The dairy industry must plan its product development strategy to compete in international markets after EU restrictions are removed, according to Teagasc economist Mr Eamon Pitts.

Mr Pitts says cheeses for the industrial and catering markets, speciality cheeses and milk powders and branded Kerrygold butter would command a premium in the new market situation.

He says it is essential for the industry to plan now for when milk quotas end in five years, and EU enlargement brings in dairying countries, such as Hungary, the Czech Republic and Poland. World Trade Organisation reforms could also provide competition from Australasia and South America.

Mr Pitts, who has reviewed the dairy industry, says that to provide its stakeholders with more than a minimal return, the sector will need to compete in an intermediate market with significant volumes but greater returns than those available on commodities.

He found no evidence that commodity cheeses fare better in terms of returns to processors than butter and milk powders. But prices of speciality cheeses do not fall as much as butter and powder.

"Concentration and globalisation of retailing are placing pressure on supplier margins, particularly for branded products. Successful dairy companies are reducing their dependence on commodities," he says.