Gabriel D’Arcy got to know the Irish Border during his years on duty with the Irish Army, patrolling the countryside, manning checkpoints, and escorting cash transits. Today he surveys the boreens, ditches and rivers of the Border counties from a different perspective: as chief executive of a giant dairy company.
As head of LacPatrick he understands the carefully woven supply chains that have bound together a matrix of farming communities, suppliers, processors, drivers and sales staff, all operating across an increasingly irrelevant Irish Border.
LacPatrick is the result of a merger between two of the oldest milk co-ops in Ireland
“We’ve got people that work here in Monaghan and live in Armagh,” he says. “We’ve got people in Artigarvan who live in Donegal. They don’t recognise the Border. They know it’s a different administration and a different currency, but that’s it.”
LacPatrick is the result of a merger between two of the oldest milk co-ops in Ireland: Town of Monaghan, founded in 1901, and Ballyrashane, on the Antrim coast, founded in 1898.
The group has a combined annual turnover of €360 million and a workforce of 300. Every year it buys 600 million litres of milk from 1,050 farmers on both sides of the Border.
LacPatrick supplies the global nutrition and healthcare giant Abbott with 160 million litres of milk, which is turned into infant formula at Abbott’s Cootehill plant in Co Cavan. The formula is sold to China and the Middle East.
Brexit poses a direct threat to this arrangement.
Most of the milk that LacPatrick processes for Abbott comes from Northern Ireland, D’Arcy says. “It’s UK milk. It’s been brought into a Republic of Ireland factory, processed here and then brought to our key infant-formula customer, and they make infant formula with the key raw material.” This is covered by an EU trade agreement, and the powder must be based on EU milk. Post-Brexit any milk from Northern Ireland is out.
For years millions of litres of milk have been sloshing about in tankers heading north and south across the Irish Border
“The regulatory regime is critical for China, because it’s very sensitive about infant formula. They’ve had a number of scares and scandals over the years. They’re very pedantic. They have approved EU milk as a key ingredient. They have not approved UK milk.”
For years millions of litres of milk have been sloshing about in tankers heading north and south across the Irish Border. This was possible because both sides of the Border were governed by the same EU rules. This point was made by the Irish Co-operative Organisation Society (Icos), one of the first agri lobbies to beat a path to the door of the European Commission’s Brexit Task Force in Brussels.
In its submission Icos pointed out that some 600 million litres of milk per annum originates with cows in the North, then crosses the Border to be processed in the South. Post-Brexit products containing Northern Irish milk would not be acceptable either in the Single Market or for international trade because of its “non-EU” status.
“We need recognition of ‘status of Irish milk’ in order to allow for the continuation of the trade of milk across the Border,” the submission concluded. In other words Icos was suggesting that all milk produced on the island of Ireland be designated “Irish” milk even if 600 million litres of it originates in Northern Ireland, the UK.
One reason why so much milk crosses the Border is – for reasons relating to regional variations in the length of the grass-growing season – production of “liquid milk” – the stuff you put on your cornflakes – is highly seasonal in the South, while in the North it is spread more evenly across the year. Liquid milk tends to flow South-North in January-March and in the autumn, and North-South the rest of the year.
Some steps are being taken to allow the Northern milk sector to adapt
“Milk flies right, left and centre,” says Catherine Lascurettes, executive secretary of the IFA Dairy Committee. “Brexit will play havoc with all of those flows.”
Some steps are being taken to allow the Northern milk sector to adapt. Even before Brexit LacPatrick had invested €45 million in its processing plant at Artigarvan near Strabane. The plant provides most of the powder LacPatrick exports.
The plant had two 40-year-old driers to make the powder. Instead of replacing them LacPatrick built an entirely new facility alongside the old one, meaning that within a few months capacity could rise from one million litres of milk being processed per day to 2.5 million litres. The two ageing driers could still be used in the meantime. “This is the biggest single investment ever in the dairy industry there,” says D’Arcy. With the new capacity “we could, in fact, process the whole Northern Ireland output so that no raw milk crosses the Border”.
Every day thousands more litres of milk are collected from dairy farms north and south of the Border and brought to a Glanbia processing facility in Virginia, Co Cavan. There the cream is taken off the milk and then transported south to Dublin, or north to Mallusk, Co Antrim. In Mallusk the cream is blended with whiskey to produce the world’s most famous cream liqueur Baileys Irish Cream.
Baileys has been manufactured in Dublin since its launch in 1974. The site at Nangor Road still produces the full range of Baileys products – including Baileys Chocolat Luxe, Baileys XC and Baileys Hazelnut – in all bottle sizes.
