Processing Capacity: A New Priority for Dairy Industry: Teagasc

Milk processing capacity will be the main factor influencing the scale of Ireland’s dairy industry in the future. Together with efficiency and added value, processing capacity will have a major bearing on farm income and on the future expansion plans of the industry. This emerged at a major Teagasc dairy open day in Moorepark, Fermoy, County Cork, Thursday, 21 June.

Speaking at Moorepark 07 Professor Liam Donnelly, Teagasc head of Food Research said: “Milk processing capacity is currently just about adequate to deal with peak milk flow and there is no further scope to increase milk output where that adds to the peak. Without further investment in processing plant, increased milk output can only occur by spreading the milk production curve. This is now the most urgent issue facing the industry in planning for a post-quota environment since it impacts directly on the ambitions of producers to up-scale.”

Dairy husbandry research at Moorepark provides a milk production blueprint that achieves a better spread and higher milk output in a cost effective manner. The need to adopt this model assumes much greater urgency as we prepare for quota liberalisation. A flatter production curve would allow an increase in process plant utilisation and in overall plant throughput without major new capital investment. Therefore, this is the first priority in planning for increased milk output. This increased processing capacity will serve the short-term needs of an expanding industry; however, Ireland’s true milk production potential will quickly exceed the capacity of existing plant and any medium-term strategy for the industry must provide for investment in new plant.

Professor Donnelly said: “Some of this new investment will be in cheese manufacturing but the main focus for volume milk utilisation will be on milk powder. Economic realities dictate that new powder plant investment, if it takes place, can only make sense if a high level of plant utilisation is guaranteed which, in the seasonal supply of Ireland, means a minimum seven months utilisation at full capacity.”

He argued that powder plants will need to have a minimum capacity of 10 tonnes per hour to achieve the necessary scale efficiency. Investment in new dryers is therefore likely to be centred on plants of this size which, when operated for seven months, will each handle around 480,000 tonnes of milk (120m gals) per annum. New investment in plant will also bring new technological efficiencies compared to existing plants which originated in the eighties. Milk collection costs are the second biggest component of powder production costs and are directly proportional to the radius of the milk collection zone. Therefore, these plants need to be located where the expansion in milk production will take place.

Where a new plant is being guaranteed a capacity milk supply, other plants will be needed that operate a short production season around the peak. To make economic sense these must be less capital intensive, an example of which might be smaller depreciated dryers.

Professor Donnelly argues that a full appraisal of the feasibility of investing in new powder plants is urgently required. He said: “This appraisal should address such questions as: What is the projected return on milk powder in the future? What production costs can farmers realistically achieve? Can the industry agree a milk pricing strategy that secures a flattened milk production curve? The answer to these questions will determine the future size of Ireland’s dairy industry and, hence, the credibility of our claim to have an especially advantageous position in milk production.”