Prof Pat Dillon: Innovation is key to future farm profits

Farmers have to be incredibly innovative for their business to develop and prosper. Innovation is defined as ‘renewing, changing or creating more effective processes, products or ways of doing things’.

Farmers are always looking for new and better ways to do things and this was evident at the recent Teagasc National Dairy Conferences in Cork and Mullingar where Irish farmers and a New Zealand farming couple spoke about their own farming operations.

In dairy farming, Ireland has a comparative advantage to grow grass and to utilise this grass effectively to produce milk.

Innovation can give us a competitive advantage. In the Irish Agri-food sector this includes those that create knowledge like Teagasc research, UCD, UCC etc; those that facilitate its use like Teagasc Advisors, Private Agriculture Consultants etc. and those who use the knowledge directly such as dairy farmers and agribusiness. There is a need for on-going innovation in the four main pillars of the dairy farming system:

(1) high genetic merit herd,

(2) high pasture productivity,

(3) sustainable production system and

(4) highly skilled work force.

Given that Irish dairying is now competing in an increasingly globalised market place, efficiency, competitiveness and financial stability is very important.

First, increased costs and lower product prices for a farm business can lead to a significant reduction in dairy farm profitability. Therefore, minimising costs is an important objective.

Second — if Ireland is going to secure a greater share of the global dairy trade in the future — then the competitiveness of the sector will be crucial.

Thirdly, the level of debt and the financial status of Irish dairy farms are important in terms of resilience, so that farmers are not trying to service high debt in extreme volatile markets.

There needs to be a constant focus on farm efficiency. In the future, dairy farmers will be required to develop systems of milk production capable of delivering sustainable returns within a volatile milk price scenario. In Ireland this will be best achieved through the development of low cost grass-based systems of milk production.

Since the mid-2000s there has been a marked upswing in demand for dairy products, especially across Asia.

However, given that only a small proportion of milk globally is traded, any small imbalance in supply or demand will have a profound effect on dairy commodity prices, resulting in large volatility in milk price at farm level.

In a scenario of large volatility in milk price, maximum profit may not be the sole focus, but a balance between risk and profit. In an Irish dairy production system this will entail maximising grass utilised per hectare, which generally results in a decreased costs of production.

Future challenges will require systems that result in increased environmental sustainability, higher quality milk to produce products of greater added value and increased emphasis on ‘people in dairying’ with the objective of an adequate supply of well-trained young people entering the industry.

The large increase in milk production in Ireland forecasted with the abolition of milk quotas on the 1st of April 2015 has materialised.

This has been associated with an increase in herd size as well as an increase in milk yields per cow. In the first year after milk quota abolition, milk production increased by almost 19% in Ireland.

Over this period milk production also increased significantly in the EU28 (4.2%) and the USA (2.4%), but decreased marginally in New Zealand (-1.5%). The corresponding increase in demand over this period has been lower than that predicted due to lower than expected demand from China, low oil prices and Russia remaining largely out of the market.

This provided the prefect storm in terms of global dairy commodity prices, with milk prices bottoming out in June 2016.

In the second half of 2016 there has been a significant correction to the supply-demand imbalance, with milk prices recovering in autumn 2016. The outlook for 2017 is positive.

The Irish dairy industry has to respond to the challenges facing the industry. Irish dairy farmers need to be aware of the structural changes in global dairying, while ruthlessly analysing their current efficiency, competitiveness and resilience on their own farm, and then being ready to grasp future gains in efficiency and competitiveness.

Over the last two years dairy farmers have reduced their cost of production as the benefits of technologies that have been put in place flow through.

Prof Pat Dillon is head of Teagasc Animal and Grassland Research and Innovation programme Moorepark, Fermoy, Co Cork


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