Warning of quota bubble as exchange prices soar

Caitriona Murphy

Prices of up to 56c/l in the latest Department of Agriculture milk quota exchange have raised concerns that a "quota bubble" could be developing.

ICMSA dairy chairman Pat McCormack warned that the prices, from 8c/l to 56c/l, made no commercial sense.

The price paid for Kerry quota increased almost four-fold from 8c/l to 30c/l and even in the traditionally low-cost quota areas of Connacht Gold and Arrabawn, the prices almost doubled from 5c/l to 9c/l. Lakeland's quota trebled in price to 15c/l.

The quota exchange highlighted phenomenal demand for milk quota in certain areas, as shown in the table (right).

Demand for quota was by far the highest among Lakeland Dairies suppliers, where the ratio of quota demand to quota supply was a staggering 43:1. Lakeland suppliers clamoured for almost 40m litres of milk quota, but there was only 925,912 litres offered for sale.

Lakeland chief executive Michael Hanley said the milk quota exchange had highlighted the level of optimism among Lakeland suppliers.

"I said last year that I was reasonably optimistic about the prospects for milk and dairy products and prices for farmers up to 2015," he said. "I still believe that and hopefully it will continue beyond 2015."

Arrabawn CEO Conor Ryan said the increase in the price of Arrabawn quota from 15c/l to 34c/l was indicative of the demand for expansion among its suppliers. Demand exceeded supply by 5:1.

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Mr Ryan also maintained that the quota buyers had assessed their individual positions and made the informed decision to buy quota.

He added that the buyers were not just investing in quota but also possible future links with contracts or processing rights. Quota would continue to have some value post-2015, he said, although it remained to be seen at what level.

Mr Ryan was critical of the massive variation in quota prices across the country.

"Take a farmer in Lisavaird who paid 54c/l and a man in Donegal paid 8c/l but they are both milking cows and producing the same thing."

ICMSA dairy chairman Pat McCormack insisted the dramatic and unjustified rise in the cost of quota made no sense.

"There is a bubble in the making here and ultimately it will be dairy farmers who will pay for it. At a time when quota prices should be falling, the opposite is the case," he said.

Mr Ryan added: "In the new year, and in advance of the second stage of the quota trading scheme 2012-2013, there should be more guidance and information to farmers so they can make rational decisions."

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