Dairying in the post-boom era

What is the future for the Irish dairy sector a decade on from the end of quotas?

The industry is certainly facing into a changed business and regulatory landscape.

The heady days of unfettered dairy expansion came to a close in 2022 when processors took in 8.82bn litres. Since then, volumes have fallen by 400m litres, or around 4.5%.

Meanwhile, tighter environmental and climate change constraints, and concerns regarding Ireland’s nitrates derogation, have contributed to a marked change in the mood music around dairy farming.

The manner in which the dairy sector responds to these challenges is the big imponderable.

However, since dairying remains the most profitable farm enterprise, with Teagasc predicting that incomes for 2024 will average €89,000, the general consensus is that it is well positioned to face the changed reality.

“Dairying is an economic powerhouse and is the jewel in the crown of the Irish agriculture sector,” said Lakeland Dairies CEO Colin Kelly.

“The expansionary phase of the last 10 years has been good for farmers, new entrants, co-operatives, and, critically, the economy,” he added.

“It’s fair to say that we are now in a period that is being driven more by value-add rather than volume.

New entrants

“The door, however, is not shut on new entrants, and we will continue to see sustainable growth in the time ahead – just not at the rate we have seen since 2015,” Kelly maintained.

Looking to the future, Kelly maintained that Lakeland Dairies will have to work harder to deliver for shareholders.

“The last decade was built on volume growth, but as we move forward, we will have to work harder to strategically deliver on opportunities,” Kelly explained.

For UCD’s professor of dairy production, Karina Pierce, the next few years will be all about “improving efficiencies” for farmers.

“I think this is a positive thing, as there are huge improvements to be made within the farmgate around breeding, fertility, grassland management, etc, that will result in improved profitability,” Pierce maintained.

There will be some level of consolidation in dairy farmer numbers in the years to come, the UCD academic predicted, but there will be no collapse in numbers, she said.

“The age profile of dairy farmers, the high percentage of dairy farmers with no succession plan, and the cost of complying with regulations will certainly lead to some consolidation in the sector,” Pierce pointed out.

However, agri-sector consultant Ciarán Dolan maintained that since dairying in Ireland is mainly grass-based, there are “practical and economic realities that will contain concentration”.

The potential loss of the nitrates derogation could also result in the exit of farmers from dairying, with the uncertainty on this matter already impacting “confidence, investment and future planning for both farmers and processors”, according to Pierce.

While the recent positive results on water quality were good news for farmers, Dolan cautioned that a final decision on the derogation will be taken in Brussels and will be based on science rather than Ireland’s ability to lobby.

Like Colin Kelly, both Dolan and Pierce are positive on the outlook for dairying despite the serious headwinds the sector is currently navigating.

“The fundamentals of the dairy sector in Ireland are strong.

“We have a unique competitive advantage of the grass-based system, generally low farm debt levels in comparison to many other countries, educated farmers, an integrated and collaborative industry and a strong co-operative model,” Pierce pointed out.

She maintained that annual growth of 2% or 3% was still possible for dairying in spite of the tightened regulatory environment and increased input costs.

Dolan agreed, arguing that expansion in the Irish milk pool was “on hold” rather than halted.

This contention was based on strong global demand for dairy produce, the “resilience of the Irish dairy industry” and its ability to “always respond to profitable opportunities for further expansion”.