As the country braces itself for a massive explosion in milk output due to the end of quotas in 2015, the entire industry right through the food chain needs to prepare for all eventualities.
Right now it might seem as if this graph can only go in one direction, but caution and cold analysis must precede all sensible investment decisions.
Yes, we all accept the market opportunities which are opening up in China and India and elsewhere.
These markets have enormous potential but we must factor in the inevitability of global shocks upsetting the script.
We have seen the unexpected results of weather issues, recession and geopolitical events in the past. There is no doubt that increasing population and living standards are contributing to a huge growth market for proteins. This will continue, but so will milk output in key production areas. One has to be concerned with the capacity of US dairy feed lots to turn up the taps almost instantly. This is particularly so when world maize prices are so competitive.
I believe that dairy farmers should be less obsessed with simply increasing cow numbers, and should start by auditing their existing operation with a view to optimising efficiency before expanding.
The new dairy farmers will demand a highly professional service from input suppliers — that means cutting-edge technology supporting quality and service while ensuring competitive pricing. In Bretts we continue to invest in our business to meet these challenges from our demanding customers.
This year we commissioned a new 20,000 tonne grain store with radical new technology to reduce the cost of handling and treating grain for storage and eventual use as a prime raw material in our feeds. The result is less electricity, reduced oil usage and CO2 emissions and a more competitive native grain. We are expanding our mill capacity to meet the increased demand for dairy feeds.
One hopes every possibility which can contribute to reducing costs is being exhausted because when the market inevitably turns and all margins are challenged, then Ireland will need an industry fully fit for purpose to take on the global dairy giants.
Farm milk expansion will require massive support from Irish banks and it seems that our pillar banks, at least, are anxious for a share of the risk. I use “risk” advisedly because the concept of risk assessment and risk management has been abandoned by banks and investors here for the past decade. We can’t afford to expand our dairy industry on that failed model.
Budgets need stress testing at much lower milk prices than today’s and interest rates will not be relatively low forever. Milk price will be challenged and cash-flow budgets need to be stress tested for lower milk prices going forward.
The low-cost model based on extended grazing and minimal silage conservation has not been viable for farmers in the difficult conditions we have experienced in recent years. Most dairy farmers have made their own decisions on the management of sound nutrition for their cows based on supplementing good grassland management with concentrates.
The future is bright for our dairy sector and it can be profitable and sustainable if we avoid the errors which damaged other sectors.
James Brett is managing director of Brett Brothers Ltd, a producer of animal feeds, based in Kilkenny.
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