Farm Ireland
Independent.ie

Saturday 20 January 2018

The dairy boom will not be another property bubble

Michael Brady

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.

Also Read


ICBF data shows the replacement stock are on the ground for this post 2015 and it will lead to a spate of building work, adding units to the milking parlour, extra cubicles, slurry and silage storage. I call all this 'small-scale expansion' and it really is a no-brainer.

Then there will be farmers and investors with the 'big scale expansion' plans for dairy farms, such as an additional 100-500 cows. The risks will be higher but hopefully the rewards will be too.

In the present economic climate the dairy farmer will be funding all the costs of on-farm expansion and even some of the off-farm expansion in milk processing. For some, there will be a need to own and manage multiple dairy farms – something akin to buying rental properties in the boom.

However, the basic attitude of banks to lending and Government to grants and tax relief will be entirely different in the dairy boom. Banks will be more conservative and loans will be well secured as farmers have the assets to back new loans. Grants from Government will be small and scarce.

The big difference between the property boom and the dairy expansion boom is that the property boom was driven by capital appreciation whereas the dairy boom will be driven by increased net profit.

In such a climate the feasibility of big scale investment plans will be judged on each dairy farmer's circumstances.

Will additional labour, land, livestock, buildings, machinery and finance be required for the expansion plan? The projected physical, financial and human targets must all be written in to a farm business plan.

The robustness of this plan must be tested, with a strong sensitivity analysis and the relevant contingency plans put in place.

In summary, Irish dairy farmers will expand their dairy businesses up to 2020 and beyond. Some will carry out small-scale plans and others will have bigger ambitions. Some will prepare and execute well thought-out business plans, while others will not. Most will be successful. Some will struggle but the expected boom should be good for both country and farmer alike.

Michael Brady is president of the Agricultural Consultants Association (ACA) and managing director at Cork-based Brady Agricultural Consultants and Land Agents. Email: mike@bradygroup.ie

Irish Independent