The Irish dairy sector is a huge contributor to growth in economic activity across the rural Irish economy, supporting over 60,000 jobs, said food economist and consultant Ciaran Fitzgerald.
In his Moorepark19 Open Day presentation Mr Fitzgerald also revealed that along with 19,000 jobs in dairy farming, there are jobs in milk processing and distribution, export marketing, and research.
Ireland exports about 90% of its dairy output, to 120 countries. The value of exports has doubled from €2 billion to €4bn, since EU milk quotas were removed in 2015.
This growth in export values reflects increased global demand for dairy products and, in particular, increased demand for grass-based sustainable dairy production.
Ireland’s status as the lowest carbon-emitting dairy sector in the northern hemisphere is recognised across a growing global customer base.
The additional status of Irish grassland as a huge carbon sink, storing up to 30 million tonnes of carbon dioxide annually, is currently being assessed under IPCC (Intergovernmental Panel on Climate Change) rules.
The overall economic contribution of dairying to the Irish economy has increased significantly in recent years
Irish economy expenditure by the dairy sector has also doubled, since quota abolition, to €3.8bn in 2018.
Crucially, in terms of Irish economy impact, every €1 of exports of dairy products represents a 90 cent spend within the Irish economy.
In contrast, for the multinational sector, the corresponding figure per €1 of exports is 10 cent spent in the Irish economy.
Moreover, dairy’s huge Irish economy spend on raw materials, wages, and services now accounts for almost 10% of spending by all industry (DJEBI, Annual Survey of Expenditure 2017 published February 2019).
Expenditure in the Irish economy is a much more real assessment of the impact of industry in the economy than standard economic accounting figures such as Gross Domestic Product (GDP) or Gross Value Add (GVA).
In terms of economic activity, GDP is a completely distorted figure in Ireland’s case, because of the requirement under GDP convention rules that multinational profits and transfer pricing transactions are included in Ireland’s GDP figure, while purchases of milk and other inputs in the Irish economy by the dairy sector, for example, are excluded.
In gross terms, €130bn of private multinational company profits annually are included in Ireland’s GDP figure, while €3.8bn worth of Irish economy inputs purchased by the dairy sector (€16bn by the broad agri-food sector annually) are excluded. So, very clearly, GDP does not measure Irish economy performance.
The Central Statistics Office (CSO), the Department of Jobs, Enterprise and Innovation and Eurostat provide annual analyses that create a much clearer picture.
The Eurostat report shows that while Ireland is ranked second in the EU in GDP terms, when transfer pricing is removed, we fall to ninth in the EU (Eurostat AIC V GDP 2017).
Irish income levels are 181% of the EU average, under GDP figures, but only 93% of the EU average, when transfer pricing distortions are removed.
The CSO and the Department of Jobs, Enterprise and Innovation produce annual reports detailing the Irish economy spend on raw materials, salaries and services in Ireland (CSO Census of industrial production, Dept. Jobs Annual survey of Irish Economy Expenditure February 2019).
The following statistics provide a clearer picture of the relative economic contributions of various sectors in 2017. Multinational exports were valued at €200bn, while Irish economy expenditure by multinationals was €20bn (a 10 cent spend in the Irish economy per euro exported).
The Irish economy expenditure by all Irish indigenous companies was €24bn, while the total exports from these companies were €40bn (a 60 cent spend per euro exported).
The Irish economy expenditure by the agri-food sector was €15bn, while exports were valued at €13bn (120 cent per euro of exports).
Dairy industry exports were €4.2bn, while Irish economy expenditure was €3.8bn (a 91 cent expenditure in the Irish economy per euro exported).
So the Irish dairy sector is a key contributor to growth in economic activity across the rural and regional Irish economy. At the same time, dairy output growth has been extremely climate change efficient.
A recent Teagasc report shows that the expansion in the sector has been achieved while reducing the emissions intensity of dairy production to levels well below that of other countries.
Dairy economy growth comes from a combination of a major surge in global demand for dairy products, particularly in emerging economies, and the ending of supply controls in the EU, with the abolition of milk quotas in 2015.
Since 2015, Irish dairy output increased in value by over €2bn annually, and 60% by volume.
There are just 19,000 dairy farmers in Ireland, producing over 7.5bn litres of milk annually (CSO, 2018).
Imports of milk from Northern Ireland represent an additional 800 million litres.
Employment in milk processing is 7,500 jobs (CSO, 2018).
There are an additional 30,000 jobs across the dairy sector in farm supplies and agri-inputs/wholesaling, transport, distribution, research and development (CSO, 2018).
The total milk processed in the Republic of Ireland is almost 8.3bn litres.
This represents a 60% increase on the pre-quota levels which averaged five billion litre annually.
The turnover value of the milk processing industry is €4.8bn.
Exports in 2018 were valued at €4.2bn.
The unit value of milk production has increased from an average of 42–45c/litre, in the last years of milk quotas, to just over 56 cent in 2018.
The Irish economy expenditure by the dairy sector was €3.8bn in 2018. The Irish dairy sector buys 90% of its inputs and raw materials in the Irish economy.
The dairy industry accounted for almost 10% of spending by all industry in the Irish economy in 2018.
The sector additionally provides around 50% of the raw material for the beef processing sector, to a value of €1.2bn annually.
Since EU milk quotas were abolished in 2015, Irish milk production increased, to 7.6 bn litres in 2018, a really challenging year for farmers.
Moreover, not only has the volume of milk production increased by almost 50%, the €2bn in increased expenditure in the Irish economy has ranged from increased farm inputs and services, through investment in new processing facilities, and in support of an additional 10,000 jobs across the economy from dairy farming, right through to manufacturing distribution and research.
Price and income volatility
The transition from a milk quota plus EU market supports based regime to a more, open and volatile world market-driven scenario has presented huge challenges in terms of dealing with price and income volatility
It is a testament to the resilience of farmers and the innovation of Irish milk processors, led initially by Glanbia with the introduction of robust fixed milk price and business finance schemes, that both the volume growth trajectory, and the increase in unit value, were sustained throughout the ups and downs of the global milk price cycles.
While some element of the increase in the unit value of dairy output has come from an increase in the price of butter since the middle of 2016, the bigger factor driving the growth in value-added would seem to be the move to higher-income returns from the infant formula and sports nutrition sectors.
In addition to the increased value within the sector, figures from Enterprise Ireland from 2015 showed that in the two years pre-quota abolition (2013 and 2014), Irish dairy processors invested in 36 projects across the dairy product spectrum, spending €770 million, with a state grant support of €79 million.
Summary and conclusion
The clear takeaways are that the impacts of dairy expansion have been hugely significant in terms of return on investment (including state support) and even more importantly the huge economy-wide impact of dairy expansion across the Irish economy.