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A dairy farmer stormed into the Irish Farmers Journal stand at the ploughing match. He was keen to make a point and Neven Maguire, Anna May or bawling cows weren’t going to stop him.
He started with a comment on the rain but quickly flowed into dairy farmer incomes.
“Dairy farmer's incomes are not on the way up. Don’t be saying that. What’s happening is nonsense at EU level. I’ll tell you what will happen. This EU supply reduction scheme nonsense will drive the price to 35c/litre and then it will fall off a cliff again,” he said.
“The EU will say the scheme has worked and everything will be alright for a few months but the reality of the market will kick back in then. The co-ops have put milk price up 2c/litre to get the autumn milk and tease farmers into producing more milk. This isn't supply management – its tomfoolery. I know many dairy farmers with over 100 cows who are begging for help and financial assistance,” he said.
After spluttering it all out, he looked up at me, gulped in a breath of air, and, before I could get a word in, he added: “ Mark my words – the EU will have to bring back in compulsory supply management before long.”
Right or wrong?
So is the farmer right or wrong? For me it’s a little of both. Let’s start with the easy bits – will it lead to more compulsory reductions in future? It’s hard to answer this categorically of course but for me it will be a long time before it does happen. The EU Commission notified EU states in 2007 that it was abandoning milk quotas in 2015. They gave farmers a long lead-in time. They will be slow to reverse that decision without a long lead.
So is the milk supply reduction scheme nonsense? For me the voluntary reduction scheme at EU level is a token by the Commissioner to political pressures from countries like France where dairy farmers with a high cost of production are suffering badly and have suffered for the last two years. Yes, all it is doing is tinkering at the edges of milk production. The money is very small per farm, with people who were reducing anyway just availing of it because circumstances suit.
Many Irish farmers have applied as a sort of each-way bet. If weather turns very bad in November and supply is well down well then you might as well apply and get the money. And if the reduction doesn’t materialise then it’s no cost to the business.
Seemingly the French farmers think much the same and despite their higher cost of production, and a top up on the EU 14c/kg from the French government, our reports show farmers are not that keen on supply reduction. The Dutch also have a national topup scheme where they are paying 10c on top of the EU 14c/kg.
So what happens now that deadline for the supply reduction scheme has passed? Each EU member state is totalling up the figures and then must submit the figures to the Commission by next Monday. Very soon we will then get a feeling if the scheme is oversubscribed and it is important to remember there is only €150m in the pot for this scheme. Member states will then inform farmers of possible scale of compensation they are eligible for.
Financial assistance
The farmer was speaking about Irish dairy farmers begging for financial assistance and of course there are some who have large borrowings, lots of capital development completed, and/or with high cost production systems suffering.
The same can be said for French, Dutch, Danish and UK dairy farmers. Personally, I don’t see scale as a major problem because I know farmers with 30 and 40 cows with high cost of production and little or no income. Those who have increased cow numbers have also invested in facilities, etc, so yes they might have more repayments but it’s a long-term investment and they have more capacity for repaying loans.
Have the co-ops lifted price to get autumn supply? No. The market has risen and we have seen signals of this for the last four months. Only now is a touch of this better price filtering back. Let’s be clear – the price is still only 24 to 25c/l, which is well below the cost of production. Supply is well back in some key regions.
Supply trends
The reality is European supply, and milk supply from New Zealand and Australia, is well back. The latest EU figures show EU July supply down 1.4% on average compared to the same month in 2015. In New Zealand, where supply is cranking up right now as most cows are calved, is predicted to be down 3% for the coming season.
Interestingly, the latest EU figures also show what countries are delivering more and those delivering less. The Dutch are scorching ahead for July compared to the same month last year, delivering 4.9% more milk (up 57,000t), the French produced about the same and the UK is down 8.3% (108,000t). The other big EU player that is Germany was back 0.9% for July, which is about 26,000t.
On a global scale the US continues to drive on with supply and from January to July the US are up 1.6% in milk production. That’s a lot of milk given their scale (almost 100bn litres of milk annually). Relatively cheap feed and good harvests keep them producing milk.
Intervention
While there is over 350,000t of SMP still sitting in intervention there is no more going in at the moment. Yes it has to come out of intervention at some stage, but we can only hope the EU let it out into the marketplace sensibly.
So as milk prices rise dairy farmer incomes will rise. The spluttering farmer was wrong on that. What he probably meant was current milk price is still below the cost of production and he’s right there. In terms of what will happen milk price in coming months, will it fall off the cliff as the farmer said? First it must go up and it has a good bit to go yet and after that it’s down to supply and demand.
Ask most processors what price will be in three months and they will say they don’t know. In that respect it was interesting to hear the normally quietly spoken Dairygold chief coming out predicting 30c/l for next year. The bottom line is that farmers must make decisions for their own business and not their processor. What makes sense for one might make no sense for another.
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