDA).
Basis of Preparation
This submission to the DAFF 2020 Strategy Consultation is based on consultation with the IDIA
membership and prepared on the assumption that it will form the basis of a genuine review of
the Irish legislative and policy environment to improve national competitiveness.
Technology Led Growth
The Irish dairy industry has ambitious growth plans. There are real opportunities to increase
the value of Irish output through the exploitation of new technologies and research within the
industry. Government policy must ensure that the commercial environment in Ireland is
sufficiently attractive so that these will be commercialised in Ireland. This will be the acid test
of Irelands’ competitiveness.
Volume Led Growth
The phasing out of milk quotas by 2015 presents growth opportunities for the industry. This
expansion can be fulfilled through increased output per animal, increased herd size and new
entrants. This additional product will be exported increasing Irelands dairy export orientation
above 90%. Processing efficiency expressed as cost, Carbon (GHG) and product utilisation will
be a key element of Irish export competitiveness. This submission focuses on the environment
in which this industry operates; the factors of processing rationalisation are outside the scope
of this 2020 Strategy submission.
Interdepartmental Collaboration
In this submission, IDIA makes many recommendations which require the involvement of many
other Government departments. For instance Departments of Trade, Health and Children,
Environment are but some of the Departments that lead many of the policy actions required. It
is therefore necessary that there is collaboration between all relevant Government agencies and
departments to avoid duplication and expedite the required recommendations. In calling for
interdepartmental collaboration, IDIA is not to be interpreted as calling for additional state
bodies or other costly entities that reduce our competitiveness. We are simply stating that all
relevant policy bodies are included in communications, meetings and policy direction of
relevance to the dairy industry.
Implementation
Finally, the Minister of Agriculture, Fisheries and Food must take responsibility for the
implementation of all recommendations contained in the 2020 Strategy. We recommend that
the Minister chairs two meetings per year with the relevant industry sectors to ensure
achievement of these recommendations.
1
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
The Competitive Environment to 2020
It is not possible to plan strategy without informed assumptions of the likely changes to the
environment in which the dairy industry operates. These assumptions do not indicate IDIA
agreement or acceptance of such possible changes nor do they suggest likely timing for many
factors. They are however material in nature and cannot be ignored.
Evolving Trade Policy to 2020
1. Trade between developed and developing countries will be more liberalised resulting in
increased trade flows. This will be the result of either a conclusion of the WTO Doha
multilateral trade round or through the conclusion of bilateral agreements negotiated by
major trading blocks with countries or groups of countries.
2. Certification of dairy products will diverge with the trend towards harmonised export
standards between many countries contrasting with export standards becoming effective
non-tariff barriers to trade between others.
Evolving Dairy Policy to 2020
3. CAP reform will impact on EU market management reducing its influence on EU dairy
prices. US Farm Bill reform will have a similar effect.
4. The absence of EU market management and reduced trade barriers will lead to
convergence of EU and world prices.
5. Production growth is likely to lag behind demand growth in developing countries.
6. The absence of institutional market management results in increased global and local
price volatility.
Evolving Consumer Trends to 2020
7. Global demand for dairy proteins continues to grow while demand for dairy fats decline in
developed countries on a per capita basis.
8. The demand in developed countries for credible, value added, smarter foods will increase
driven by innovations in dairy ingredients.
9. The demand for dairy proteins and fats grows in developing and less developed countries.
10. Development in the area of Foods for Particular Nutritional Uses (PARNUTs), such as
clinical nutrition, elderly nutrition and sports nutrition presents a significant market
opportunity.
11. The need to scientifically substantiate claims and benefits associated with food products
will become the standard.
2
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
Evolving Supply Base to 2020
12. The effects of EU prices converging towards world prices and the increased frequency of
extreme price volatility will result in restructuring at farm level.
13. EU milk quotas be abolished from 2015 and price competitiveness at farm level will
determine EU supply levels.
14. Return on capital, labour costs and regulatory constraints will dictate investment at farm
level.
15. The trend towards harmonised export certification will erode the possibility for national
differentiation on quality attributes.
16. Differentiation on environmental attributes will require validation with GHG per unit
saleable product as the key metric. “Green” claims will require substantiation.
