Opinion

The European Union needs to curtail milk output

It’s now obvious that some steps will need to be put in place to control milk output across the European Union (EU).

If this is not done, then a return to boom-boost economics within the dairy sector is inevitable – and Ireland will have to play an active part in this process.

The European Commission has made it clear that it will not revert to intervention buying practices as a means of stabilising markets, should they start to go ‘pear shaped’ at some stage in the future.

Its immediate priority is that of offloading the 375,000t of milk powder that is already in storage right across Europe.

All of this means that commercial markets will dictate the prices received by Irish milk producers in the future.

And they are controlled by the all-important supply/demand factors.

Controlling milk output is not code for re-introducing milk quotas by the back door. Rather, it is a recognition on the part of the EU member states that more effective market analysis can be brought to bear, so as to provide milk producers with a realistic prediction of what’s coming down the track, where supply and demand are concerned.

It only takes a relatively small growth in international supply, above demand, to trigger a significant fall in milk prices.

This also reflects the reality that only a very small proportion of the world’s milk output is traded internationally.

The same principle also works in reverse, when milk demand outstrips production. Controlling milk output across the EU should not necessitate a root and branch review of the business plans put in place by every dairy farming business.

Rather we are talking about a tweaking of output, in order to provide the required level of market stability.

The Irish co-ops have a vital role to play in this process.

They are best placed to recognise the changes in demand that are coming down the track. It’s then a case of communicating these trends to farmer-suppliers.

There has been no end of talk over recent months about the need to find ways of curtailing volatility within the dairy sector. However, the return to reasonably strong market conditions since the middle of 2017 has taken the edge off this debate.

Given the latest predictions from organisations such as Rabobank, there is a distinct possibility that the lustre may start to come off milk prices in the not-too-distant future. Given these circumstances, now is the time for the dairy sector to start coming up with real solutions to the volatility challenge.