Opinion

Opinion: At what cost – the attainment of Harvest 2020 for the Irish dairy industry

Was it part of the Food Harvest 2020 plan for the Irish dairy industry that it would be reliant on catastrophic weather events – in either mainland Europe, New Zealand or the US – to deliver sustainable prices in the post quota era?

Because this, essentially, is the outlook now in the offing as Irish milk producers consider their prospects for 2016.

All of the international dairy industry analysts are now predicting a very challenging period for milk prices – possibly right through to the end of the current year. Fonterra has downgraded its price forecast for all of 2016 while Rabobank points to supply demand factors putting further pressure on returns during the period ahead.

Ireland’s milk industry has come through tough times before: the combined price crash and bad weather debacle of 2009 and the fodder crisis of 2013 to name but two. But, back then the vast majority of the dairy farms affected were mature businesses with a heritage gong back for a full generation and, possibly, longer.

Today, however, there is a new cohort of milk producers amongst these ranks – dairy farmers who entered the industry in the post quota era. These are the people on whom the responsibility for delivering the 2020 growth targets now rests.

They are also the group of farmers most exposed, financially, in the context of the current market downturn. The scale of their commitment to invest in new buildings, parlours, dairies and livestock is fully reflected in the loan accounts amassed by the banks over the past number of years.

Irish milk output increased by 13.3%, or 750m litres, during the calendar year of 2015. And this is good news for processors. Fundamentally, they always work off a margin. So the more milk they process: the more money they make.

But is all of this equally good news for dairy farmers? Yes, producers were able to supply large volumes of high quality milk last autumn from cheap grass.

But, the scenario confronting them now is the absolute antithesis of what prevailed last September and October.

The reality is that peak milk supplies in 2016 may well be produced against the backdrop of record low farmgate returns and the distinct possibility of a heavier reliance than normal on concentrate feeds. A combination of lower producer prices and higher input costs has only one consequence – falling profit margins.

This week has seen the dairy industry in Northern Ireland discussing the feasibility of farmers cutting back on dairy output as a possible way of strengthening milk prices in 2016.

Given current circumstances is this a discussion that farmers south of the border should also be having?

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