The end of EU milk caps has lifted Irish spirits, but the US Dairy Export Council (USDEC) research shows clouds blocking sunny government forecasts, according to Mark O’Keefe, Editor of USDEC’s website and The US Dairy Exporter Blog.
‘European Union: The Impact of the Removal of Milk Quotas in 2015’, a research report by the US Dairy Export Council, provides further reasons for less exuberant Irish optimism, however it did forecast that Ireland will be among the EU’s six winning countries with the lifting of the quotas, O’Keefe says.
“Under the most-likely scenario foreseen by USDEC, Irish milk production will grow at an annual rate of 4.6% through the year 2020.
If a 4.6% annual growth rate is realized, the total growth by the year 2020 will be about 30%, O’Keefe says.
Minister for Agriculture Simon Coveney has said that Irish milk production will increase by 50% in five years, leading to 10,000 new rural jobs, however Ross Christieson, USDEC’s Senior Vice President, says that the data doesn’t support that number.
“Maybe the Irish politicians are full of bluster, or maybe an increase of 50% in volume is a wildly optimistic estimate of golden times for the Irish,” said Christieson.
“But if milk prices stay anywhere near where they are right now there is no way Ireland will get to 50%. In the dairy industry, people sometimes view volume as king.
“But if volume does not prove profitable are the Irish farmers kings?” he said.
According to O’Keefe the USDEC’s report identifies eight likely challenges for Ireland to achieve a 50% increase by 2020:
- Anticipated volatility in raw milk price levels post 2015, with fluctuating supply and demand levels which are affected by weather, fluctuating exchange rates and short term changes in demand.
- Expected increases in the cost of borrowing. With borrowing costs currently at record lows, interest rates are likely to rise post 2015.
- Access to new markets, notably China. Whereas China has a tariff-free agreement with New Zealand, it does not have one with the EU.
- A high production price relative to Oceania. It is suggested that average Oceania raw milk production costs are about €26 for 100kg of milk, compared to around €29 in Ireland (Teagasc Outlook 2014 Economic Prospects for Agriculture). From this, it is deduced that the cost of production for incremental milk in Ireland needs to fall by up to 20%.
- Access to labor.
- High cost of buying land. The price of rented land has increased, as milk producers and tillage farmers compete for availability. This could mean that Ireland’s competitive edge based on cheap grass could quickly become eroded, as has happened in New Zealand.
- Land availabilty. While a limited number of farmers may be able to buy small amounts of land to increase the size of their holdings, few will be able to buy substantial quantities. The likelihood is that the average farm size will increase over time, as some farmers exit production and lease land to other farmers.
- Extreme weather conditions. Milk production was affected by bad weather in 2012 and also in 2009.