Slump in farmers' milk prices wipes €1bn from the wider economy
End of quota tightens the screw on rural families
Published 12/04/2016 | 02:30
Plummeting dairy prices have wiped more than €1bn from the rural economy, as farm families feel the pressure of the fallout from the end of milk quotas.
It was touted as a major opportunity for dairy farmers when, on March 31, 2015, the quotas that had limited production for 30 years and curtailed the country's milk pool came to an end.
Yet a year into the new dairy era, many farmers are facing major cash-flow worries during the busy springtime, as the milk price has slumped almost 40pc from the highs of 2014.
The 'wipe-out' has been described as worse than the last major trough that hit in 2009 and is causing major concern across the EU's dairy industry.
The slump in milk prices has wiped more than €1bn from the rural economy, where agriculture has been touted as a fail-safe in recent years in securing jobs during the downturn.
The ICMSA (Irish Creamery Milk Supplier Association), which represents dairy farmers, has calculated that a 37pc slump in milk prices since 2014 shrank milk cheques by €627m during 2015 and in 2016, as low prices continue.
If an economic multiplier of 1.7 is applied, this brings it to just over €1bn, taking into account the wider impact on the economy.
The slump comes as the European Commission accepted a French proposal to reduce the milk supply or effectively move towards voluntary quotas by paying farmers to stop producing milk.
However, Ireland has ruled out this move, as our dairy farmers have sent Ireland to the top of Europe's milk league table with growth of 13pc.
In the first 12 months without quotas, the volume of milk going through Glanbia's processing facilities rose by 22pc, while supplies surged by 20pc at Arrabawn.
Rabobank dairy analyst Kevin Bellamy said the situation remained "pretty tough", yet there were signs of life in the world market, with China returning to purchasing.
He said: "I'm not sure I'd use such emotive language as 'tsunamis' of milk but there is a lot of milk coming onto the world market." He explained that dairy prices had dropped as the price of oil price fell, the world economy slowed and people were not consuming as much dairy.
Both Bank of Ireland and AIB have said there are no major signs so far of cash-flow difficulties on Irish farms, yet the impact may be felt in the coming months as farmers face spring bills and lower milk cheques.
Cork agri-consultant Mike Brady said the extent of the increase in production across Europe since the ending of quotas had not been foreseen.
"The whole thing is still driving on," he said. "Quotas are history now, off the agenda."
He said expansion was continuing to happen, with the Government also offering grants towards farmers for infrastructure and other items.
"There is opportunity in the dairy industry and it still has potential," he stressed, adding that being an efficient farmer with tightly controlled costs was key.
"The low milk prices can't be a long-term thing," he said, pointing to troughs in the past.
He added: "Those that are committed will be there for the long term, the basics are still right."
John Comer, president of the ICMSA, said it had been a "gruelling" time for the country's 17,500 dairy farmers, with the current average base price of 24c per litre now below the cost of production.