17. Differentiation on welfare attributes will increase in line with the increase in farm scale
and production intensity.
Evolving Operations to 2020
18. Demand for more innovative consumer products and dairy ingredients will require
substantial investment in research, development and process technology.
19. Retail consolidation will continue with an increased prevalence of global retail outlets
employing global procurement strategies for branded and private label products.
20. Consolidation will intensify within the branded consumer foods sector with increased
prevalence of global brands
21. Increased adoption of harmonised food standards will facilitate global procurement
policies.
22. Operational cost competitiveness, product innovation, scale of operation and security of
supply will become determinants of global supply contracts.
23. Product quality standards will become more stringent and become pre-requisites for
consideration in supply contracts.
24. Environmental operating standards will become normal elements of procurement policies
with all GHG emissions being included in Cap and Trade schemes. Waste management
and recycling will become more complex.
25. A greater strategic use of processing facilities will be required to manage the increased
milk production following the abolition of quotas.
3
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
IDIA Recommendations
Regulatory Environment
The regulatory environment has a direct impact on the competitiveness and export orientation
of the Irish dairy industry. Regulatory objectives are seldom a difficulty for parties as regulation
tends to lag market reaction. However the way in which regulation is implemented and
interpreted can have a significant impact on the relative competitiveness of industries .
Recommendations
a. All relevant government departments must, in conjunction with industry, initiate a
regulatory cost impact assessment to assess the regulatory burden on the Irish dairy
industry. This must extend throughout the entire supply chain from farms through to
exporters.
b. Ireland must immediately initiate benchmarking of regulatory costs initially against EU
Member States and global competitor jurisdictions to assess the efficiency of Ireland’s
regulatory processes. This should be extended in a later phase to include strategic export
countries.
c. Interdepartmental collaboration must be improved to eliminate duplication, uncertainty and
over regulation of the industry. Response time by regulatory authorities is a key factor in
export competitiveness but is hampered by interdepartmental division and poor
communication. The development, implementation and management of government policy
must involve representatives from all relevant government departments to speed up the
process.
d. A Clearing House must be developed, housed within the Department of An Taoisech and
meeting twice yearly to oversee the main policy implementation areas for the industry. This
process is already working effectively within other industry groups and has yielded direct
benefit by ensuing implementation of agreed actions across government departments.
Common Agricultural Policy
Significant growth can be achieved in Ireland’s dairy industry if supported by the right policy
environment. Supply constraints, in the form of milk quotas, are being removed and the
existing investment in technology and strategic supply partnerships between primary and
secondary processors can enable this growth potential to be realised. However, this industry
requires policy management with specific focus on export competitiveness and security of
supply.
Recommendation
Ireland must take the European lead in arguing for the maintenance of a strong CAP to provide
a meaningful safety net by with sufficient finance for strategic market management
mechanisms.
4
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
A strong CAP will include
o
o
o
the maintenance of adequate public buffer stocks through schemes such as intervention
purchasing;
a provision for seasonal processing through schemes such as the Private Storage Aid;
a recognition that 3rd country trade is integral to the EU dairy industry and the retention
of the export refund scheme which can be triggered when required
DAFF must adopt a proactive approach to the CAP Post 2013 discussions by drafting a detailed
strategy position agreed with the Irish dairy industry which can be promoted by all stakeholders
at EU level.
New Market Instruments
CAP reform and the increasing globalisation of markets will mean that new market instruments
will become more relevant to Ireland’s export oriented dairy industry. Instruments such as
futures and margin insurance schemes will become more common place amongst competitors
and Irelands industry will need to develop competence in these new areas to assess if they are
appropriate for the Irish dairy industry.
Recommendations
a. The evaluation of these tools and the potential requirement for their regulation needs to be
assessed at a national level to ensure appropriate controls exist to regulate them. As these
tools are predominately financial instruments for the dairy industry an inter-agency
collaboration (including DoF, DETI, DAFF) will be required to assist the traditional food and
trade competencies.
b. There is a requirement for the development of market analysis capabilities at national level
that can collect, interpret and report market information on a weekly reporting basis. DAFF
must establish market reporting capabilities that can provide weekly market data to all dairy
processors. The USDA system which delivers weekly price data is a good example of the
role of national government in providing unbiased, timely market data.
