Dairygold invests $176m to exploit end of European milk quotas

Tim Healy (pictured), head of Dairygold Food Ingredients Ireland, told DairyReporter.com contracts and funding are confirmed for a factory in Mallow, Co. Cork, to create more than 100 jobs.

The planned site will have two milk dryers, he said, while construction is already underway for a third dryer in Dairygold’s existing Castlefarm factory in Mitchelstown, Cork.

“We’re halfway through a €33m ($45m) investment at Castlefarm,​” said Healy. “That dryer will be up and running in 2014. In 2014 we will start investment in the new factory in Mallow about 35km (22 miles) away, and we have planning permission for two dryers in that factory.​

“The combination of those three investments will be enough to satisfy our expansion requirements up to 2021," ​he added.

“We have already received the permits and we have all our finance approved with our bankers.​”

Unique contracts commit milk supply​

Dairygold is a farmer-owned co-operative and processor; €50m ($68m) of the project’s financing comes from farmers who have signed long-term contracts with the company.

Since 1984 the European Economic Community (now the European Community) has imposed a cap on dairy production to stabilize prices. Irish farmers currently produce less than capacity to avoid penalties, but the industry is preparing to shift up a gear when the cap is lifted in 2015.

Ireland’s government program Food Harvest 2020 has set the target of a 50% increase in milk production from 2015 to 2020.

Healy plays down the possibility Dairygold’s farmers may not be able to supply milk in the quantities required by the expanded factories: “Farmers themselves had demanded a step-up in production from 2015," ​he said.

"And Dairygold’s model is unique in tying them into seven-year contracts.​

“Since 2007 we have been hearing consistently from our farmers that they have the ability to produce more milk, and that they have made their mind up that they were going to shift to a higher level of production."​

Capacity commitment​

Since Dairygold is a co-op it agreed with its farmers not to restrict them in production post-2015. Healy said Dairygold would increase its capacity to process the extra milk, on the basis that farmers commit themselves to the company for a period of time.

“I believe we are the only co-op in Europe to have nearly 97% of our farmers signed up to a contract that will commit them to Dairygold up to the end of 2019 at the earliest,"​ Healy said.

Milk volume and prices are not fixed, however: “As part of the contract, we will do a survey with them every year where they will write into the contract every year the production for the next three years.”​

Processors are confident of supply because dairy farms are already planning their herds, Healy explained.

“In the last two years we have seen the underlying trend that there are more cows in the field.​

“The national database from the Irish Cattle Breeding Association shows the number of calves being born is increasing, but Dairygold is increasing at a higher rate than the national average, because its farms are located in the more temperate southeast of Ireland,"​ he said.

Dairy foods of the future​

Investments in the existing factory will mean greater production of cheese, especially cheddar, said Dairygold’s food ingredients chief, while the dryer in Mallow’s greenfield site will produce skim powder, whole milk powder and infant formula.

Despite the size of the expansion, job creation will be modest, with 100 staff being taken on at the Mallow site.

“Modern dairy production is more about technology than jobs, particularly on the factory floor,”​ said Healy. “But there will be a lot of follow-on jobs in terms of logistics and salespeople, and a lot more graduates will be brought into the business.​

“The farm is going to expand, the contracts are in place and the investment has started.”​