Written Statement - Report into the feasibility of increased milk processing in South West Wales

I announced a Review of the Dairy Sector in Wales on 14 October 2014 and the review with my response was published in March 2015.

The review made a recommendation that the Welsh Government “Complete a feasibility study to evaluate the potential of a market driven dairy processing facility in South West Wales to provide a secure added value market for the anticipated additional 400million litres/annum of Welsh milk produced by 2020.”  

My officials commissioned a report on the feasibility for expansion of the dairy processing capacity in South West Wales (external link).  Brookdale Consulting completed this study on behalf of Welsh Government and it is published today on the Welsh Food and Drink website: 

The report’s findings are important as the economic impact of dairy farming in South West Wales is considerable at some £271m per annum. Dairy farms generate a significant amount of economic activity in our rural areas through the purchasing of animal feed, fertilisers, veterinary medicines and machinery. Milk processing provides many jobs in rural areas where wages are spent locally sustaining both the local economy and rural communities. The rural economy in South West Wales is strongly linked to the health of the dairy sector.

Welsh milk production continues to increase, exceeding 1.8 billion litres in 2014-2015, despite the last year restricted somewhat by the EU milk quota system. Production in the current year has also increased, despite difficult market conditions, and the aspiration to produce 2 billion litres by 2020 now looks increasingly likely to be met. South West Wales in particular is well placed to become a regional powerhouse for dairy production in Europe with strong competitive advantages when it comes to milk production. The climate is ideally suited for growing grass, our dairy producers are technically advanced and we have much modern infrastructure concentrated amongst family farm businesses.

One restriction on the further growth of the sector here in Wales has been our low processing capacity for the milk we produce, with much of the milk  in Wales having to be transported outside the country for processing. Encouragingly the report clearly found that Wales based milk processors already purchasing milk from the Pembrokeshire, Carmarthenshire and Cardiganshire milk field have an ambition for further growth which, if realised, would grow the market and meet the expansion aspirations of dairy farmers. In particular, the report found that there already exist impressive expansion plans from existing processors which could, in the short to medium term, see 350 million litres of additional processing capacity added to the current infrastructure. In the longer term, the report finds that between 700 million to 1 billion litres of capacity could be added if all the current plans of Welsh processors came to fruition. Such competition for milk from processors will help to hold the milk price at a sustainable level and help reduce the considerable amounts  of milk that continue to leave Wales for processing.

The study set out to determine the potential for another market driven dairy processing facility in South West Wales but discovered that the way forward will be the expansion of the existing and established milk processors which will enable dairy farmers to increase production, grow sales and secure their future. The expansion proposals are based on identified market demand and are complementary with a strong export focus in dairy commodities.  The processors through their development plans are expressing a strong vote of confidence in the dairy sector. The opportunities include both commodity products and innovative added value products. The Food Business Investment Scheme may be able to provide grant aid to support expansion plans and it is pleasing to note that processors are expressing interest in the scheme. I am also supporting Food Innovation Wales which will work with dairy businesses to advance innovation into high value products which will reduce dairy producer’s exposure to the fluctuations in global trade prices which have depressed the farm gate price in Wales recently.

This Government will continue to work together with the Dairy Leadership Board and in an integrated way with the dairy sector.  Farming Connect provides support to dairy farmers while Food Division supports processors to innovate and to develop new markets.  We also engage directly with retail and foodservice markets at home and abroad to secure new customers for our quality products.  I believe that our goal of a sustainable dairy sector, at the heart of strong rural economic growth, is achievable and will deliver benefits for all of those involved both directly in the milk supply chain and also more widely in rural communities.