Global Trade Policies
Ireland is a global exporter of dairy products. Global trade policies are therefore more relevant
to Ireland than most other EU member states. Ireland must therefore adopt a more proactive
approach to trade policy. Trade policy is more than a focus on the WTO Doha discussions: the
increasing number of bi-lateral trade agreements will have direct impact on Irelands export
abilities.
Recommendation
Ireland’s trade negotiators must engage more intensely in EU trade discussions with regard to
EU bilateral and multilateral agreements to maximize Ireland’s offensive interests. Specifically,
Irish negotiators must be able to accurately appraise the benefits of market concessions against
the market opportunities for the Irish industry based on detailed cost analysis. It is not
sufficient for an export oriented country not to have highly advanced modelling that outlines
Ireland’s offensive interests in all trade negotiations.
5
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
Export Orientation
Increasing trade liberalisation will give advantage to exporters with the quickest reaction and
adaptation to new market requirements. This means a change in prioritisation from Ireland’s
current domestic orientation to that of an aggressive exporter seeking offensive trade interests.
For example: current Irish discussion and analysis on WTO is focused on market protection;
little analysis has been undertaken by trade negotiators to exploit news market opportunities
arising from reduced tariffs in export destinations.
Recommendations
a. A simplified system of export certification must be developed comprising of a single
certificate that covers all requirements of the export destination. This would involve the
creation of an integrated, electronic system and replacing the current requirement for
numerous certificates such as Veterinary Certificate, Dairy Hygiene Certificate, etc.
b. As an export oriented industry Ireland must take a proactive role in Codex to initiate
discussions on a global health certificate. DAFF must immediately engage in discussions with
the IDIA dairy export trade group to inform this process and minimise the impact of nontariff technical barriers.
c. The exploitation of new, emerging markets requires the input of all relevant state agencies
to address certification, customs and trade credit issues. It is not sufficient to agree trade
protocols/agreements without consideration of all trade aspects and requires input from
DAFF, DFA, DETI, Customs and Revenue.
d. Development of new export markets requires the provision of state backed trade credit
insurance to facilitate initial trade with these important tentative markets.
e. Animal health programmes must recognise and assign higher priority to the certification
requirements of export markets. Disease programmes must be sufficiently robust to enable
export certification.
f.
Our increasing dependency on export markets means there is an urgent need for an official
national programme to manage Johne’s Disease. Finance should be available to manage
disease reduction at producer level.
Research and Innovation
Ireland has become a high cost economy. Productivity gains and economic rebalancing will
improve Ireland’s relative competitiveness but this alone will not drive export growth. Ireland
must differentiate on product and process innovation which will require well funded, targeted
and commercially driven research and innovation programmes to exploit growth opportunities
arising from quota abolition. Current expenditure on food research is small relative to other
industry sectors and is dispersed amongst many research and innovation centres.
Recommendations
a. Ireland must develop a single, coordinated approach to agri-food research to maximize the
return to industry. This requires the creation of a singularly controlled research entity to
implement and manage the industry led strategic research agenda.
6
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
b. The development of a specific dissemination and knowledge transfer programme is required.
The singularly controlled research entity recommended in the above point should be
responsible for the development and management of this programme to ensure the
protection of IP. This programme should deliver the commercially viable results from
research activities at an appropriate, useable level to pertinent participants.
c. The strategic direction of Irish dairy research and innovation should not be compromised by
the direction of animal and plant biotechnology, as it risks undermining the reputation of the
Irish dairy industry, including the infant nutrition sector, with little opportunities for gain.
d. Government expenditure in research and development should be prioritized for companies
with the existing capacity and ability to leverage the funds and research to its full potential.
The Consumer
As an exporter, Ireland’s dairy industry must meet consumer needs and address consumer
concerns in diverse markets. Irish consumers empathise with its food industry due to our low
population and large agricultural base. However consumers in export markets are different and
commonly require assurances and guarantees for factors that Irish consumers accept without
question. For example terms such like “green” and “natural” have different meanings in
different markets.
