Farm Ireland

Monday 22 January 2018

Economist: Difficult

Troubled times lay ahead says Trevor Donnellan
Troubled times lay ahead says Trevor Donnellan

Trevor Donnellan, Teagasc FAPRI

"While I expect expansion to occur, I believe that the 50pc target will be a major challenge. Even though significant expansion will occur on individual farms, the number of farms will decline. There are 400-500 dairy farmers exiting production every year, so some expansion on the remaining farms is required just to maintain output at existing levels.

"Some dairy industry executives are worried about the pressure of finding new markets for the extra product. I can see where they are coming from. Four to five years ago, everybody thought we should be producing more cheese. Now there's a lot of talk about infant formula. Will it be something else in five years time? Value-added products will require less seasonality of supply and I don't believe that is a realistic outlet for much of the additional milk since it wouldn't be an efficient option for many dairy farmers. WMP is an obvious outlet but does that expose us to more of the vagaries of world commodity markets? Does that mean we forego opportunities on the less volatile EU market?

"I think the main increase in production is going to be concentrated in the Glanbia and Dairygold catchment areas. I would be concerned that farmers will pile into extra production on the basis that it is a one-way bet investment-wise, without analysing their capacity to deal with the extra labour and capital requirements and higher stocking rates. There are no guarantees that extra production will be profitable for every producer.

"It's difficult to believe that Irish milk prices are going to average out at more than 30c/l, because prices higher than that are likely to also boost milk production from other countries, which in turn will depress world prices. The FAPRI model suggests a target price of 27-28c/l on average. In Ireland we can expect to be two or three cent either side of that average from time to time depending on the world market situation."

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