Dairy sector needs a new vision

Author: Michael Brady

Irish dairy farmers have hit the ground running since the abolition of milk quotas in April 2015. Milk production for the 2015 calendar year was up 13.4pc on and a further increase this year means we are well on target to meet the Food Harvest 2020 target of 50pc extra milk volumes by the year 2020.

Yes, we are experiencing a big speed bump en route as the annual price of manufacturing milk has fallen by 38pc since the high of 2013.

Increased milk production from dairy farmers in America, New Zealand and some of our European neighbours combined with reduced Chinese demand and a Russian ban on dairy imports from the EU have caused a surplus of dairy product on world markets.

Milk prices internationally have been falling since the autumn of 2014 but Irish dairy farmers have been cushioned by milk purchasers supporting the milk price in 2015.

However the current milk price fall is unlikely to slow down the march of Irish dairy farmers to milk more cows and produce more milk after the frustration of over 30 years of stagnation due to EU milk quotas.

However, after the initial surge in milk production the question must be asked, where is Irish dairy farming heading and where will it be by the middle of this century.

The key question for Irish dairy farmers to ask about the future is what will the average milk price be for the next 10 years?

Base milk prices in the region of 24c/l for a sustained period of time will break most confinement dairy farmers in America and mainland Europe as they are actually losing money every day at present prices.

The average spring milk dairy farmer in Ireland had a cost of production of 20.3c/l in 2015 per Teagasc Profit Monitor. It’s true that this does not include the farmers own wage but neither does it include the Basic Payment Scheme nor off farm income.

The fact is the average farmer in Ireland is not actually losing money at present milk prices – they are just not making money. Dairy farming now is what beef farmers are accustomed to every year.

It is probably a fair assumption that the longer the milk price stays low the greater and longer will be the uplift when the recovery comes around, as present prices are clearly not sustainable for the majority of dairy farmers in the world.

Therefore the focus should be on what the average milk price will be in the next decade and not on volatility which is the dominant topic in dairy discussions.

Assuming the milk price is in the 30-35c/l range in real terms, it is fair to assume there will be a major expansion in the Irish dairy farming over the next 40 years.

The number of dairy farmers in Ireland is expected to continue to decline according to Teagasc.

This would be accelerated by low milk prices but other factors will include age demographics, land fragmentation and the capital costs of entering dairying are also significant hurdles.

The factors which will determine the future size of the Irish dairy industry are:

  • how much land will transfer from beef, sheep and arable into dairying
  • how many extra cows will be milked on existing farms
  • stocking rate
  • milk production per cow
  • kiwi experience

New Zealand is an example we can examine to speculate or project what the future may hold for Irish dairy farming as it had a similar experience with the removal of state subsidies in the 1980s.

Dairy farmer numbers there have dropped by over 27pc in the 36-year period since 1979, yet production has increased by 373pc. Average herd size has increased from 124 cows in to 419 cows and both land farmed and stocking rate have significantly increased in the period.

The scale of the progress is simply staggering. Will we make similar progress?

Applying the New Zealand experience to Ireland over the next 40 years we see a very different dairy industry emerging from the one we have today.

Yes, New Zealand has approximately five times more land mass than Ireland but if the projected numbers are achieved dairying would still only account for 32pc of all the agricultural land in Ireland.

If the historical difference of dairying being five times more profitable than beef, sheep and arable enterprises continues, the swing to dairying in Ireland could be strong indicating these projections are possible.

Nobody can predict the future, yet dairy farmers and their families make decisions every day in their businesses and personal lives which will shape the future of our industry.

Nationally it is imperative that the future of the dairy industry is planned in a meticulous manner rather than vaguely working towards aspirations from previous plans that may already be out of date.

What is possible and what is desired may be two different goals but if we fail to plan we plan to fail.