Farm View: Where are the profits for Irish dairying supposed to come from now?
Stubbornly high milk production costs still leave farmers having to work harder and manage larger operations just to preserve their standard of living, writes Stephen Cadogan.
Dairy farms that can break free from the expansion-driven model may be better positioned for long-term success, advised Philip O'Connor, Head of Farm Support at ifac, in the group's 2025 Irish Farm Report.
He explained why finding this balance between scale, efficiency, and sustainability is the challenge of the coming years.
He posed the question, "Where are the profits supposed to come from now?", with the dairy sector under the environmental microscope, and potential regulatory changes in the pipeline.
The overall situation is that new stocking restrictions are pushing dairy farmers into a tight corner, with high costs on one side, and potentially reduced output on the other.
With some recent weakness in the milk price, farmers themselves will become more aware of the ifac reminder that production costs have remained stubbornly high.
Through 2023 and 2024, concentrate feed costs hovered between eight and 10 cents per litre of milk, on average, with pasture and forage costs floating just above six cents per litre. So the cents-per-litre cost of production stayed in the high 30s.
If the weather stays on the dairy farmer's side, costs may fall. If not, they will feel further pressure on their operating expenses.
According to ifac, the cost of producing milk hasn’t come down in any meaningful way since the hyper-inflationary days of 2022.
To try to stay profitable, farmers are increasing their output and producing more milk per hectare, rather than improving margins per unit of production. Farmers are playing the milk volume game.
Many increased profits by expanding their herds, a strategy which may solve one set of problems while creating another. The larger herds require more staff and management, increased infrastructure investment, and often lead to higher environmental compliance costs.
These can offset some of the benefits of scale, creating a "never-ending treadmill of expansion in which farmers must continuously grow to maintain their income levels".
Along the way, the highest level of consumer price inflation in Ireland for decades eroded some of the purchasing power of any increase in nominal profits. Thankfully, the inflation of about 8% in 2022 and 2023 has faded away to about 2% more recently.
But stubbornly high milk production costs still leave farmers having to work harder and manage larger operations, just to preserve their standard of living.
And the reduction in nitrates derogation limits, from 250 to 220kg of organic N/ha, forces many intensive dairy farms to either reduce the stocking rate or acquire additional land, directly impacting production capacity and the farm business model.
This signals a challenging period ahead for volume-driven expansion approaches. "More cows for more litres for more profits" is not compatible with the nitrates situation.
A four-way balanced approach is recommended by ifac.
- First, grow more grass, and utilise the land more effectively, will remain the number one key driver of profitability.
- Second, find ways to reduce input costs without compromising production quality.
- Third, invest in technologies and practices that improve output per unit of input.
- Fourth, balance expansion with environmental sustainability and labour efficiency.
The focus should shift from simply expanding and producing more to producing smarter.
For example, increase the fat and protein, rather than rely on more cows, more litres.
