Dairy expansion: ‘Alarm bells should be ringing now’

EU Commissioner for Agriculture and Rural Development, Phil Hogan, has warned that “alarm bells” should be ringing now for Irish dairy farmers intent on ramping up production.

The commissioner has stressed that producers must take account of European market signals, which currently indicate a “very clear signal of oversupply as a result of higher prices – particularly in the last few months of 2017.

Speaking to AgriLand, the commissioner cautioned that Irish farmers converting to dairy – and those planning to expand herd size – should consider all “inherent entrepreneurial risks”.

“The days of the Common Agricultural Policy (CAP) propping-up farmers’ businesses are long gone,” he said.

“Our focus now is on market transparency and information – on making it easier for farmers to take the informed decisions they need to run their businesses (or indeed start their businesses) effectively.

Higher prices have encouraged milk production; but, it is really important that producers do not respond only to short-term market indicators, such as rising prices.

The commissioner stated that operators have a responsibility to listen to market signals, and to plan accordingly.

“It is not good enough to continue producing any product for a non-existent market and then confidently expect that the taxpayer, in this case through the European Commission, will bail them out.

“A market-orientated policy places a clear responsibility on operators to respond to the market.

The signals are quite clear – the alarm bell should be ringing now and it should be both heard and heeded.

The European Commission, through the EU Milk Market Observatory, provides daily information on the state of the milk market across Europe.

Although there are limited market support measures available, the commissioner noted that measures such as public intervention have “significantly benefited” Irish dairy producers – especially through the purchase of skimmed milk powder.

The commissioner highlighted that in 2015 and 2016, Irish dairy producers also benefitted from measures introduced by the European Commission and through its share of €1.5 billion in aid.

“However, with a fully market-orientated policy such as we have now, the role of the EU – and the commission in particular – has changed significantly,” he said.

Dairy outlook

The 2017 EU Agricultural Outlook – published last December – signaled that despite the demand-driven recovery of dairy prices in 2017, the trend is expected to reverse this year.

With milk production expected to grow significantly last year (reaching 164 million tonnes – up 0.8% on 2016 levels) and the butter bubble anticipated to burst, the report – which focuses on performance of EU dairy markets and provides a medium-term outlook up until 2030 – highlighted that prices will come under increased pressure.

Last year was a record breaking year for dairy incomes in Ireland, with the average dairy farm income exceeding €90,000.

According to the Teagasc Annual Review and Outlook 2018, Irish milk prices are expected to move downwards in 2018; with forecasts of an average fall of about 10% to about 32-33c/L.