What we learned from dairy co-op CEOs this earnings season

This year’s round of meeting with management of Ireland’s largest dairy co-ops generally had a much more positive tone about the state of the industry than what the Irish Farmers Journal encountered 12 months ago.

While the first half of 2024 was dominated by inclement weather, rapidly falling milk supply and difficult global dairy market conditions, there was a notable turnaround in all of those challenges in the second half of the year.

This turnaround was reflected in the results from the co-ops, which generally showed improved revenue and profitability (see Figure 1).

That was the year that was, and the reports on the individual processors were published on these pages in recent weeks.

We asked the CEOs of the co-ops what they see as the outlook for dairy production and where they see opportunities for investment over the coming years.

The future of the nitrates derogation still looms large over any discussion about where Ireland’s milk production will be over the coming years – Dairygold CEO Michael Harte said that a loss of the derogation would reduce deliveries to the co-op by around 200m litres annually, equivalent to almost 15% of its milk pool.

Presuming the derogation is extended again, the outlook is for milk to be slightly higher than what was seen in 2024, but over the longer term, there is little growth expected.

Tirlán CEO Seán Molloy expects milk supply to be 5% higher this year and prices to be higher, on average, in 2025.

Carbery CEO Jason Hawkins said that the outlook for milk deliveries over the forecast horizon looks “flat” – the co-op undertook a survey during the year which showed there was a balance between those planning to exit or reduce production and those planning an increase between now and 2028.

Lakeland CEO Colin Kelly also said that the expectation is for milk supply to be “reasonably flat over the next period of time”.

Investment

With the expectation of little growth in milk supply over the coming years and the future of the nitrates derogation continuing to hang over the industry like the sword of Damocles, it is no wonder that there is almost no appetite for investment in processing capacity across the sector.

The only investment of any note currently on the cards is Tirlán’s recent planning application for an upgrade to its high-protein whey production capabilities at its Ballyragget facility in Co Kilkenny. The facility will process the whey stream from the Kilkenny Cheese joint-venture.

Beyond that, those co-ops that have any plan to spend money are looking to invest in businesses that are complementary to their business model or would provide income diversification.

Tirlán have, even after the drop in Glanbia’s share price, an investment pot running to hundreds of millions of euro. Carbery said they have agreements in place that would give them €150m of spending power, while Lakeland said they have €70m to spend, should the right opportunity arise.

It was clear, however, from talking to management at the co-ops that none of them are in a hurry to put their money to work right now.

The added uncertainty over the global growth and trade outlook as a result of Donald Trump’s policies means that there are increased risks for any long-term investment.

Future of processing

There was almost universal agreement across the meetings the Irish Farmers Journal had with co-ops in recent weeks that further consolidation in the dairy processing sector in Ireland is likely.

Tirlán’s Molloy said: “Over the next decade, I could see the industry in Ireland having two or three co-ops at most.”

Lakeland’s Kelly said: “It is inevitable that there has to be consolidation on the island and there will be consolidation.”

Carbery’s Hawkins echoed that sentiment saying: “I think it is inevitable that you will see some more consolidation across the industry.”

Aurivo CEO Donal Tierney said: “Looking ahead, I don’t think there will be as many co-ops in the country in a decade as there are now. But I’m not sure when that [consolidation] will be triggered.”

Dairygold’s Harte said: “As an industry we all need to collaborate more. We’re open to any discussions around partnerships or consolidation or anything like that.”

Comment

Coming off the back of a very challenging 2023 and start to 2024, the recovery in dairy markets, weather conditions and milk supply in the second half of last year added to the strong start to 2025, meant that the mood overall across the dairy processing sector is quite upbeat at the moment.

The universal feeling is that there is little to no need for more stainless steel in the country and, with the outlook for milk supply over the coming years suggesting no growth in the national milk pool, processors are talking about diversification and the need for consolidation.

It is notable that there is something of the St Augustine about the way industry leaders talk about consolidation – they all seem to expect there to be fewer co-ops, but just not yet. While they are right that having consolidation just for the sake of it makes little sense, they also say that the consolidation is “inevitable”.

If it is indeed inevitable, then the time to get on with it is now, when the industry is in fairly good shape and deals can be made when neither side is being forced to the table by financial circumstances. If co-ops are unwilling to make that move now, then the CEOs should probably stop talking about consolidation and continue to run their businesses to provide the best return possible to their members.

Jason Hawkins at Carbery said that while he sees consolidation, he expects Carbery to be a spectator to any industry moves rather than an active participant. Donal Tierney at Aurivo said that there has to be a business case and that “scale isn’t everything”. Colin Kelly said Lakeland are not interested in doing a merger for the sake of growing volume.

All agree mergers will happen, and yet almost everyone seems quite coy about whether they’d be included in any merger. Right now, the only inevitability on mergers seems to be that co-ops will continue to talk about them and continue to stand back from actually engaging in merger talks.