Glanbia suppliers aiming to increase milk production by 63%

Jim Bergin likes to tell people he works with 4,800 small and medium-sized enterprises (SMEs). He is chief executive of Glanbia Ingredients Ireland, which buys its milk from 4,800 farmers around 21 counties. The Kilkenny-based company is our biggest dairy processor, supplying 30 per cent of the Irish milk pool.

“Your average farmer has a turnover of somewhere around €180,000 a year,” Bergin says. “As far as I’m concerned these are SMEs. These farmers are driving economic activity whether that is through contracting, vets, builders, tradesmen, a whole raft of stuff. And that’s on top of their business in the local shops and paying for entertainment.”

But he accepts it’s hard for people from urban backgrounds to understand how farmers create employment.

“If a Minister comes on television and announces 100 jobs in a call centre or a software company, people understand that, whereas if you talk about indirect jobs in the rural community it’s harder to understand.”

The 1,600 direct and indirect jobs Glanbia Ingredients Ireland aims to create when the milk quota regime ends were in the news last week when a parade of politicians, led by Taoiseach Enda Kenny, arrived to open Belview, its new dairy ingredients facility.

More than one person noted at the opening that the plant was almost as big as two hurling pitches. It is, of course, in Kilkenny so no other analogy would do.

The sleek building dominates the skyline as you approach Belview port, and can also be seen from the other side of Waterford estuary.

At the peak of construction 750 people worked at the Belview site.

“That was in an area where Waterford city had something like 20 per cent unemployment and it did have an impact. The local pub had a great year, with people staying there most of the time.”

Milk powder

Every ounce of specialised milk powder products and nutritional ingredients it manufactures will be exported to meet demands in Asia, Africa, Central America and the Middle East. At peak times it will cater for 104 milk lorries per day. “We will be able to process large volumes of milk in Belview, and we will be able to process them to infant formula standard and that is the sweet spot that we’ve been looking for,” says Bergin.

Glanbia’s suppliers aim to increase milk volumes by 63 per cent when quotas go. Some people fear the ending of the milk quota regime will lead to a milk bubble, on a par with the building bubble. They warn that farmers might borrow too much money and get into serious financial difficulty when milk prices fall.

However, Bergin believes Glanbia’s suppliers have their heads screwed on when it comes to investing on the farm. He does not see them installing Rolls Royce versions of milking parlours and stocking up on the latest high-tech gadgets.

"You'd be thrilled listening to the majority of farmers when they talk about investment. They are good men and women. We provided a financial training programme with Teagasc, and over 1,000 farmers participated in that.

“Now, you’ll always have a few exceptions where people are over-ambitious and maybe don’t do their homework perfectly, but banks are more careful now and the earnings capability is now more of a factor than the asset value.

Responsible

“So it’s not a bubble but we have to be quite responsible about it. We don’t want to arrive in 2018 or 2020 with a very significant and positive impact on the economy but with a community of farmers who are heavily in debt.”

To help insulate farmers against volatile prices Glanbia runs a fixed milk price scheme whereby farmers are guaranteed a certain price for a certain amount of milk. Some 40 per cent of its suppliers are involved in the scheme.

He expects that Glanbia will attract about 75 new entrants to dairying this year, the same next year, and about 50 per year after that. “And if the experience is very, very strong in 2015 they could inspire more to come in.”

Glanbia is investing €235 million in its post-quota expansion plan so, not surprisingly, Bergin is bullish about the future.

“If you look at all the demographics and most of the economic factors the outlook is good And the real impact will be in the indirect jobs in local communities.

“Take our Ballyragget factory which was built in 1967 and has 300 people working there. That’s 300 families and a number of generations of families working there. I think the impact is significantly understated from a social perspective.”