Ireland is one of the “most competitive” milk producers in the EU since the abolition of milk quotas in April 2015, according to a new study.
Researchers have identified that Belgium, Denmark, Luxembourg, the Netherlands and Ireland are among the most competitive member states in relation to milk production growth since the quota system ended.
They also found that the number of specialist dairy farms in Ireland has remained “relatively unchanged” over the last decade.
The new study highlights that farmer owned co-ops have a “high market share” of more than 50% in Scandinavian countries, and also in Ireland, the Netherlands, France and Austria.
One key characteristic of the EU milk sector since the abolition of the quota system, according to the latest research, is that it is “less insulated from world dairy market price developments” than it previously was.
“EU milk prices have become more volatile over the last 20 years,” it sets out.
The study produced for the European Parliament’s Committee on Agriculture and Rural Development – shows that EU dairy production has increased considerably over the last 20 years, partly driven by EU expansion, and more recently by the elimination of the milk quota system.
However, the dairy sector across Europe has also undergone a number of “structural” changes in the last two decades, including: a large reduction in the number of dairy farms; a general increase in the average dairy farm size; and a long-term decline in dairy cow numbers.
The study on the “Development of milk production in the EU after the end of milk quotas” – examines milk production across the EU 27 member states prior to and following the abolition of milk quota in 2015.
It also highlights that despite increased competitiveness following the end of the quota system EU income support, payments are “still substantial signaling the importance of such income support policies”.
“Ensuring sustainable and sufficient farm income is a key issue, since currently many EU dairy farmers are quite dependent on farm income support from Common Agricultural Policy (CAP).
“This picture is not uniform across member states with high levels of dairy farm profitability observed in some parts of the EU,” it outlined.
The study also stresses that CAP support payments and risk management tools are “important to better cope with the high price volatility in margins.”
The authors of the study, which included Trevor Donnellan, Fiona Thorne, Emma Dillon and Jason Loughrey from Teagasc, warn that despite the important contribution of dairy farming to EU agricultural production, the sector is facing several “economic, environmental and social challenges”.
They highlight that environmental policy – whether at EU level or at member state level is “exerting an increasing influence” over the dairy sector.
“Reducing greenhouse gas (GHG) emissions and improving water quality, is having an increasing influence on the EU dairy sector and in some member states is already as important, if not more important than the CAP.
“The diverse range of environmental obligations have the potential to confuse, alienate and discourage EU dairy farmers,” the authors state.
Environmental concerns
The new study also highlights that environmental “concerns”, such as reducing nutrient surpluses and ammonia emissions are growing for farmers throughout the EU, as water quality and biodiversity are under pressure in various EU regions “where dairy farming is prevalent”.
According to the authors of the study “reducing dairy’s environmental impact” requires a change in “farmer behaviour”.
“A prerequisite for that is that farmers have access to the proper information regarding their emissions, where they come from and how emissions can be reduced.
“User-friendly and informative farm nutrient and emission management tools should be provided and their adoption and use should be encouraged by supporting policy interventions,” they recommend.
Climate neutral
The study also examines how the dairy sector can move to become climate neutral and what policy incentives could be considered to encourage dairy farmers to reduce GHG emissions.
“Consideration could be given to the advantages and disadvantages of introducing some form
of CO2 levy in dairy, creating a better financial incentive to adopt emission reducing technologies and management actions,” the study outlines.
It also suggests that another option to deliver a reduction in dairy sector GHG emissions would be “to initially grant farmers a quantity of emissions rights which would then be gradually
reduced year by year”.
“A market would be created to access emissions rights, which effectively would place a carbon price on these emissions.
“In theory placing a price on the GHG emissions produced by the farm would incentivise the dairy farmer to adopt emission reduction technologies, if doing so is cheaper than the cost of buying emissions rights,” the study suggests.
However the authors of the report also take on board that “this approach is not very different from a milk quota constraint”.
But they also warn that measuring the production of GHGs on individual dairy farms would be a complex task.
“To do so would require the accurate and ongoing estimation of the GHG emissions produced by the dairy farm.
“While it might appear attractive to use a simpler proxy measure of GHG emissions eg based on the farm’s number of cows and level of fertiliser use such an approach could be both flawed and unfair, as it would fail to take account of the mitigation technologies the farmer has adopted and lead to an overestimation of the farm’s GHG emissions,” the authors said.
Future of milk production
The study sets out that the convergence in EU and world dairy prices in recent years has opened up more “export opportunities” for the EU dairy sector.
But there has also been a convergence in EU and world dairy prices which has also created a volatility in EU dairy commodity prices and in turn EU farm milk prices.
In order to be better equipped to address the key challenges now facing the sector, the authors of the study have put forward a number of recommendations including:
- Address milk price volatility – consider mechanisms/instruments that could assist farmers in dealing with income volatility and what role dairy processors could play;
- Labour and generational renewal – more support should be given for technological solutions which could reduce the labour requirement on dairy farms which could delay dairy farm exits;
- Uncertainty about the future size of the organic dairy farming sector is a risk that needs consideration and further investigation;
- Consideration should be given to mechanisms that incentivise or reward individual farmers for individual efforts made to reduce their farm’s GHG emissions.