Will land and labour costs stop Irish dairy farmers being competitive?

Martin Ryan

Specialist dairy producers in Ireland have now become the most cost competitive within the EU with the lowest cash-cost per kg solids base, expert analysis of sector for 2015 has shown.

As the leading producers forged ahead on production in 2015, following the lifting of the cap on output after the abolition of milk quotas on April 1, 2015, the top dairymen proved their ability to capitalise on their operational advantages.

However the positive future for Irish dairymen comes with a warning that the higher cost of land and labour in Ireland, threatens to undermine some of the Irish financial advantage.

Teagasc analysis of performance on specialist dairy farms in Ireland has shown that Irish producers had the lowest cash costs as a percentage of output (77pc), followed by France (83pc), Netherlands (92pc), Germany (99pc), with the highest cash costs as a percentage of output was Denmark (120pc). 

But the comparison pointed out that "when total economic costs were considered, the competitive position of the countries examined in the study changed and the competitive advantage of grass based Irish producers deteriorated when all imputed charges for owned resources are taken into consideration".

They found that "the most significant imputed costs that contributed to the relatively high total economic costs experienced by grass based production in Ireland, was the imputed charge for owned land and labour".

On a cash costs basis, per unit of milk solids, Ireland had the lowest cash costs per kg of milk solids produced in 2015 (€2.87) followed by Belgium (€2.88), Italy (€3.43),

France (€3.47), Netherlands (€3.61), Germany (€3.71) and Denmark (€4.83).

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Previous analysis showed that the competitive position of larger Irish dairy farms on a total economic costs basis improved. 

"This could be considered a positive factor now that farms have the ability to increase herd size and consequently reduce costs per kg of milk due to economies of scale on fixed costs items in particular," says the Teagasc analysists.

Due to very significant declines in milk prices during the past 24 months, the profit analysis has shown that some world regions experienced greater reductions in proftability than Ireland.

Cash costs as a percentage of milk output for Irish dairy farms compared with other regions internationally show that the typical Irish dairy farm compares similarly to Australia, New Zealand and Wisconsin dairy farmers. The larger size Irish dairy farms, with over 130 dairy cows, are predicted to be well positioned to meet the challenge of market competition for the future.

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