Exciting times on the horizon
That’s how Agriculture, Food and Marine Minister Simon Coveney views the upcoming abolition of European Union quotas on milk production which have been in place since 1984.
“The shackles come off in April and following that we will have an exciting mix of opportunity and challenge for all stakeholders; farmers and rural Ireland, processors and manufacturers, agri-business and exporters,” he said.
The country’s 18,000 dairy farmers, who milk 1.1 million cows and supply 5.5 billion litres annually, and the overtall multi-billion euro turnover industry, which employs thousands of people, have been positioning themselves to take advantage of the new era.
Ireland exports dairy products and ingredients to nearly 100 countries while the Harvest 2020 report has set an ambitious target for the sector to secure a 50% increase in milk production by the end of the decade.
While the number of dairy farmers has fallen from around 65,000 when milk quotas were introduced 30 years ago, the processing industry has rationalised and developed and continues to play a key role in the country’s economy.
Regarding the imminent abolition of milk quotas, Minister Coveney said: “Our eyes are on the prizes and they have been for a number of years now; growth in output, growth in exports, job creation in rural Ireland.
“It is appropriate that we explore the challenges and opportunities this once in a generation policy change will bring.
“There will be challenges but I am confident the Irish dairy sector is well positioned to take advantage of this opportunity”.
Some of those challenges are looming because the abolition of quotes coincides with poor market and milk prices, resulting in a difficuilt few months ahead for suppliers.
Teagasc economist Trevor Donnellan has warned that average Irish milk prices in 2015 are expected to fall to 27 cent per litre, a reduction of over 10 cent per litre on the average for 2014.
He said this follows several years of good incomes on dairy farms and is likely to have a significant impact on incomes in 2015, with a reduction in excess of 50% possible on some farms.
In a recent reply to a Dail question from Deputy Brendan Smith, the Minister said Teagasc is clear these negative effects are expected to be temporary with global dairy markets set to witness signs of recovery as the year progresses.
Price volatility is a continuing feature of dairy commodity markets, and it is clear that managing the peaks and troughs in a way that allows farmers and others to plan ahead is a significant challenge for the sector.
Strong production in key dairy producing countries, driven by good weather, increased cow numbers in the US and strong cereal harvests, has seen the emergence of a surplus in dairy products on international markets coming into 2015.
But in the medium to longer term, population growth and increasing affluence in developing countries will continue to drive strong growth in demand for dairy products, and Irish producers will be well placed to take full advantage of this demand, he said.
Bord Bia chief executive Aidan Cotter recently said the growth in global demand for food, combined with shifting dietary habits towards more protein based foods and dairy products, is relentless.
It is driven by a population growing at 75 million people a year and double that number joining the middle classes.
“This means that over the next 10 years a market three times the size of the EU, in buying power terms, is being created, principally in Asia but also Africa.”
Mr Cotter said with 40% of its exports already destined for international markets, principally to these regions, the Irish dairy industry, as it expands, is well positioned to benefit from the sustained growth in demand.
In relation to the short term challenges, Minister Coveney said there is a range of tools available under the new Common Agriculture Policy to mitigate the worst impact of downward price volatility.
He said he had called on the European Commission to deploy these tools as appropriate. The Single Farm Payment will also provide a measure of income stability during this difficult period. A focus on innovation and the production of added value products will also have a role to play.
“I have also asked the banking sector to tailor their financial products to allow for the kind of price volatility that will be a feature of international dairy markets, and, of course, co-ops have a role to play in ensuring that their contractual arrangements with suppliers provide a measure of stability,” he said.
IFA president Eddie Downey said the long term outlook for the dairy sector is positive, with strong global demand growth expected to outpace growth in output for the foreseeable future. But there will be times when economic, weather or political factors can disrupt the supply/ demand balance and create extreme negative price volatility.
Mr Downey urged all stakeholders to play their part in providing support for farmers to transition out of quotas with an improved ability to manage volatile incomes.
