Has the dairy bubble finally burst?

Michael Brady.

Agricultural Consultant and managing director at Brady Group: Agricultural Consultants & Land Agents. The Lodge, Lee Road, Cork.

They say all got things come to an end.

An economic cycle, which is also referred to as a business cycle, has four stages; expansion, peak, contraction, and trough. The average economic cycle in the U.S. has lasted roughly five and a half years since 1950, although these cycles can vary in length.

Dairy farming has been in expansion stage now since 2011, a decade of ‘driving on’, the question is, has the dairy bubble burst?

The Irish Dairy industry is the envy of the world.

We have a fully joined up industry; well educated ambitious farmers, excellent state sponsored independent research, a healthy mix of state and private advisors/consultants, great agribusiness service and support, primarily farmer owned milk processing, an export presence in 124 countries worldwide and finally a supportive government, up to the present time anyway.

So, after 5 years of good milk prices and profitability why am I questioning if dairy expansion is running out of steam, the following are the reasons why:

  1. Expansion Plan Done

The average farm size in Ireland is approximately 80 acres (32.4 ha). A grazing block stocking rate of 3.2cows/ha this equates to just over 100 dairy cows, being the optimum herd size to maximise grass utilisation, minimise concentrate/ purchased fodder and maximise profitability. Many farms have executed their business plans and are farming their developed system.

  • Herd Size Limit Reached

The average herd size in the country is now approaching 100 cows per dairy farm.  A farm of this size, run by an owner occupier is time hungry demanding job. Many have decided ‘enough is enough’.

  • Labour Shortage

Dairy farmers who have expanded into big numbers of cows are dependent on employing labour to help run the farming programmes. It is often described as making the transition from ‘managing cows to managing people’. The reality is some farmers are better than others at managing people. The current shortage of labour in all industries is also affecting dairy farmers, some have scaled back numbers due to the labour shortage.

  • Climate Action Concern

The whole climate debate is causing concern amongst farmers as to how all the new targets and proposed new regulations will affect their farming systems and their farm profitability. Some farmers are holding back on investing until the picture is clearer.

  • Peak Milk Supply Quotas

The imposition of peak management milk supply quotas by Glanbia was a major blow to supplier confidence in the biggest milk processor in the state. Most other milk processors are now being selective about taking on new suppliers. If you have nowhere to sell your you milk, it immediately reduces your options.

  • Talk v Action Timeline

We all know people who talk about doing things but never actually do it. Many farmers talking and planning about converting to dairying are unlikely to do so at this stage of the cycle. If they were not brave enough to push the start button in the last five years they are unlikely to do so now.

  • Comfortable with their lifestyle

Dairy farming is hard work, but it is profitable. Many farmers who invested in cubicle sheds and milking parlours between 2008-2012 have the majority of the bank loans repaid at this stage. Many are happy with their income and standard of living and are deciding to enjoy life a bit more, by stabilising the business and taking more time off, because they are comfortable and can afford it.

  • Dairy Farmer Numbers Decline Projected

The number of dairy farmers in the country fell consistently since we joined the EU in 1973, right up to 2007 when the removal of milk quotas was announced. Numbers have stabilised around 17,000 since then with new entrants balancing our those exiting the industry. I believe there are a significant number of dairy farmers with no successors, others are disillusioned with farming for whatever reason, all these farmers will exit are the first sign of change. A few years of low milk price or perhaps the new climate action measures will be the straw which breaks the camel’s back and force these farmers to exit the industry. This will then feed the expansion needs of the young ambitious dairy farmer, therefore they will be no overall milk supply expansion but replacement of existing dairy farmers supply.    

Don’t get me wrong, dairy farming in this country is flying, a genuine national and international success story but there is a ‘right number of cows’ for every dairy farmer, that can range from a herd of 50 cows to over 1,000 cows.

The trick is to work out what is the right number of cows for you and your farm. The macro fundamentals of a grass based milk production systems in a warm temperate climate are still here so the established dairy farmers can enjoy the fruits of their labour for many years to come.