It’s time to get to grips with dairy market volatility

COMMENT: Prices recorded at the last two Fonterra auctions have fallen, on an accumulative basis, by approximately 10 per cent. This is an extremely worrying trend, given that Irish dairy industry leaders had, until recently, been extremely upbeat about the prospects for global milk markets over the coming months.

So let’s hope that the trends we are seeing at the moment are short lived. Given that the Irish dairy industry is now facing into the prospect of €30m superlevy, the last thing that farmers need is a significant fall in farm gate returns this summer.

As has been the case within the beef sector over recent weeks, the spectre of price volatility is now starting to give cause for concern within the dairy industry. Yes, Irish dairy farmers can produce milk relatively cheaply from grazed grass. However, there is no doubt that most local milk producers had been looking forward to a good grazing season in 2014, buoyed by reasonable milk yields from grass in tandem with strong prices. Let’s not forget that significant numbers of farmers are still paying back the debts that they incurred last spring.

Everyone wants to see the Irish dairy industry meet its Harvest 2020 target: essentially a 50 per cent increase in milk output to be achieved over the next six years. But this objective will only be secured on the back of sustainable farm gate returns.

It is fundamental reality that dairy farmers cannot turn on and off production levels at the drop of a hat. For example, it takes at least three years between conception and first calving for a dairy heifer to enter its milking group. Allied to this, on-farm investments are long-term projects.

Most milk producers will seek to pay back the building of a new shed or the installation of a new milking parlour over 10 years. So, in essence, they will be relying on a decade’s worth of milk cheques to make the re-payments.

So it is against this background that Irish milk producers will have to plan for the future. But it would be totally unfair for them to take on the vagaries of the international milk markets by themselves. Surely, it’s up to Government, the dairies and the banks to provide a reasonable degree of stability for local dairy farmers over the coming years. Repeated cycles of boom and bust will have only one outcome – an Irish milk sector that does not have a sustainable future.

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