The dairy boom will not be another property bubble
The optimism presently surrounding dairy farming suggests the country will be full of cows by 2020. Will this really happen?
Co-op surveys predict an increase of 20-60pc in milk supply and the Food Harvest 2020 Report is targeting a 50pc increase in dairy output. Banks are offering dairy expansion loans, milking machine suppliers are booked up for months ahead and the Government is craving growth, talking up the benefits of the food and drinks industry based primarily on the expected dairy surge.
What is dairy expansion? I define dairy expansion as simply selling more milk. It can come from milking more cows and/or getting more from existing cows.
The question is what motivates a dairy farmer to sell more milk? Milking more cows ultimately means more work, responsibility, risk and management. So why do it at all?
It's all about the rewards for those who have the ambition and desire to expand. The tangible rewards are increased profitability, more free time with employed labour, providing employment for the family. In addition, there are the emotional rewards of pride and satisfaction in growing your family business and being successful among your neighbours and peers.
The first surge in milk production will be dairy farmers presently milking with the handbrake on due to milk quota restrictions. Clearly the southern processers, Glanbia, Dairygold and Carbery – via the West Cork Co-ops – will see the largest increases as their suppliers, strangled by lack of milk quota for years, allow this milk to flow.
This will be very profitable milk for these farmers as they have the land, livestock, buildings, machinery and labour already in place. The next wave of milk will come from increased cow numbers on existing farms, dairy farmers dipping the toe in the water so to speak by keeping an extra line of cows to milk in the parlour.
With net profits in dairying historically averaging around €750/ac, milking an extra 10 cows will add between €7,000 to €10,000 per annum to the bottom line when economies of scale are taken into account.