Watch: milk solids payment system right for NI

Changing the payment system for milk in NI to milk solids, as opposed to milk yield, is about giving farmers the right signals, and growing the value of the overall milk pool, ultimately to the benefit of everyone, speakers at last week’s Irish Farmers Journal/Ulster Farmers’ Union dairy conference confirmed.

Highlighting how and why the system changed in the Republic of Ireland (RoI), Dr Laurence Shalloo from Teagasc, showed that a move to a payment based on A+B-C in the mid to late 2000s in the RoI has encouraged farmers there to produce higher quality milk.

In the 10 years from 2006 to 2016, fat and protein percentages continue to increase, and the milk produced in the RoI in 2016 was worth €151m more than in 2006 (calculation done at a consistent milk price of 30c/l), directly as a result of higher solids.

Meanwhile, in NI, over a similar period, fat and protein percentages have hardly changed, although overall milk yield continues to increase.

That reflects the fact farmers are responding to the signals currently given by processors. Using an average of the payment incentives currently used by NI’s three largest milk processors – LacPatrick, Lakeland and Dale Farm, and at a base price of 29p/l, Shalloo was able to show that farmers in NI are effectively paid 7.5p/l for producing water.

Furthermore, he highlighted an example of two cows, each producing 450kg of milk solids, but one yielding 6,000 litres and the other doing 7,000 litres.

Under the current system, the 7,000-litre cow realised nearly £90 more in milk receipts at £1,863. “The signal being given to farmers, is to forget everything being said about efficiency and just drive volume. It is not logical you would pay for water,” said Shalloo. Instead, he put forward a new model which values protein at £5.65/kg, fat at £3.25/kg, lactose at £0.31/kg, and with a 4p/l volume cost (the ‘‘C’’ element). If that template was applied, the 7,000-litre cow would have total receipts of £1,801, but the 6,000-litre cow, £1,824.

“It would reflect the true value of milk, including the processing cost,” said Shalloo.

The other point to note, is that while the actual receipts per cow have changed, the differences are quite small. In the Republic of Ireland, when a change was made over to milk solids payments, approximately 90% of farmers saw little difference in their milk cheque.

“It is not a game-changer now. The pot of money is the same. But it is a game-changer in the long term. Focus on making the pot bigger,” said Shalloo.

“A cow that delivers higher components is a healthier and a more fertile cow. If we want to build more resilience in our industry, the logic is there for a discussion on this,” added Ian McCluggage from CAFRE.

Border zone solution post-Brexit

Both sides in the Brexit negotiations have insisted that they want to see a frictionless border between NI and the Republic of Ireland after the UK leaves the EU, but one of the current challenges is to find a solution that works in practice.

According to Michael Haverty, an economist with agri-business consultants Andersons, part of a solution could be to designate all of NI as a border zone, with a similar zone extending 100 miles into the Republic of Ireland. It would mean checks on goods or people could be done randomly (eg at a factory), rather than at specific border crossing point. “None of the various options are straightforward, but concepts such as that need to be considered,” he said.

He points to the situation in the US, where a zone has been designated up to 100 miles from any external US border. It allows authorities in the zone to search and question, without warrant, anyone they suspect of being an illegal immigrant.

“It works in the US to help control illegal immigration. The people living in the zone are no less American,” suggested Haverty.

On wider Brexit-related issues, the Andersons consultant said that he expected a new EU-UK partnership agreement to be done, but that it will take time. “A two-year transition deal (to 2021) might not be enough. It could take five years (to 2024),” said Haverty. That could mean the UK drops out of the EU without an agreement, and has to trade for a period, on the basis of World Trade Organisation (WTO) rules.

He also emphasised a fundamental difference between the dairy industry in Britain and in NI, when it comes to market outlets. In Britain, 93% of dairy products are sold in the UK market. For NI, just over 50% is sold in the UK market, with the remainder going to the Republic of Ireland (14%), the rest of the EU (26%) and the rest of the world (6%).

If NI is to retain sales into these markets after Brexit, he said that NI must encourage the UK to maintain production standards that are equivalent to the EU after Brexit.

Environment rules to dictate expansion

The last 20 years have brought significant expansion in the NI dairy industry, but any further increase will be dictated by rules linked to the environment.

“A new system of quotas will be based around the environment – issues such as phosphorus, nitrates, biodiversity and ammonia emissions, and they are not going away. We have got to create a roadmap to work our way through these new quotas,” said Ian McCluggage from CAFRE.

His point was reiterated by Dr John Bailey from AFBI, who insisted that the rules will still be there when the UK leaves the EU. During his presentation, the AFBI scientist focused on issues around phosphorus (P) and nitrates. Since 1998, P levels in local rivers have generally been on the decline, but in the last four years that trend has reversed, which is a major concern That information is yet to be formally passed to the European Commission, but once it is, Bailey warned that the Commission might seek to impose an even longer closed period for slurry applications, or seek to ban slurry applications on high P soils. “That would affect 70% of the grassland area on intensive farms in NI,” said Bailey.

He insisted that for the dairy industry to be sustainable it must look to minimise P losses. That starts with soil testing, and targeting slurry at land that needs it. It also means reducing the amount of P being fed in concentrates, either by reducing the P level in feed, or offering less concentrate, with a greater reliance on grass.

However, applying more fertiliser nitrogen (N) to grow more grass creates another dilemma acknowledged Bailey, as under the EU Water Framework Directive, NI could face significant EU fines if nitrates in water started to increase again. “We only recently realised that,” said Bailey.

He advised that farmers should aim to make best use of the N available in the soil by appropriate use of lime. Also, seek to minimise N losses in slurry by using trailing shoe technology, and make sure to apply 25kg of sulphur (SO3) per hectare to all swards in the spring to avoid sulphur deficiency limiting yield.

More consolidation

In the last 20 years, the number of dairy farms in NI has reduced from 5,785 to 3,529, while at the same time cow numbers are up 38,000, meaning average herd size has nearly doubled, to now stand at 90 cows.“In the next 10 years, I would expect 1,000 less dairy farmers in NI, but the number of cows to stay the same,” predicted Ian McCluggage from CAFRE.

High-output farms

According to Teagasc winter milk specialist, Dr Joe Patton high-output herds have “nothing to fear” from a change to a milk solids payment. He pointed out that bulls are available that will deliver increased fat and protein percentage, while at the same time holding overall yield. And, on some farms, high yields per cow are only achieved after long lactations, and an extended calving interval.

“By breeding solids, and also better fertility in, you will increase overall milk yield, with more fresh calved cows in the herd,” he said.

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Comment: aim to build a more resilient dairy industry