The size of the average dairy herd in Ireland is too small, according to Joe Gill, Director of Corporate Broking with Goodbody Stockbrokers.
“Given the challenges that are coming down the track, the figure should be in the region of 100 cows,” he said.
“At this level of scale, milk producers will be better placed to reduce costs and improve efficiency levels.
“Rationalisation at farm level can take place in a voluntary manner or it can be effected on a more compulsory basis. Obviously, the former option is the one that will cause the least amount of stress at farm level.”
Gill said that further rationalisation at processer level is a fundamental requirement for the Irish dairy industry.
“Again, the key challenge confronting the sector is one of reducing costs. And this will only be achieved on the back of full blown mergers,” he said.
“The alternative approach for processers is to follow the business model put in place by the West Cork co-ops, which has seen all of the milk ending up with Carbery for processing.
“This approach has worked pretty well and could be repeated in other circumstances.
“Irrespective of the business plan put in place, the end result must be an increased scale of processing and real costs taken out of the businesses concerned.”
Gill confirmed the impact of exchange rates on day-to-day exporting opportunities.
“The weaker euro is boosting Irish food exports to regions like the UK at the present time. But current circumstances could be turned on their head in a relatively short period of time,” he said.
“Money markets are extremely volatile in nature. The best way to hedge against currency changes is for businesses to have assets throughout the various regions they are trading with.”