COMMENT: One of the drawbacks of EU milk quotas on the development of the Irish dairy industry was our over-reliance on EU Intervention as a market outlook for our dairy products. By pursuing a subsidised EU market for many of our key day products the industry as a whole suffered as we took our eye off key performance metrics.

For example, in the early 1990s between 40 to 50 per cent of our Butter and Skim Milk Powder (SMP) production was sold into EEC/EU intervention markets. This trend continued into the early years of the 21st century, with Irish butter accounting for about one third of EU Intervention Stocks (even though we accounted for less than 10 per cent EU butter production).

Similar trends were noted for milk powders. During the same time period Whole and Skim Milk Powder sold into intervention constituted 50 per cent of Irish total production of dairy products compared with 23 per cent in Denmark and 15 per cent in the Netherlands.

It should also be noted, a preoccupation with monthly milk price table also began to emerge during this time. Ironically:

We still talk about milk price in terms of cents per litre, even though our milk payment systems have evolved to paying for the value of milk solids (A + B – C).

We still debate milk price on a monthly basis, even though the setting of EU Intervention Prices is a thing of the past. It is also worth noting that many dairy exporting companies globally are setting prices on a yearly basis and/or paying a monthly farmgate milk price with an end-of-year bonus or 13th payment.

Does herd performance matter?

Consider the following three factors;

  1. Milk input costs and price are converging globally – Even though the Irish dairy industry enjoys a grass based cost of production advantage, evidence suggests that milk production costs in Ireland have risen by over three cents per litre in recent years. A recent report by Rabobank suggests that the cost of milk production globally are converging. Also, increased competition globally is leading to a convergence of prices in the global commodity markets.

Please Click here for additional supporting charts and graphs.

  1. Milk quality pays today – Freeing ourselves from the reliance on the EU subsidised Intervention market has necessitated a renewed focus in farm efficiency. Today less than 95 per cent of Irish milk is purchased on an A + B – C basis. This has had a dramatic impact on the evolution of our industry with considerable improvements made by farmers across the industry in grassland management, improving EBIs and so on. The evidence of this is demonstrated in the graphs attached, where we see the incremental improvement in national Milkfat  percentage over the past five years almost surpass the gains of the previous 20 years.
  1. Milk Quality will probably pay more in the future – From an industry perspective it would appear that a focus for Ireland’s post expansion product mix will include greater production of powders targeted at the Babyfood industry and cheese products. It is realistic to assume that future milk payment systems will place greater emphasis on quality.

The Teagasc Dairy Roadmap lists 2020 performance targets for Irish dairy farmers. How does your farm compare?

–          Milk Yield Per Cow: 5,420 kg / cow

–          Milk Solids (Fat / Protein) per cow: 407 kg / cow

–          Average Protein%: 3.43 per cent

–          Average Fat%: 4.08 per cent

–          SCC: <200,000 cells / ml

Tom O’Callaghan has 15 years of global experience in the agri-food sector, including dairy, meat, consumer package goods, bio-fuels and farming-owned co-operatives. He is currently focusing on emerging area of improving efficiency through agri-analytics and is advising on agri-food and farm efficiency expansion across Eastern Europe and former Soviet Union countries. He is also the ex-ceo of Irish Co-Operative Society.