Irish dairy competitors face challenge

Ireland’s competitors bidding for their share of the world dairy market have their own cost problems inside the farm gate.

A survey of dairy farming costs by Rabobank, the leading global agri-bank, shows Ireland had the second lowest 2012 milk production cost of six major production areas.

The survey warns that New Zealand and Australian farm-ers will have to find new ways to survive milk price slumps — because their previous advantage of low costs inside the farm gate, which tided them over in the past, isn’t there any more. Suggested new survival strategies include better supply chain efficiency beyond the farm gate.

Since 2002, the average dairy farm debt has more than doubled in New Zealand, exposed by rising interest rates, and threatened by environment regulations.

Rising energy costs and one of world’s highest wage rates (100% higher than California, 40 % higher than New Zealand) hinder large scale Australian farmers.

In New Zealand, increased production at any cost became the goal after 2002 when their milk price surged 42% over two seasons. Farm working expenses surged 33% per kg of milk solids. But a 32% milk price slump followed in

2003. Farming expenses fell back into line, but since the 72% milk price lift which started in 2007-08, there have been ongoing steep increases in costs.

On-farm working expenses have surged 72%, and interest costs by 29%. Non-pasture feed costs have jumped to 24% (still far short of the 60-65% in intensive US dairy feedlot systems) — but the long-term competitiveness of New Zealand milk depends more than anything else on how the country’s environmental regulations develop, according to Rabobank experts.

Globally, milk production costs have converged, as input costs increased, and more non-pasture feed inputs are used in the traditionally low-cost milk production regions, such as New Zealand and Australia.

They now face direct competition from milk producers operating more intensive farming systems, say Rabobank experts.

Generally, higher milk and land prices have encouraged milk producers to maximise their cows, requiring greater use of purchased feed. Grain usage has increased by one third since 2006 in Australia — but production per cow increased 19% in the past 10 years (and 39% in New Zealand).

According to Rabobank analyst Hayley Moynihan, “With high volatility expected to continue for both milk prices and production costs, the ability to lower inputs and/or costs during periods of abundant global supply would be a distinct advantage.”

According to the survey, US dairy farmers may be best positioned to improve their competitiveness, boosted by cheaper feed in 2014, and by the weak dollar — in stark contrast to Australia and New Zealand, where the currencies have appreciated 90% and 75% since 2002.


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