Milk quota end: 10 solid pillars of Irish dairy farming

Scarred by the recent Irish economic crash, some observers feel an anxious sense of déjà vu when they hear predictions of rapid dairy growth in Ireland. They worry that it is another case of “irrational exhuberance”, the infamous phrase uttered by US Federal Reserve chair Alan Greenspan in relation to the “dot.com” asset price bubble.

My response to that is, no, it is not a mirage built on an imaginary market, but neither is it a one-way bet without risk. There will be periods of extreme volatility and there will be casualties. As has happened in the Irish pig sector, only the fittest will survive.

However, in my view, there are at least 10 solid foundations on which a robust Irish dairy industry can develop and prosper.

Low farm debt

In contrast to other countries such as Denmark, where the average debt is €2million per farm, Ireland is starting the post-quota journey from a good place. The average Irish dairy farm currently has a low level of borrowing, ranging from €30,000 to €80,000, on average.

Facilities

Ireland’s 17,881 dairy farmers have a strong commercial focus and have consistently invested in their farms on the back of good incomes relative to other sectors. While it probably contributed to inflated construction costs, a major Farm Waste Management Scheme between 2006 and 2008 led to a massive investment in winter housing and slurry storage on Irish dairy farms.

Many farms are ready to grow numbers significantly without major capital investment.

Independent research and advice

Ireland’s dairy farmers have the advantage of a world-class dairy research centre in Teagasc Moorepark, Co Cork. It is independent – something that should not be taken for granted. While the advisory resources of Teagasc have been depleted, there is still a strong core of excellent technical dairy advisers in Ireland.

Global experience

The abolition of milk quotas on 1 April has not suddenly exposed Irish farmers to the trauma of global market prices. The reality is that Irish dairy farmers have been producing for the global market at global prices since 2008 – the scars of 2009 are still fresh in the minds of many dairy farm families.

Climate

Ireland’s consistent rainfall is a growing competitive advantage in a world where climate change means that some milk production regions face serious questions about their ability to produce milk for the long term. California and Saudi Arabia are two examples. We may quibble about the rain, but we would be nothing without it.

Education

New entrants to dairy farming and the young people inheriting dairy farms are far better educated and well-travelled than their predecessors. It does not guarantee success, but it is a source of confidence for their future.

Processing structure

Ireland’s dairy processing structure, while offering room for improvement, is still a net positive when compared with other European countries, such as Britain and France. Farmers own and control the majority of milk processing assets, while the two publicly-quoted companies, Glanbia and Kerry, have delivered very high rates of return for their farmer shareholders.

Cattle breeding

In 1998, just 27% of Irish dairy cows were milk recorded – very low compared with peers. Some 40% of milk recorded dairy cattle had no known sire and 85% no known dam.

That picture has now changed dramatically thanks to the success of the Irish Cattle Breeding Federation (ICBF). Its Economic Breeding Index (EBI) is a powerful selection tool that is ensuring that Irish farmers are breeding longer lasting, more profitable cows.

Grass

We can grow lots of this wonderful crop in all parts of Ireland. By applying the right skills, farmers can utilise high proportions of it at reasonable cost. While oil and feed price fluctuations change the relative economics, it is a competitive advantage shared by very few of our global peers.

Family farms

Ireland’s dairy production is based on a family farm model, with the owner or their family members supplying 88% of the labour input. Average milk output is 305,000 litres (67,000 gallons) per year, with scope on many farms to increase this without hiring additional full-time staff. Furthermore, marketing of Irish dairy produce can capitalise on a customer preference for food produced on family farms rather than “factory farms”.

This article features in an 80-page End of Milk Quotas magazine which is available to all digital subscribers of farmersjournal.ie from 6am on 1 April and to all print customers on Thursday 2 April