ICMSA’s new dairy chairman, Gerald Quain, farms at Creggane, on the Cork-Limerick border near Charleville.
He was elected to the position just before Christmas, having previously served a full term as a member of the Association’s nine-person Executive Committee.
What are the main market factors determining milk prices in Ireland at the moment?
The factors determining milk price at present are global supply and demand. On the supply side, production has increased, mostly from the EU following the abolition of milk quotas. Currency movements have also played a role, a positive role certainly until recently from a EU farmer’s perspective.
While the demand for dairy products is reasonable, the Russian ban is having a huge impact on the EU dairy market, and we’ve been left with a situation where the cost of a political decision is being chiefly carried by the EU’s dairy farmers. We need to see renewed efforts in this regard to re-open that market for EU dairy products.
Unfortunately, milk prices are at a very low level at present, and below the cost of production. For milk prices to increase in 2016, we have to see supply correction somewhere, unless the EU Commission intervenes in a much more meaningful way to support dairy farmers.
Having spoken to colleagues across the EU in the European Milk Board, we know the problems are similar and, as an immediate measure, we need an intervention price increase to 28 cents per litre, so that farmers at least cover the cost of milk production.
Some €800 million will have been lost in dairy farmer income in the two years forward from 2014, when you realise that that sum can be multiplied by 1.8 as it goes into the wider rural economy, you get some idea of the reverse these kinds of prices represent, and why ICMSA will make this an issue in the forthcoming General Election. It’s just too important for the farm families concerned and for the wider rural economy which depends massively on the ‘dairy spend’.
Are Irish dairy farmers better able to ride out low milk prices than farmers in other countries?
Unfortunately, at EU level, Irish processors have traditionally been near the bottom of the price league, particular during periods of market downturn. Every cent counts, particularly when milk price is poor, the ability of our processors to pay a competitive milk price relative to our EU counterparts is hugely important in this regard. Whether Irish farmers are better equipped depends on the circumstances of individual farmers.
It seems fair to assume that a new entrant will potentially have higher costs, but anyone who has expanded in the last number of years is likely to come under pressure.
Irish farmers have traditionally had low cash costs compared to our competitors in Europe and across the globe. However, cash costs are misleading , they do not take account of the cost of the farmer’s labour, or opportunity costs. So Irish farmers have potential to ride out low prices relatively longer, given our traditionally low cash costs, but we must not forget that farmers need a wage to survive. Why should dairy farmers work the kinds of hours that milk production involves for no wages whatsoever, as is the case now? ICMSA has always focussed on the need to give dairy farmers an income commensurate with the required work, technical skill, and capital commitment. That will remain our focus while I’m chair of the dairy committee.
It is important to be clear on this, at current milk prices, all farmers, new entrants or established, are under huge pressure, and cannot sustain a long period of such low prices.
The EU Commission abolished quotas in 2015 and the onus is on them to ensure that farm families can survive in the open market.
Is that what dairy farming for a volatile global market boils down to?
Yes, but there can and should be controls to minimise this volatility. Risk management will be key to our ability to survive and flourish. Farmers, almost by definition, are risk-takers, but we must learn to adapt and make the correct decisions for our businesses, for instance, locking-into contracts such as fixed milk price schemes where we judge that pressures on milk price are likel.
Co-ops and processors have a major role in this, by actively minimising suppliers’ exposure to volatility, by coming forward with sound and well-designed contracts that reward long-term commitment and stability for the farmer and company. The Government needs to tweak the taxation system to facilitate farmers to manage income in good and bad years.
The Farm Management Deposit Scheme that we proposed to the Government, based on a very successful and established Australian model, would do exactly that.
When will cash flow become critical for Irish dairy farmers this year, if milk prices do not rise?
For spring calving herds, cash flow is already becoming an issue. Some bills can be deferred for a number of months, but they still have to be paid, and there’s going to be serious pressure on farmers. In this regard, co-ops have to be very sensitive, and our banks must ‘walk the walk’ rather than just ‘talk the talk’ about supporting farmers.
I know farmers are already complaining about high interest rates and bank charges, and I firmly believe we need banks to take an early proactive and co-operative approach to assisting farmers, rather than lett problem build. For example, banks should now consider reduced repayment schedules linked to milk price, so that farmers pay less when milk price is low, without any extra bank penalty.
Farmers are good customers at the banks, the banks know that, and it’s time we saw serious initiatives to support farmers, which would benefit banks also, in the long term.
Friesland Campina has to pay dairy farmers to produce less milk, because their processing capacity will be insufficient until the middle of February. Do you see any chance of that situation developing in Ireland?
From my understanding, there is a short term processing capacity issue to be resolved in the Netherlands, this is why this measure has been introduced. From a farm income perspective, a strong milk price is absolutely essential and this will only be delivered when the supply- demand balance is positive. Farmers expect and can deal with milk price variations, but if low milk prices become the norm, all options would have to be on the table. Our processors seem to be obsessive on volume, we as farmers need to be obsessive on margin.
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