Farm Ireland

Friday 15 December 2017

20pc milk output rise to cost sector €150m

Industry faces €15.8m-a-year in processing charges for extra milk

Darragh McCullough

Darragh McCullough

An initial investment of €150m will be required to increase milk processing capacity by 20pc, a major study on the cost of expanding the dairy sector has found.

This would equate to an ongoing annual cost of €15.8m, or 0.3c for every litre of milk produced by Irish farmers. The figures are based on research carried out by UCC's agri-food economist Dr Michael Keane on behalf of the ICMSA.

Dr Keane estimates that €140m will be required to fund two new 15t/hr milk-powder driers on separate greenfield sites, while another €10m will be required for 50 additional milk tankers to transport the extra milk. With depreciation and interest costs, this type of capital investment would end up costing the Irish dairy industry €15.8m a year.

The analysis comes in the wake of the Government's Food Harvest 2020 report, which targets a 50pc increase in production from the Irish dairy sector over the next 10 years. Irish Dairy Board head Kevin Lane had previously estimated the total cost of this increase to be at least €850m. Several detailed analyses are currently being undertaken by Teagasc's FAPRI unit, KPMG and the recently formed Dairy Implementation Group, which is chaired by Dr Sean Brady. One of the key questions that the think tanks are aiming to answer is how much extra processing capacity will be required.

Some industry leaders suggest that the existing processing infrastructure could cope with a 10pc increase in the national milk pool. It is also believed that a switch to earlier calving dates, akin to the Moorepark blueprint, would allow another 10pc of milk to be processed in the early part of the season before the production curve peaks in early June.

Combined, these two factors would allow national milk output to increase by 20pc without any additional investment in processing facilities.

The ICMSA's report looked at a requirement for 20pc more processing capacity on the basis that there was likely to be occasional years of poor weather or low prices that would curtail milk output increases between now and 2020.

“Any increase beyond this point will also require a change in the product mix,” added ICMSA general secretary Ciaran Dolan.

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The report concludes that it is unlikely that the traditional seasonality of Irish milk production will change. This is based on Dr Keane's calculation that it would cost spring-calving herds 1.5c/l to switch to all-year-round production. This is three times the amount that the dairies would save in processing costs by putting more product through their facilities.

As a result, Dr Keane states that, “the advantage in an Irish context lies with spring calving, grass-based production.” He also said that establishing the processing facilities on an existing serviced site would have the potential to significantly slash investment costs. Mr Dolan added that this report was a first attempt “at moving away from general commentary”.

“The next step is to establish who is going to pay,” he said.

Irish Independent