New Study on Dairy Industry Strategy

3 December, 2002

Increasing output of cheese is the best option for the Irish dairy industry to maximise returns in the future, according to the results of a study, published by Teagasc.

The study, carried out by Eamonn Pitts, Head of the Teagasc Rural Economy Research Centre, and Paul O'Reilly of Dublin Institute of Technology examines the optimum product mix for the Irish dairy sector.

It states that the greatest opportunities for growth are in the catering and food ingredients sectors. Both offer opportunities for cheese while the food ingredients market offers opportunities for milk powder.

There will also be small volume niche market opportunities for functional foods, organic milk products and dairy ingredients, according to the report.

The authors also examined the performance of the Irish industry relative to that in a number of EU states. The results show that Ireland was significantly behind Denmark in milk price paid to farmers and profits earned by dairy processors.

The performance of the Dutch dairy industry is also better than Ireland. However, average Irish performance is on a par with that of France and Germany.

"The success of the Danish dairy industry is based on branded sales of a wide variety of cheese products in the EU and an extremely strong position in its home market. The giant Danish dairy company, Arla Foods, has demonstrated that a change in product strategy can be successfully implemented at a company level", said Eamonn Pitts.

The study also looked at markets for dairy products which, in an environment of freer trade, would deliver higher prices than commodity dairy products. According to the authors, these are 'defensible' markets, which are protected from entry by new players.

"The majority of those products identified as most easily defensible are products where market volume is low. It is therefore necessary to rely on products which in terms of defensibility are in an intermediate category. Cheese for catering and industrial markets dominates this category", said Eamonn Pitts.

The report 'Strategic Directions for the Irish Dairy Industry in a Freer Market' is available from Teagasc,19 Sandymount Avenue, Dublin 4. Price €10