Farm Ireland
Independent.ie

Thursday 21 September 2017

More than 1,400 new dairy entrants needed to hit ambitious 2020 targets

Darragh McCullough

Darragh McCullough

OVER 1,400 new dairy entrants will be required if there is to be any hope of the dairy sector hitting the 50pc increase outlined in the Food Harvest 2020 report.

Despite co-op surveys indicating that farmers are more than willing to boost their output by at least 50pc, detailed analysis by Teagasc shows that this outcome was skewed by the high milk prices of 2010 and 2011.

A study from Teagasc's specialist economics unit, FAPRI, that is due for publication in the coming weeks, shows that milk production on existing farms is likely to only increase by 20-30pc relative to 2008 levels.

An additional 1,422 new entrants milking an average of 100 cows each would be required to reach the 50pc mark, but only if milk prices stay reasonably high.

This assessment is totally at odds with the current expectations for the sector. Milk processors, particularly in the southern half of the country, are predicting at least a 50pc growth in milk supplies.

Thia Hennessy of FAPRI said milk prices between now and 2020 will have a huge impact on the actual increase in output.

Many of the farm surveys conducted by dairy processors were carried out during 2011 when milk prices were close to 34c/l.

Long-term projections for milk price at the moment tend to be closer to 29c/l.

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However, the additional processing charges on extra milk produced after 2015 will lower the effective milk price for many farmers by at least another 1c/l.

In this price scenario, the study suggests that milk production on existing farms will increase by 32pc.

However, most of this rise will be concentrated in Munster, with the rest of the country increasing output by 25pc or less.

This increase assumes that at least half of the existing dairy farms increase output.

The research acknowledged that production is likely to increase by close to 20pc in the decade up to 2020 simply by lengthening lactations, reducing milk fed to calves, improved breeding and better management.

But the study also predicts that the number of farms ceasing milk production will accelerate in the initial years following quota removal, due to lower milk prices.

During the decade 2001-2010, the average annual rate of decline in dairy farm numbers was 4pc.

ANALYSIS

This could be replicated if suppliers net returns per litre produced hit 26c.

Low milk prices would also remove incentives for productivity increases per cow. In this scenario, the study shows that national milk output will actually decrease by 13pc.

The maximum expansion that can be expected on existing dairy farms if the net milk price being returned to farmers falls to 26c/l is 18pc, according to FAPRI.

The analysis is the latest to question the 50pc targeted increase.

A recent research note issued by Davy Stockbrokers' analyst John O'Reilly said that using the post-1973 period -- when milk production increased by 50pc -- as an analogy for what might happen after 2015 was invalid.

"New processing capacity (in the 1970s) was 50pc funded by grants. Unlimited intervention existed. Very limited assistance is now available, while product volatility has replaced minimum price certainty," Mr O'Reilly said.

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