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Independent.ie

Friday 27 April 2018

Independent view: Expect quota expansions to be constrained

Declan O’Brien

The results of the latest round of the milk quota trading scheme highlight the hunger that exists for quota.

The Department of Agriculture confirmed that a total of just over 25.5m litres of quota was offered for sale, with almost 25m litres successfully traded. However, the volume of milk sought by farmers totalled nearly 162m litres.

A cursory glance at the figures shows the real thirst for quota out there. In Clona -- the co-op with the highest price of 35c/l -- 261,488 litres were offered for sale but 727,872 litres were sought. That is almost 2.8 litres sought for every litre offered.

At Dairygold and Glanbia, where the market clearance price was 31c, the demand for quota is even greater. The volume offered for sale at Dairygold was around 4m litres but the volume sought was more than 29m litres. That is a ratio of more than 7:1. At Glanbia, there was close to 6m litres offered but 39.5m litres sought -- a ratio of almost 6.5:1.

The ratio of demand to availability was even greater in the west Cork co-ops of Bandon and Barryroe. There it stood at 8:1 and 9.3:1 respectively. At Lisavaird, the ratio stood at more than 11.5:1.

There is little doubt that economics of buying quota stack up at the moment. The 31c/l paid by Glanbia and Dairygold suppliers equates to 7.5c/l over the four years to April 2015.

Production

Putting the cost of production at 18c/l, the buyers of quota would require the price of milk to remain above 25-26c/l in order to break even.

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However, the sad reality is that much of the quota is being driven by fear rather then by any positive planning.

Milk suppliers who had planned to expand their business in the run-up to the 2015 deadline for quotas have been left in no-man's land by this year's happenings.

Even if we escape a superlevy bill this year, the thought that we could just increase production freely up to 2015 has been shown for the fallacy that it is.

The reality is that Ireland will be constrained by milk quota from now until its expiry in 2015. Hopes of additional quota being released by the EU -- above the 1pc annual increase agreed under the CAP health check package -- or of the superlevy fine being significantly reduced have been ruled out by the EU.

Paying 31c/l for quota made financial sense this year but it will make less so as we get closer to 2015. So much for a soft landing to the milk quota market.

Indo Farming