Reprieve on milk superlevy — for now
However, ambition and nature combined over the past year, and rising cow numbers and reasonable weather sent milk production well ahead of EU quota limits.
In Glanbia, our biggest dairy co-op, including the Premier liquid milk division, suppliers had delivered about 42m litres in excess when the quota year finished on March 31. Because they didn’t take sufficient action to haul back milk production, they faced a €12m superlevy fine, or about €4,600 per supplier on average — unless luck was on their side.
Suppliers in other co-ops also had millions of euro on the line. Agriculture Minister Simon Coveney said some of the many farmers who produced well above quota are in his own Co Cork, and the chance they took that Ireland would escape a superlevy could have put many of them out of business. He was announcing that they have won their bet by a short head. There will be a steward’s inquiry until September, but it will be a very big surprise if the result is reversed.
The minister and his department acted fast to bring the news farmers were hopefully anticipating and dreading in equal measure.
He said that with 99% of the national quota accounted for by returns from milk purchasers, estimated butterfat-adjusted deliveries for the 2010/2011 milk quota were 0.43% under quota. A definitive outcome would not be available for some months, but it appeared that the country has, fortunately, avoided a superlevy — which means that co-ops, and each supplier, also escape.
This timely announcement saved farmers from months of worry that their business would be devastated by a fine.
Hopefully, they have learned their lesson, and may bet a few euro on the Irish Grand National next Monday, but will stop gambling with their business future. In 27 years of milk quotas, Irish farmers lost their bet in 14 years, paying €117m in superlevy fines. With rising production, and only 1% quota increase until quotas are scrapped in 2015, it’s odds-on that they will be caught again in the next four years. There are enough additional dairy heifers to increase the herd by 3% to 4% this year and next, according to a milk management report for Bank of Ireland by Teagasc experts. The Teagasc advice is to be ready to buy quota on the annual exchanges, feed milk to calves, and reduce lactation lengths. Milking only once per day, reducing supplementary feed, and reducing the herd, are the other escape valves.
For the highest cost milk producers who are estimated by Teagasc to generate only 2.7c of profit per litre, superlevy is most damaging, leaving them in a loss-making situation.
According to Teagasc experts, on a farm with potential to produce 400,000 litres, but with quota for only 89% of that, overall profitability is increased by a massive 40% through reduced concentrate feeding in order to avoid a big superlevy fine (cutting annual feed from 990kg to 350kg, while allowing for up to 3kg per day of spring supplementary feeding).
If this farm has quota for only 70% of potential milk supply, the reduced feeding plus milking cows only once per day can reduce the superlevy fine from €40,000 to €6,000.
Most at risk are farms with the potential to produce 50% over quota. They have to take the extra step of selling cows or heifers. Reducing concentrate feed and once-per-day milking will reduce milk production by 35% at most. A 10% reduction in mature cows will reduce production by 11.5%.
Minister Coveney has warned that there is no political solution in place to the quota problem between now and 2015, with the European Commission and most member states against making milk quotas more flexible.
Therefore, every milk producer must exercise the necessary caution and seek advice on the most sensible approach, especially after fine spring weather has got 2011/12 milk production off to a flying start. Even allowing for the increase of 1% in the national quota since April 1, recent delivery trends, if repeated, will put the country in serious danger of going over quota, said Mr Coveney.
