Tuesday 27 September 2016

The bubble has definitely burst, but dairy is still a good bet

Published 12/04/2016 | 02:30

Leveraging our natural competitive advantage to produce milk as cheaply as anyone else on the planet will increase the economic output of Ireland’s agrisector. Stock Image
Leveraging our natural competitive advantage to produce milk as cheaply as anyone else on the planet will increase the economic output of Ireland’s agrisector. Stock Image

The average Irish dairy cow produces five tonnes of milk a year. But with a payment of little more than 27c a litre this year, she will barely cover the cost of her keep on many farms in 2016.

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The dairy bubble has well and truly burst, with prices down more than 40pc from their highs nearly two years ago. In 2014 the State's agricultural research body Teagasc estimated that the average 70-cow herd netted an income of €69,000, while one in five dairy farmers made more than €100,000.

No wonder most of Ireland's 17,500 dairy farmers were chomping on the bit in anticipation of the day when the 30-year-old milk quota regime was due to end.

You couldn't blame them. For 30 years the market protection kept European milk prices steady throughout the vagaries of global market highs and lows. But towards the end of the regime, Irish dairy farmers were getting impatient with the artificial limits imposed by milk quotas.

They knew that the year-round grass growth that graces most Irish farms would ensure that they could produce milk almost as cheaply as anywhere else in the world.

This is why Irish dairy farmers were right to be excited about the removal of milk quotas.

But has that dream turned sour?

There will be a lot of belt-tightening on dairy farms around the country this year. But this downturn was well-flagged, and the only real surprise is its length.

In addition, farmers are in a better financial place compared to the last milk price crash in 2009.

It's the less efficient, smaller dairy herd that is going to struggle most. Of course, it was ever thus. Even during the three decades of milk quotas, when there were buffers to protect the more vulnerable, the number of dairy farms collapsed from 80,000 to just 17,500. The remaining farmers just had to run faster to stand still. Herd sizes nearly trebled, and milk output climbed steadily.

So to blame the end of quotas for the inevitable fall-out from this year's downturn is to ignore trends that were there before.

The upside of their removal is that it is possible for the first time in a generation for young people who don't have a dairy herd to inherit to make a career in milk.

In addition, leveraging our natural competitive advantage to produce milk as cheaply as anyone else on the planet will increase the economic output of Ireland's agri-sector. At least in dairying, there's a chance for the average farmer to make something similar to the national industrial wage. In beef, sheep and tillage, the average has consistently trundled along at less than €30,000.

Downstream in the processing sector, the economic benefit may well be even greater, with home-grown multinational giants such as Kerry and Glanbia employing thousands of food scientists and plant operatives.

Irish Independent

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