Farm Ireland

Sunday 24 March 2019

Land of milk and money?

Could the much hyped end to milk quotas go sour with the dairy industry repeating the mistakes of the property boom? And what does it mean for consumers and the environment? Part one of a special report on 'The Milk Bubble'

A mother and daughter in Tesco Rush. Photo: Mark Condren
A mother and daughter in Tesco Rush. Photo: Mark Condren
Farmer Shane O'Loughlin, wife Joanne children, Dominic, Sophie and Charlotte in Aughrim, Co Wicklow. Photo: Garry O'Neill
Kim Bielenberg

Kim Bielenberg

On a TV screen in the lobby of the Department of Agriculture, a digital clock counts down every second until midnight on April 1.

When the clock strikes 12 on Tuesday night, milk quotas - the restrictions on production by dairy farmers - will be lifted. Some dairy farmers are even planning parties to celebrate an occasion that has been dubbed "milk freedom day".

At that very moment, lorry driver Billy Callaghan will be ready and waiting down on a farm in Co Cork to load his tanker of milk.

Billy will be driving all night, delivering milk to the Dairygold milk powder factory in Mitchelstown as farmers ramp up production in the hope of extra revenue. The shackles will be off and they will be allowed to produce as much as they want.

The optimists hope that the lifting of quotas will be the biggest boost to rural Ireland since we joined the European Union, turning us into a land flowing with milk and money.

Some experts predict the number of jobs will create the bovine equivalent of a Silicon valley. The forecasts vary from 10,000 up to 20,000 jobs, and these will be mostly in South Leinster and Munster.

If the Ireland dairy boom succeeds, the jobs will not just be in farming, but in construction, machinery, processing plants, transport, veterinary supplies, hardware shops and the benefits will filter into towns and cities.

But there could be a downside if it all goes teats up.

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Dairy sceptics warn that the great the surge in milk production by 50pc in the next five years poses enormous economic and environmental risks.

According to this view, the great white hope could be little more than great white hype.

There are fears that the lifting of restrictions and greater supply will lower prices, and farmers will struggle to repay the money borrowed to build new milking parlours.

The effects on the consumer are likely to be marginal, according to most agricultural experts. But as more land is given over to grass for dairying and beef, they will notice that most of the rest of their shopping basket, including the humble spud, is imported.

The dairy boom, if it happens, will impinge on the non-farming public in other ways. There may be a jobs boost, but environmentalists believe it will lead to poorer water quality as a result of overuse of nitrogen fertiliser.

John Gibbons, of the conservation group An Taisce, says: "If we are expanding dairying, we are going to have to intensify grass production. Farmers are going to lash on more nitrogen and that will inevitably end up in our waterways."

Most dairy farmers, according to the most recent farming surveys, say they plan to expand. That means they could be buying more cows, building more sheds, buying new equipment and perhaps buying or leasing more land.

Economist Jim Power says that when it comes to borrowing heavily, agriculture is the new property - and banks are offering loans left, right and centre.

The economist tells Weekend Review: "There is a danger of a milk bubble in Ireland, and like every other bubble it is driven by too much credit.

"Milk prices are going to become much more volatile in a more globalised world with greater competition, and I would be worried that those who concentrate on dairying will be vulnerable

"During good times, farmers can get carried away and borrow aggressively. They create dangerous exposures and then, when the bubble bursts, they are left high and dry."

The agricultural consultant Dr Richard Hackett believes the country is focusing too much on dairying, while we import truck loads of potatoes, onions, broccoli and other vegetables.

Eagle-eyed shoppers will notice that every slice of bread in an Irish supermarkets is made from imported wheat or flour in a country with one of the highest cereal yields; the vast majority of chips are cut from imported potatoes; and nearly every apple is foreign.

Dr Hackett believes questions need to be asked whether dairying should become the only show in town, and predicts our new addiction to milk will come at a hefty price, as farmers depend on highly volatile international commodity prices.

Much of the optimism and predictions of "white gold" are based on the experiences of New Zealand.

Minister Simon Coveney has highlighted how, three decades ago, when milk quotas were introduced, Ireland produced the same volume of milk as New Zealand - 5.5 billion.

Since then, the New Zealanders have not just beaten us at rugby, they have increased their milk production to 20 billion litres a year, while our output has remained static.

The New Zealand example, which relies heavily on sales of baby and infant formula milk to China, has helped fuel hopes that we can expand our production by 50pc with the lifting of quotas.

But Dr Richard Hackett believes we need to have a mixed agricultural economy, continuing to grow crops.

"The danger is that we will become a one-trick pony. The growth in milk to China is in follow-on infant formula and whey powders for protein supplements, but those are not necessarily stable markets.

"What happens if the Chinese decide they don't want imported infant milk or whey powders any more? It's hard for a farmer to suddenly turn off the tap," warns Dr Hackett. "If you spend a couple of million on a milking parlour and then all of a sudden the price collapses, you can't suddenly grow lettuce in the milking parlour."

Those expanding their dairy herds and installing robots to milk their cows will hope that a greater flow of milk will be met by rising demand.

Kevin Bellamy, dairy analyst with Rabobank, predicts that annual demand for milk will rise by an average of 2pc every year between now and 2020.

This is being driven by continuing global population growth, urbanisation and rising disposable income. Irish infant formula milk is attractive to middle-class Chinese parents, who were spooked by a contamination scandal in 2008 when 300,000 children became ill and six died.

While he is fearful of borrowing by farmers, the economist Jim Power believes there are big opportunities for the dairy industry and companies such as Glanbia.

The new €185m Glanbia milk-processing plant in Waterford is the largest Irish-owned development since the massive electricity generator was built at Ardnacrusha in the 1920s.

The plant will turn 700 million litres a year into dairy powders for export across the world. Remarkably, it will employ just 70 people directly, but indirectly it is estimated that it will create 1,500 jobs along the supply chain.

Glenisk, a much smaller indigenous business that produces organic milk and yoghurts, hopes to double in size as a result of the lifting of quotas.

Glenisk's managing director, Vincent Cleary, highlights the fact 75pc of yoghurt sold in Ireland is now imported.

He tells Weekend Review: "There is a big opportunity. If we have more milk, we could make more yoghurt.

"Hopefully we will increase our workforce from 65 to 100 in the next two years."

While many farmers are expanding their milk operations, others are proceeding cautiously.

They are waiting until the dust settles, and seeing if there really are profits to be made.

Shane O'Loughlin milks 85 cows on his family farm near Aughrim, Co Wicklow.

"While I hope to expand in the future, I'll be sitting back and seeing what happens. There's no point in producing more milk just for the sake of it. It has to be profitable."

The attraction of dairy farming is that earnings are relatively high in a good year. Last year, the average Irish dairy farmer earned €60,000.

However, the forecast by the farm research body Teagasc for this year is half that, because of price volatility.

Even if the dairy boom brings riches to rural Ireland, it will come at a huge environmental cost, according to John Gibbons of An Taisce's climate change committee.

"The effect of adding 300,000 dairy cows will be to sharply increase our greenhouse gas emissions through the production of methane.

"It guarantees that we will miss our emissions targets, and leave the taxpayer open to severe penalties from the EU."

If the milk profits keep flowing, some farmers may believe it is a price worth paying.

As the era of milk quotas comes to an end, dairy farming may be the great white hope. The Mayo dairy farmer John Comer, the president of the Irish Creamery Milk Suppliers Association, is cautiously optimistic about the industry's future, but dislikes the "White Gold" hype. He says farmers should avoid over-borrowing and "make haste slowly".

Indo Review