New Zealander Craig Bell, who operates a large dairy farm in Brazil, pointed out that Latin America was now not far behind the US in terms of milk supply and consumption, with 80bn litres produced annually. Yet despite constant growth, Brazil itself is not meeting its own needs and continues to import milk.
Meanwhile, neighbouring Uruguay and Argentina have a policy of supply domestic liquid milk demand first, reducing their export capacity.
“People having more money is driving consumption in my part of the world,” he said. “Africa is emerging. We’re going to see more opportunities in the world market with similar stories to the Latin American story.”
Yet he also warned of continued price volatility, especially with 850,000t of cheese stocks now accumulated in the US.
Asia needs protein, and lots of it
Greg Gent, a dairy farmer in New Zealand and former member of the board of Fonterra co-op, was equally upbeat about global demand.
“Asia needs protein, and lots of it. Food safety in Asia is becoming more and more of an issue and it’s very good for our industry and an industry like yours,” he said.
However, he warned that expansion came with risks that should be managed, especially price volatility.
“Any idiot could make money when you’re making $8.50/kg milk solids,” he said in reference to the 2013-2014 peak in prices. Some farmers then moved away from grass-based production and developed higher costs. “At $4.30 in 2015-2016, the bailiffs were knocking at their doors,” he said.
Environmental challenge
Another major challenge Greg mentioned was environmental compliance, especially as New Zealand became more divided between urban and rural section of society.
“We haven’t told our story to our urban counterparts. It’s a long journey,” he said.
While he thinks that “New Zealand has peaked in volume terms”, Greg still believes that the future is solid for those farmers who optimise grass without getting to heavily into debt, are on top of environmental compliance and are good employers.
More cows, more costs
While he sounded more pessimistic, Dutch farmer Harm Holman delivered a similar message, arguing that expansion for its own sake had made many farms in the Netherlands unprofitable through the cost of hired labour, investment in buildings and high debt.
At 44.5c/l, his price at real milk solids content allows him to “make good money”, but he anticipates a repeat of the recent crisis in the next three to five years with a 15c/l price drop.
“When you make a loss and you have a lot of cows, that’s a lot of money. Think about it – everybody running in one direction doesn’t mean it’s the best direction,” Harm said.
A 12c/l drop would mean an annual €200,000 income drop on his farm.
Don’t go Dutch, keep your low cost price
While the focus in Ireland is very much on low-cost, grass-based systems, he warned farmers against the temptation to expand into higher-cost systems when times are good. Competition for land could also lead to a Dutch-style situation, with prices between €50,000 and €100,000/ha (€20,000 to €40,000/ac) and investors buying land to rent it to farmers.
“Don’t go Dutch, keep your low cost price, don’t get into a situation where you can’t milk cows and be profitable,” Harm said.
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Analyst Joe Gill from financial advisory firm Goodbody agreed with Harm.
“We need to ensure that debt levels in our dairy industry are kept at very conservative levels,” he said.
He also said that it was hard to justify why land should cost more than €5,000/ac in Ireland.
It is no longer enough to show green images, we need to back it up with data
Bord Bia’s chief executive Tara McCarthy said that the main point of differentiation for Irish dairy products on global markets from now on would be sustainability. This means moving forward with the next phase of the Origin Green programme.
“Increasingly, there is a demand of data and proof. It is no longer enough to show green images, we need to back it up with data,” she said.
Every farm to get greenhouse gas advice
This means going back to every farm and analysing the data from their participation in the SDAS quality assurance scheme to help them reduce their greenhouse gas emissions.
“We’re not sorted in this space but we will be the only country that has a plan to address it,” McCarthy said.
The next edition of Marketplace, the event held here in April 2018 to showcase Irish food for international purchasers, will focus exclusively on buyers with a special interest in sustainable sourcing, McCarthy said.