But the Mallusk plant, which opened in 2003, does the big volumes. It produces Baileys in the key bottle sizes for global sales (70cl, 75cl and one litre) and it does so at very high speed. According to Diageo, which owns the brand, the Mallusk plant “contains the fastest liqueur bottling line in the world, capable of producing up to half a million bottles per day”.
Mallusk produces around 70 per cent of all the Baileys sold worldwide. Some 97 per cent of the liqueur made there is exported. Having one foot in Dublin and one in Co Antrim gives the company a backup should there be any major outages at either site.
One of the reasons Baileys chose Glanbia is because it has a policy of being able to trace dairy products back to the farm
The cream that ends up in Baileys comes from farmers who supply only Glanbia, the owners of the Virginia facility. Glanbia in turn has the exclusive contract to supply the cream from the milk to Diageo. It’s a supply chain that is both simple and complex. “It is absolutely seamless as it stands,” says one Glanbia source. Now Brexit is threatening to disrupt that seamless operation.
One of the reasons Baileys chose Glanbia is because it has a policy of always being able to trace dairy products back to the farm. With Brexit there is the possibility of dairy tariffs at around 50 per cent. That would immediately hit the milk going from Northern producers to Virginia, and then the cream heading back across the Border and travelling up to Mallusk.
Producing Baileys is a major operation. The company requires more than 275 million litres of milk supplied from 40,000 dairy cows grazing on 1,500 accredited farms in the Republic and in Northern Ireland. This is the equivalent, in recent years, of between 4 per cent and 5 per cent of Ireland’s total milk production.
Diageo confirms there are about 5,000 Border crossings a year by trucks in the direct Baileys supply chain, moving raw milk, cream, whiskey, bottles and corrugated paper.
Quite apart from the prospect of tariffs, and of Border checks that would slow down the movement of perishable cream, Baileys faces having to create a new supply-chain agreement, replacing Glanbia with a Northern supplier.
In 2016 the Republic of Ireland exported 72,222 tonnes of milk and cream to the UK. It also exported 25,674 tonnes of milk powders, 21,772 tonnes of whey and 61,995 tonnes of butterfat, including 40,688 tonnes of actual butter.
But the really eye-popping figures relate to cheese, and in particular to cheddar. In 2016 Ireland sent 125,669 tonnes of cheese to the UK; of that 77,651 tonnes were in the form of cheddar. That’s nearly two-thirds of all the cheddar we produce.
And we have traditionally been the biggest supplier of cheddar cheese into the UK
“It’s pretty unique,” says Lascurettes. “There are no other member states where cheddar cheese constitutes such a significant proportion of consumption. In terms of tradition, taste and market, it’s a British isles thing. And we have traditionally been the biggest supplier of cheddar cheese into the UK.”
Like beef, cheddar is a valuable commodity. British consumers pay a decent price for it and consume large volumes. The difference is that they probably don’t realise it’s Irish.
A lot of Ireland’s cheddar is sold through Ornua Foods, whose portfolio includes Kerrygold, Dubliner, Forto, Shannongold and BEO milk powder. Glanbia, now a global food and nutrition company, is another major supplier, both directly and through Ornua. Much of Glanbia’s cheddar ends up as part of Waitrose’s or Sainsbury’s own-brand cheeses.
The second biggest cheddar brand in the UK is Pilgrims Choice, which is owned by Ornua. The cheddar is produced in Ireland, packaged into 25-kilo blocks, shipped to Adams Foods in Leek, Staffordshire, repackaged there, and distributed throughout the UK. The packs say the cheese is sourced in Britain and the Republic of Ireland. Some of those packs are transported back across the Irish Sea to be sold in Irish shops.
Post-Brexit, in the absence of a free-trade agreement, those neat packs of cheddar will attract a hefty tariff each time.
Irish cheese companies have invested millions in processing plants. A number of these facilities were created exclusively for selling to the UK. The clarion call today, with Brexit coming, is that Irish producers must look to markets beyond the UK.
The Carbery Group began life in 1965 as a joint venture between four creameries and Express Dairies in the UK
Part of that diversification will require processors to adapt their facilities to cater for the non-British palate. The problem is that only the British eat cheddar in such large quantities, and that the machines that make the cheddar can only make cheddar.
Those parts of Ireland now having to figure out what to do with all that milk, and all those stainless-steel Cheddar towers, are found in a heartland south of the Dublin-Galway line, heading down west of Bandon, south of Macroom and into the west Cork peninsulas that stretch their toes into the Atlantic. One of the most prominent companies in that belt is Carbery.
