When asked what do Irish farmers produce, most people would think of milk, meat and cereals as the main outputs – and they’d be right. Of course, farmers just produce the product and rely on third parties to process that into food. For example, cattle are sent to the meat factory to be slaughtered and the carcass to be butchered into different products. In the same way, the tillage farmer delivers the grain to the mill and it’s processed into animal feed or made into porridge or flour.

When it comes to dairy, the outputs from every litre of milk delivered to a milk processing plant are far more diverse.

Anyone who thinks that most of the output from dairy farming in Ireland can be seen in the dairy aisle of the local supermarket is mistaken. Less than 10% of the milk produced in Ireland is consumed here. The rest is exported all around the world in a variety of products.

When it comes to dairy exports, there are two important things to look at – these are the volume of product sold and the value of product sold.

In their export report for 2023, Bord Bia have broken down dairy exports into nine categories. Within these, butter and cheese are the highest value export categories, between them making up 42% of the total value of dairy exports in 2023.

Butter and cheese exports amounted to €2.6bn in 2023 so they are hugely significant product categories. This value was achieved by selling approximately 550,000t of volume with about 250,000t of butter and 300,000t of cheese exported last year.

Volume versus value

Where the volume versus value debate is really evident is when it comes to fat filled milk powder (FFMP). There was 300,000t of this exported in 2023, which is the same volume as cheese exports. However, the value of this product is less than two-thirds of the value of cheese exports at €825m.

So if a milk processor was turning most of the milk they receive into FFMP, and very little of their milk into butter or cheese the value of what they sell would be much lower. This means the milk price they could return to the farmer would probably be much lower too.

Now, it is important to note that there will be different costs involved in processing different products. Higher value products tend to be more expensive to manufacture due to: increased labour; sophisticated processes; taking longer to make; or requiring more expensive plant and equipment.

There is also more work involved in securing markets for higher value products. A key market for fat filled milk powders is Africa where incomes tend to be low and disposable cash is scarce. Therefore, it is not a high value market. Whereas for butter and cheese, the key markets are Europe and North America where the standards of living are high and consumers have deep pockets and are willing to pay more for higher quality food.

Cheesy choice

Even within cheese, there are big differences in the value between one cheese and another, but getting the higher value requires investment in the market with sales teams and distribution channels, and so on. So getting into the higher value markets requires big investments by co-ops.

As the amount of milk produced in Ireland stabilises, the co-ops will be looking to maximise the amount that goes into the higher value products. Up to now, co-ops were limited in what products they could manufacture during the peak milk supply months because of processing capacity.

For example, drying milk into powder is a relatively quick and easy process whereas making cheese or casein is slower and more complex. Where there is barely enough capacity to process the milk coming in the trucks every day, co-ops have no choice but to fully utilise the capacity of the milk driers, even if the end product is low value.

What is likely to happen in the future is that a higher proportion of the milk will be used to make higher value products and more specialist products. This type of approach has traditionally been a challenge for seasonal and export focused countries like Ireland, mainly because we don’t have an all-year-round supply of milk. This is because Irish cows are dried off in winter when the grass isn’t growing. This means that the high value products must have a long shelf life.

For Irish farmers, their task is to continue to supply the co-ops with high quality, nutritious, grass based dairy and its up to the co-op to turn that into the highest value product it can. As these co-ops are farmer owned, they will be getting the value returned to them in higher milk prices.