Maximising grass usage will unlock dairy profits
Dairy farmers must focus on their core advantage in volatile global market
Irish dairy farmers have maintained or increased their competitiveness since the abolition of milk quotas in April 2015 but farmers are still a long way from making the most of grassland.
Pat Dillon from Moorepark Research Centre told last week's Teagasc National Dairy Conference that production costs have been reduced on Irish farms due to the greater output, but further gains "are still to be obtained in grass utilisation on dairy farms" which will deliver significant financial benefits to producers.
"The large increase in milk production in Ireland forecasted with the abolition of milk quotas has materialised. This has been associated with an increase in herd size as well as an increase in milk yields per cow," he said.
"In the first year after milk production abolition milk production increased by almost 19pc in Ireland, while the increase in the EU 28 was 4.2pc, in USA 2.4pc but deceased by 1.5pc in New Zealand," he added.
He pointed out that the corresponding increase in demand over the period had been lower than predicted due to the lower than expected demand from China, low oil prices and Russia remaining largely out of the market.
"This provided the perfect storm in terms of global dairy commodity prices with milk prices bottoming out in June 2016, before significant correction to the supply-demand imbalance in the second half," he said.
He stressed that "minimising costs should be an important objective" and if Ireland is to secure a greater share of the world market in the future competitiveness of the sector will be crucial.
"In the future dairy farmers will be required to develop systems of milk production capable of delivering sustainable returns within a volatile milk price scenario," Dillon pointed out. "In Ireland this will be best achieved through the development of low cost grass base systems of milk production," he said.
He said that direct costs had dropped from 16.2c/l in 2013 to 12.7c/l last year and fixed costs were down from 11.3c/l to 9.7c/l.
Latest data shows that Irish farmers had the lowest cash costs as percentage of output in the EU at 77pc compared to France at 83pc, Netherlands 92pc; Germany 99pc; and Denmark 120pc.
However, the Irish advantage deteriorated when imputed costs were taken into consideration with the economic benefit of a grass-based Irish system reduced by the imputed charge for owned land and labour.
"It could be said that whilst milk prices and margins have been relatively depressed in Ireland over the last 24 months, it must be recognised that dairy farmers in Ireland were fortunate that the outcome was not worse," Dillon maintained.
"Weather and exchange rate movements were favourable," he explained.
"This meant that the reduction in profitability at farm level was a lot less than potentially possible based on market conditions," he concluded.
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