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Monday 20 August 2018

Darragh McCullough: Let's apply a bit of perspective to estimates of a 60pc drop in dairy incomes

Darragh McCullough on his farm in Stamullen, Co Meath. Photo: Gerry Mooney
Darragh McCullough on his farm in Stamullen, Co Meath. Photo: Gerry Mooney
Darragh McCullough

Darragh McCullough

Teagasc's estimate that dairy incomes will fall by 60pc this year was stark enough to make headlines. But dairy farmers are not the worst-off following this year's drought.

Granted, nobody likes to see their income fall 60pc, but let's apply a bit of perspective here. The fall is in comparison to 2017, which was the most profitable year ever for Irish dairy farmers, with average incomes of over €90,000.

There will be some out there that will point to the fact that there is 1.4 labour units on the average dairy farm, and that dairy farmers work more than a 40-hour week, and that they pay for new farm investment out of the profits.

But the profits still kick ass compared to any major farm enterprise. So much so that many dairy farmers will have a big enough cash pile from last year to carry them through 2018. Even with incomes of 'only' €45,000 projected for the average dairy farmer this year, it is still 50pc better than average incomes in 2009, and equal to that achieved in 2012 and 2016.

Some have seized on the feed shortage this year as concrete proof that Ireland's dairy herd has grown too big. Since the abolition of milk quotas, the national herd has increased by nearly 40pc to 1.45 million cows, so the average herd size has nearly doubled in the last 15 years to about 83 cows.

That expansion has left all but the most meticulous planners under serious pressure. But it has also allowed farmers to reap big rewards when things go right, as in 2017.

Don't be under any illusion that farmers would have had lots more fodder to spare if this drought had hit while the milk quota regime was still in place.

All that would be different is that more of the fodder would have been used to feed beefing animals retained on dairy farms. The milk cheques would have been smaller with a smaller milk pool, and there would have been even less money to buy in additional fodder.

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In reality, the worst affected farmers from this year's weather are the suckler men located in the east and south where the drought has hit hardest.

They are suffering fodder shortages just as severe as the dairy men, but they are suffering the double whammy of falling beef prices and escalating feed bills.

If you handed a full-time beef farmer an annual income of €45,000 after a good year (never mind a challenging year like 2018) he'd probably take the arm and all off you.

So my sympathies are with the beef farmers right now, even though all the analysis of how to cope with the drought and what can be done to avoid the same again will be focused on the dairy sector.

A dairy farmer's comment last week was harsh but fairly true: "Get bigger, get better or get out."

You could argue that reducing scale may also be a sensible option. It's one that you won't hear the milk processors ever suggest because the more milk they have coming in the door, the better it is for overheads.

But from personal experience, I've never seen how scaling down made an operation more profitable long-term.

Sure, it can make an operation less stressful, and perhaps long-finger further expansion until more sustainable options emerge in terms of land or extra help.

But smaller units find it hard to meet the quality of life aspirations of young farmers who want regular hours and time off. Smaller farms also struggle to justify the investments required to keep pace with the latest technology, machinery and regulations.

So most dairy farmers have gone with the option of getting bigger in the last few years. I can't see many opting to scale back because of 2018.

Having said that, I also think it would be foolhardy for farmers to cling to the notion that the weather in 2018 was a one in 40 year event.

I'm told that Ireland had three consecutive summers in the 1860s that were drier than this year. So even before considering the warnings from the scientists regarding climate change, the chance of more droughts in the next decade are higher than we'd like to admit.

Farmers also need to realise that they can afford less risk as their business becomes bigger. The upshot is that they are just going to have to get better at preparing for this type of year again. It's not mission impossible stuff.

For a start, dairy farmers need to create a silage reserve equal to 20pc of their total annual requirement.

Whether that's achieved over the next 12 months by buying in the silage, taking more land, or reducing non-core stock numbers is up to the farmer.

The biggest hurdle for most is getting over the psychological block about tying up €40/cow in feed that they will normally not require.

But if it makes sense to have an electricity generator as a back-up for an outage, and insurance on your farm and car, having cover when it comes to a feed plan is no longer an optional extra, ­especially now that the stakes are higher in bigger herds. It's the same logic that the ­Greenfield demo herd in Kilkenny used when they decided to create a cash reserve to cope with price volatility. There is just too much at stake in relation to outside factors that farmers have no control over.

When I mention Greenfield, it's worth noting that their best grass growing month in 2013, after a dry summer, was in October.

So while most farms are down about 2tDM/ha in grass output, all is not lost for 2018 yet, with growth rates of 100kg/ha still possible in the next couple of weeks.

Darragh McCullough farms in Meath and presents Ear to the Ground on RTÉ television

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