Video: ‘There’s no magic bullet to combat dairy market volatility’

There is “no magic bullet” to deal with the current market volatility in the dairy sector, according to the Minister for Agriculture, Michael Creed.

Speaking for the first time in the Dail as Minister for Agriculture, he said that he is fully aware of the pressures faced by dairy farmers.

He said that food commodity markets, including dairy markets, have been characterised by significant levels of volatility for a number of years.

“This trend has continued throughout 2015 and into 2016. Factors contributing to this in recent times include the Russian ban on agricultural imports and the softening of Chinese demand.

“It is interesting to remember that China is about to become our second-largest market for dairy produce.”

From a standing start only a few short years ago, it is now the second most important destination for our dairy products.

Minister Creed said that there has also been increased production among key global producers, including the European Union.

“The longer-term global demographic and demand perspectives remain positive but 2016 will be an extremely challenging year for the dairy sector in Ireland and elsewhere. Market volatility provides extremes at both high and low prices.

“The challenge for the dairy sector is to ensure that farmers are equipped to deal with downward price volatility when it occurs.

“There is no magic bullet on this issue. The reality is that a combination of measures, both public and private, will be required to protect farmers from the worst impact of this volatility.”

Farm efficiency

According to the Minister, farm efficiency is one element of the solution.

“In Ireland, we are blessed with a cost-efficient grass-based production system and my Department will – through Teagasc, knowledge transfer groups and bodies such as the Irish Cattle Breeding Federation and Animal Health Ireland – continue to invest significant resources in providing farmers with advice and technology designed to improve farm efficiency and reduce production costs.”

The objective is to make farm businesses more resilient in times of downward price pressure and more profitable and competitive in good times.

He said that he has also called on the Commission to temporarily suspend anti-dumping tariffs on imports of fertilisers from third countries in order to reduce input costs for Irish farmers.

“We estimate that this would save approximately €14/t of fertiliser, which would be significant for any holding.”

Direct Payments

Speaking about direct payments, the Minister said that the single farm payment provides some measure of income stability and EU market support measures also have a role to play.

“At EU level, Ireland has been to the forefront in calling for the deployment and extension of market support measures.

“This has resulted in the extension of measures such as aids to private storage and intervention for skimmed milk powder and butter.

“It has also resulted in additional direct payments of €27.4m for Irish farmers, which were co-funded by the Exchequer and the European Union.”

With respect to direct payments, Minister Creed said he has asked the Commissioner to make the maximum possible provision for advance payment of the €1.2 billion in direct payments to Irish farmers.

“The latter would be a particularly useful measure to improve cash flow for farmers at this time. We should seek EU funding for further direct targeted aid for dairy farmers.

“I acknowledge that finding these funds within the European Union budget will be a real challenge but in light of the very difficult circumstances in which our farm families now find themselves, I am determined to exert the maximum possible pressure on this point.”

Intervention

“With regard to intervention, I recently asked the Commissioner, Phil Hogan, to increase the volume of skimmed milk powder that can be purchased into intervention at a fixed price.

“I understand he has now signalled his intention to increase the skimmed milk powder volume from 218,000 tonnes to 350,000 tonnes, which is a welcome development.”

These measures are not enough on their own and the dairy sector must look at the development of new tools, including fixed price contracts, futures markets and more flexible financing arrangements for farmers.

The Minister said that many processors are using fixed price contracts and some are working on the development of the market price indices needed to support futures trading.

“Others have developed imaginative bonus payments and financing solutions. I would like to see more of this.”

Minister Creed confirmed that he will be meeting representatives from the pillar banks in the coming days in order to discuss the issue of the financial pressures faced by farmers.

Concluding, the Minister said that as one of the proposers of the dairy forum, his goal is to ensure it continues to provide a vehicle for constructive engagement on relevant issues of concern for farmers and others in the sector.

“In this respect, the forum has come forward with some good initiatives for farmers already, including an initiative on improving cash-flow planning at farm level that will be rolled out shortly.”

He said that he can assure the House that he will continue to engage constructively with all the stakeholders in the sector to ensure Irish dairy farmers are well positioned to deal with the current market difficulties and take full advantage of opportunities when the markets recover.