EU dairy reduction scheme makes little sense for most Irish farmers
Who would have believed just 520 days after the removal of milk quotas the EU would introduce a scheme to pay dairy farmers to reduce their milk supply? Farmers have until Thursday, September 15 to decide if they wish to enter the new scheme.
Over 90pc of Irish dairy farmers have spring calving herds that will be drying off in the coming months. The big question is, is it worth drying cows off early and applying for the 14.4c/l?
To qualify for payment in this tranche of the scheme one must sell less milk in the three months from October to December 2016 compared with the same reference period in 2015. However, payment is only available for reducing 2015's milk production by up to 50pc - nothing more.
I've done the sums on a 100 cow compact calving spring dairy herd, selling 500,000 litres of milk annually or 5,000 litres per cow. This herd would sell approximately 70,000 litres from October to December.
The EU scheme will only compensate 35,000 litres (half of the milk produced in the period). The following are the main options for the dairy farmer to consider:
(1) Milk the 100 cows and ignore the scheme. (2) Milk 100 cows for October and part of November until 50pc is supplied, then dry off. (3) Dry 50 cows now and milk the other 50 for their full lactation. (4) Dry everything off on October 1.
The sums are calculated as a partial budget in the table by comparing extra net profit or cash entering the dairy farmers bank account from each of the four options.
Option 1, to ignore the scheme and milk on the 100 cows, has the best net profit of €12,448 entering the farmer's bank account. However, it is only €854 better than availing of the EU Scheme in option 2 and 1,184 better than option 3 where only 50pc of 2015's October, Noveber and December milk supply is sold.