The feedback from trade stands attending last week’s National Ploughing Championships was that tillage, sheep and suckler farmers were keeping their hands in their pockets while dairy farmers were active in the market. The trend is hardly surprising when we consider the pace of growth that has taken place on dairy farms since the abolition of quotas.
Dairygold opening
Last week, Dairygold officially opened a state-of-the-art nutritional campus in Mallow after investing €86m in the site. This year, the co-op’s 2,900 suppliers will produce 1.3bn litres of milk, up 55% on the 2009 baseline year.
Dairygold CEO Jim Woulfe forecasts 2017 production to be up 105m litres on last year, worth €39m. This equates to an additional €13,500 in output for the average supplier.
Of course, it is a trend we are seeing right across the country, with Irish farmers on target to produce 7bn litres of milk this year, up 2bn litres or 50% on a milk solids basis since quotas were abolished just 32 months ago.
We should celebrate the ability of the Irish dairy sector to seize the opportunity that the abolition of quotas presented and acknowledge the financial contribution to rural Ireland.
The contributing factors
A number of factors have contributed to the achievement. In essence, Irish farmers were preparing for the abolition of quotas for over a decade, having developed a production model that was globally competitive, resilient and environmentally sustainable.
Along with dairy farmers, both Teagasc and the ICBF deserve credit for the role each organisation played in improving management practices, particularly in relation to utilisation of grass and in allowing farmers access to superior genetics to drive milk solids and fertility.
The importance of the co-op model
Despite often challenging the current model, we should not lose sight of just how important the co-op structure has been in allowing farmers to exploit the post-quota opportunities.
The strength of farmers controlling their own processing facilities should never be under-estimated. Co-ops gave a commitment to their farmer suppliers that processing capacity would not limit growth ambitions at farm level – we should recognise what they have delivered, albeit with farmer support.
With strong markets and increased output, farmers are looking to the future with confidence. Indeed, it is predicted that output might reach 10bn litres over the next few years.
However, while acknowledging the recent successes and potential opportunities, it is important not to ignore the challenges that lie ahead and perhaps even question the merits of further expansion.
Much of the growth to date has come from farmers exploiting latent potential within existing units. As a result, production costs have remained steady and in some cases reduced due to a dilution of fixed costs.
Further growth
However, further growth will be more reliant on rented land and paid labour and will require higher levels of investment in infrastructure. We have seen on the Greenfield Farm in Kilkenny how in this scenario total production costs can be as high as 38c/l. In this context, we should not be afraid to challenge future growth plans for the industry. Future growth should only be based on the assurance of profits being passed back to farmers.
The rush to grow cannot come at the expense of reducing the resilience of the farm business. Given the current geopolitical landscape, price shocks are likely to become more rather than less frequent. Ensuring we can continue to trade through these periods should take priority over producing more milk.
All stakeholders have a role in this regard. In the current environment, where strong markets and high output are combining, it is easy to give investment plans the green light.
However, farmers need to remain prudent and invest strategically. Outside the farm gate, processors need to present a roadmap as to how value will be created and costs removed to help protect farmers from the commodity cycle.
Aligned to this, government has a role in creating a favourable landscape for on-farm investment along with developing tools to stabilise income.
Consideration should also be given to developing a mechanism that allows us to score both the industry and individual farms for resilience.
Future success of our dairy industry should not be measured on the litres of milk produced but the level of income being achieved at farm level.
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