The quantification of these terms exists in many competitor countries. For example, both Dutch
an Danish Ministries can show detailed analysis of their GHG per unit of product. Their system
is so advanced that technological changes at farm level are evaluated against their GHG
emissions. Ireland has not reached this level of competency and is therefore at a disadvantage
to its competitors.
Recommendations
a. Ireland needs to adopt a more strategic approach to branding, positioning and
communications relating to the Irish food industry. There is an urgent need to substantiate
the “clean, green” image of Irish food products. Government policy must prioritise the
development of competencies in Ireland to validate and substantiate the “green, clean”
claims which are sufficiently robust to counter claims to the contrary.
b. Growth opportunities exist within the wider category of foods for nutritional purposes
building on the experience and critical mass of the infant nutrition sector. To realise this,
food policy and health strategies will have to become more closely aligned with Ireland
taking a more factual and proactive role in defending industry from ill informed, emotive
interest groups at national, EU and International level.
Supply Base
The dairy supply base can be the strength or weakness of a dairy industry. Ireland’s natural
advantages in dairy production do not become export advantages unless supported by quality
standards and safeguards at least at the level of our competitors. Recent certification changes
for some export destinations have challenged Ireland’s ability to meet new standards. Given the
7
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
nature of dairy processing, it is not efficient to collect from different quality bands of suppliers.
A general improvement at farm level will result in greater improvements at processing level.
Recommendations
a. Crucial improvements in raw milk quality need to be achieved to support Ireland’s export
ambitions to high value markets. Ambitious targets are required such as the achievement of
a national somatic cell count level of 200,000 by 2020.
b. Residue monitoring is required to ensure unacceptable residues are not present in the food
and feed chain. However monitoring procedures must not conflict with the primary
requirements of export certification implementing standards beyond those applied in other
countries. Residue monitoring programmes must be operated in consultation with the
government department responsible for export certification.
c. The focus of the farm advisory service must be updated to reflect the new market
orientation of dairy farming as a result of CAP reform. This advice must recognize the
market reality that a guaranteed market for dairy products no longer exists through the CAP
schemes. The advice must now reflect and acknowledge changes in demand, changes in
consumer preference and processing capacity. Farm advisory services should allow for
agricultural scientific research to be maximised at farm level.
d. The phasing out of milk quotas by 2015 presents real opportunities for growth. However the
nature of dairy farming means that time is required to scale up production at farm level. For
Ireland to realise its true dairy potential, it must immediately implement measures that
allow for productive capacity to be developed from 2010 to a scale that it can fully realise its
potential by 2015.
Operations
Quota abolition provides significant expansion potential for the Irish dairy industry. An
expansion in dairy processing at plant level will deliver the same economic benefits to the
national economy as an equivalent investment from foreign direct investments (FDI). New
operational challenges are emerging such as carbon reduction which will result in the
introduction of new cost line items for dairy processing operations. Operational efficiency will
become more important.
Recommendations
a. The expansion potential of the dairy industry resulting from quota abolition, offers huge
benefit to the Irish economy. Accordingly, planned expansion must be awarded the same
enterprise support, investment and mentoring benefits as currently awarded to FDI.
b. Dairy processing is energy intensive and rural based. Ireland needs to develop energy
infrastructure to facilitate the decarbonisation of food processing. This means providing
natural gas pipelines and renewable energy systems to dairy processing sites without levy
for infrastructural costs.
c. Ireland’s energy policy must focus on the development of technologies for converting food
processing waste to renewable energy. This serves to reduce waste costs and to provide
green energy to the dairy processing industry.
8
IDIA Submission
Department of Agriculture, Fisheries and Food
2020 Strategy
31 March 2010
d.
There is a need for government agencies to develop a manufacturing centre of excellence
with responsibility for optimizing food processing technologies. This would extend to the
provision of manufacturing efficiency programmes specifically developed for the food
industry to drive continuous improvement and productivity. The programme should draw on
the experiences and expertise beyond the agri-food sector by focus specifically on dairy
processing efficiency.
For further information, please contact:
Michael Barry
[email protected]
Claire McGee
[email protected]
Marie Larby
[email protected]
9