The biggest opportunities for the dairy industry lie in the expansion in the consumption of dairy products around the world and the good, clean image dairy products have, Dr Noel Cawley, managing director of the Irish Dairy Board (IDB), believes.
He stresses that he does not see the BSE scare and consequent falling beef consumption as an opportunity for the dairy sector. "I hope no disaster will befall us. We have good standards and controls but the scares, once they start, can't be stopped. We have cleared up antibiotics in dairy products and now they [dairy products] are considered a natural food. It's very important we keep to high standards and quality. Some of these catastrophes are outside our control," he says, thinking back to the listeria scares that affected cheese consumption across Europe on a number of occasions.
The IDB, now a voluntary co-operative that started as a semi-State company, has annual sales of some £1.4 billion (€1.77 billion) and sells abroad the dairy products of all the big Irish dairy processors with the exception of Kerry Group.
"More product is now sold in branded form than ever before; 50 per cent at maximum would be under the Kerrygold label. But probably only 45 per cent of the IDB's business today is ex-Ireland. Up to 60 per cent of our business has nothing to do with dairy products. "We've acquired a number of companies with the potential to sell Irish dairy products but they might handle only 5 per cent. In the US, we have distribution companies with a turnover of $600 million [€646 million] that would have very little Irish product going through."
The board employs 2,500 people worldwide, only 160 of them in Ireland. There are 1,500 employed in the US. Locations there include Chicago, Denver, Washington, Albuquerque, Phoenix and Los Angeles - the IDB is the largest distributor of chilled food in the greater LA area. Another business, with a $70 million turnover, has just been acquired in Portland, Oregon. The principal dairy export to the US is casein, worth $100 million annually. Other exports include Dubliner cheddar cheese, Kerrygold Swiss cheese and some commodity cheeses. But the US dairy market is one of the most protected in the world.
"If they ever opened it up and we could sell Kerrygold butter into the States, we could probably sell 2,000 to 3,000 tonnes through the Irish network. But it's very restricted. Maybe in some future World Trade Organisation . . . ," Dr Cawley muses.
In Europe, the IDB has expanded its initial acquisitions in Britain, Germany, Belgium and the Netherlands, and these companies are not dependent on Irish food either.
But Kerrygold butter is the brand leader in Germany, with 15 per cent of the market, and enjoys a 15 per cent price premium. A new centralised European packing plant is under construction in Krefelt, Germany, to service European markets. The IDB is starting to establish itself in Spain and Portugal and will follow the big European supermarket chains into Eastern European countries.
Britain still remains its single most important market, with 30 per cent of product being sold there. The IDB owns three of the four top branded cheeses in the British market. "The big change there has been that 60 per cent of the English market now is for mature or semi-mature cheese; 10 years ago it was 60 per cent mild. Young people want to buy a nice cheese, from £10 a pound down to £3 a pound."
So what makes the IDB different from any other exporting agency? "It's voluntary - at the beginning of each year we have no definite guarantee we will get any product. But we offer good service, a brand name and we're efficient in what we do. We pay a good return for the product, and the subsidiaries and the company have been performing well. In 1999, we paid bonuses of one kind or another of £9 million [to suppliers] on the basis of their sales to us."
Dr Cawley doesn't say it but the board follows world market prices up and down, which allows the processors - and indeed the farmers - to know fairly precisely what prices prevail at any given time.
The regime for dairy products worldwide is changing. Where seven years ago, 30 per cent of the EU budget went to dairying, it has fallen to 5 per cent, although milk quotas will remain in place for the next five years. Dr Cawley predicts that the price of dairy products will fall around the world and that farmers will be compensated by direct aid. But he adds: "I would see the demand for dairy products increasing over the next four to five years because of the way Asia and South America are expanding, and maybe Russia might return to its economic self. The demand will improve but overall returns will come down because of less subsidisation."
Last year was one of the best years for the dairy industry, he says, and the strength of the dollar has increased the net return to Ireland. There is a note of caution, however: "One of the most serious concerns we would have is the cost escalation at farmer and processing level here. If farmers are looking for farm relief workers, they have to compete with Intel.
"The processors have to follow national wage agreements, farmers have increases in their costs and to sustain the present position will be very difficult. We are competing with other industries that have higher margins and greater growth. We're stuck with quotas and can't expand. "That leads us to the conclusion that we have to be more efficient, consolidate and sharing processing facilities will become necessary. Things need to happen as time goes on. It doesn't have to be take-overs."
Dr Cawley, who sat on the 2010 Committee - which reported to the Government on the future of farming, says the dairy industry has stood out as the sector that has given farmers the best margins and returns over the years but, in the future, there will be no place for a farmer with less than 75,000 gallons of milk (50-plus cows) and those who remain in dairying will be existing farmers or family members. "It will be very difficult to get help or labour, so you need scale," he says.
Born on a small dairy farm at Gurteen, Co Sligo, Dr Cawley was educated at St Nathy's in Ballaghadereen, Co Roscommon, did a degree in chemistry at NUI Galway and a PhD in science in UCD. While at UCD, he worked with Guinness Ireland and he did post-doctoral work at the University of California at Berkeley. He then worked for two years with Guinness in England. "I just decided to come home to Ireland. I saw a job in the paper and got the job the following week." That was 26 years ago and he went as a development scientist to what was then Bord Bainne in Moorepark. He later became commercial manager, commercial director and has been managing director for 12 years.
He married Anita at Berkeley and they have two daughters. When applying for his first mortgage here he had to produce his marriage licence. "They wouldn't believe it was a marriage licence; it had the dog licence on the same thing," he laughs.
Dr Cawley has refused directorships of other companies, although he sits on the boards of all IDB subsidiaries, on the board of Bord Bia and the management committee of the RDS. Apart from work, his abiding passion is horses. He has been chairman of the Irish Horse Board co-operative for seven years and breeds national hunt horses and show-jumpers on his farm in Co Kildare. Racing, golf and following Sligo's Gaelic football team come somewhere down the list of activities.