The Carbery Group began life in 1965 as a joint venture between four creameries and Express Dairies in the UK. Within two years it was producing 1,400 tonnes of cheese, and it was the first processor in the world to install ultrafiltration technology to produce whey-protein concentrates.
By 2002 Carbery had acquired a huge flavour-ingredients company in Wauconda, Illinois, and in 2005 the company launched a flavours division under the Synergy brand, which in turn opened facilities in Brazil and Thailand.
When EU milk quotas were abolished in 2015, meaning farmers could produce as much as they wished, processors like Glanbia, Dairygold and Lakeland installed new driers with an eye on the growing global powder market. The sky was the limit.
Then Brexit came along.
One of Carbery’s best-loved brands was launched in 1996. Dubliner cheese was an attempt at a sophisticated cheddar for the urban Irish market. It has flourished in Ireland, but also enjoys big sales in the US. Dubliner was a result of Carbery’s tinkering with its cheddar towers. The tinkering may have produced a new brand, but Dubliner is still cheddar.
There were attempts by other co-ops to try to develop different kinds of cheese for a mass market. Tipperary Co-Op started to produce emmental, which, on the Continent, is the go-to cheese for grating and baking. Emmental is now one of the company’s export mainstays to the European market (Tipperary has a subsidiary, Tippagral, in France, which develops the product there).
“Our focus changed the week after the referendum,” says Carbery Group chief executive Dan MacSweeney, who joined the company in 1992. “Brexit became the biggest issue we would be dealing with. We’re hoping for the best but preparing for the worst. That sounds glib, but that’s exactly what we’re doing.”
You would have a tariff of just over 50 per cent on all cheese products going into the UK
MacSweeney is, like everyone else in the agri-food sector, watching every bleep on the Brexit radar. Any statement from the British or EU negotiators can have an impact on sterling (and, instantly, on margins) or provide a distant smoke signal for how Brexit might play out.
“What’s the worst-case scenario for the cheddar industry? If in two years’ time there’s no agreement at the end of this divorce discussion, then we fall into a WTO tariff situation immediately. Everyone hopes that won’t happen.
“If it did you would have a tariff of just over 50 per cent on all cheese products going into the UK. If you’re dealing with a tariff of 50 per cent you’re not really in business. The challenge then for the cheese industry is to find a new home for one billion litres of milk.”
It would also be a challenge to keep employment in west Cork. Carbery provides business for 1,300 dairy farmers and employs 230 people directly, not counting all the others along the supply chain.
Carbery is researching other markets and looking at alternative product mixes, especially those that might attract lower tariffs. Sports nutrition has been a big growth area, but the volumes involved are no match for the cheddar behemoth.
MacSweeney is more sanguine about trying to sell cheddar on the Continent. “Germany is starting to eat more cheddar than it used to. It’s becoming a more complex product. There is a whole different range of flavours that weren’t there in the past.”
To keep cheddar and other products ahead of the Brexit curve, producers like MacSweeney place enormous faith in one fundamental resource. “Dairy farming is about producing grass rather than producing milk. If you can produce a lot of grass, and produce it efficiently, you have an efficient animal that can convert it to milk. That’s the basis of the industry.
The best-case scenario, says MacSweeney, is a free-trade agreement between Britain and Europe
“It means we can produce milk more cost-effectively than other countries. It gives us a certain amount of prominence. You see Kerrygold products all over the place. You can produce butter and cheese from grass to get a different product. Cows in Germany, Holland, Denmark or France are housed indoors for most of the year. Cows in Ireland are outside up to 24 hours a day for nine months of the year.”
The best-case scenario, says MacSweeney, is a free-trade agreement between Britain and Europe that preserves the status quo for the Irish dairy industry. Failing that, he would hope for a three-to-seven-year transition period to allow producers to prepare for a future beyond the UK but that would keep trade flowing in the meantime.
He’s realistic. “You wouldn’t find a home for 80,000 tonnes of cheddar that has come out of the UK. But there’s a big world out there. Developing markets have increased consumption every year: China, southeast Asia, Mexico, north and sub-Saharan Africa, the Middle East”
Developing markets and new product areas are all well and good but the scale of the task facing the Irish dairy industry is vast.
“There are other things you can do with milk, but it’s not easy,’ says MacSweeney. “Finding a new home for a billion litres of milk won’t be done in a year or two.”
- This is an edited extract from Brexit and Ireland: the Dangers, the Opportunities and the Inside Story of the Irish Response by RTÉ Europe correspondent Tony Connelly
