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Irish Dairy Sector: Charting a Course for Growth

Structuring funding for expansion and protecting against downside risks

While not quite Charles Dickens, “It was the best of times, it was the worst of times”, 2018 was certainly an eventful year in the Irish dairy industry. Milk production volumes continued to grow in Ireland, though global production levels meant that milk prices probably didn’t fall as much as might have been expected at the beginning of the year. To meet the continued growth in farm level milk production Irish processors continued their trend of making significant capital investments in order to process the increased milk volumes.

Irish Dairy Sector: Charting a Course for Growth

2019 – A year of Continued Growth & Investment

Seasoned practitioners in the Irish dairy industry will well be aware that in any five-year cycle there will be a mix of the good, the bad and the ugly. Years that farmers would rather forget, are offset by very strong years too, and it is the longer-term trends that need to be considered when it comes to investment planning.

Continued growth and investment is expected in the year ahead. In January, Glanbia Ireland announced its alliance with Dutch dairy processor Royal A-Ware, to create mozzarella cheese for the Continental European market. It is also strongly anticipated that other major processors in the industry will make or announce further largescale investments over the course of the next year, to meet the core milk processing demands of suppliers and to diversify product suites and geographic markets. 

 

Market Headwinds

This growth and continued investment is likely to be in the face of stiff market headwinds. The clear and present challenge on the horizon is clearly Brexit and its potential implications for future trading with the UK and supply chains generally.  The preparedness of the industry to a hard, or no-deal Brexit remains to be seen and tested. 

 

Creating a platform for Scale and Product Diversification

Increasing scale, diversification into higher margin products and efficacy of capital allocation are likely to remain key agenda items at board levels in dairy-Ireland. Accordingly, and in order for corporate leaders in this market to execute on these strategies and to continue to deliver on stakeholders’ great expectations, the structuring of debt financing packages, which mitigate risks and maximise business flexibility will be the platform for the continued growth, defence, and creation of value in the Irish dairy industry.

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