Kieran Coughlan: Is dairy industry rationalisation on the cards as output drops?
Milk Expanded Pool Their Numbers Farmers Production Match New Milk Unabated And Their Built Entrants The Up Available Platforms Expanded Existing Cow To As As Grazing
The Irish dairy industry may face rationalisation in the year ahead if current trends continue.
Domestic milk intake by processors this year was down 242m litres by the end of June compared to this time last year with the month itself down 13.3m litres.
Milk intakes for 2023 were themselves down from 2022 levels which gives an uncomfortable feeling that a pattern is emerging. Most definitely the difficult Spring and less-than-ideal weather and growing conditions is suppressing milk production this year but historically for the decade prior to 2023 milk volumes increased every year as farmers scaled up production in a quota free environment.
This increase in milk produced over the preceding decade occurred in spite of previous inclement weather of 2013 and 2018 which were dubbed fodder crisis years, and other weather events such as Storm Emma and Storm Ophelia.
Milk production expanded unabated as existing farmers built up their cow numbers to match their available grazing platforms and as new entrants expanded the milk pool. Whilst one year’s production might be up or down based on the prevailing weather and growing conditions, there have been some structural changes that are currently and will continue to affect the prospects for the Irish dairy industry for the foreseeable future.
These changes can effectively be grouped into a number of subcategories there being; changes to the regulatory environment; changes in the demographics of farmers and changes to the financial environments.
Looking a little closer at each of these, firstly in relation to regulations the introduction of milk volume banding, a rise in the deemed nitrogen excretion per cow, enforcement of limitations on fertiliser usage via the fertiliser database are each causing a reduction in the maximum capacity of a farm holding to both carry stock and by extension by restricting the volume of grass and fodder that can be made from a given quantity of land.
Looking at the fertiliser register in particular; many farmers have not got to grips with their fertiliser usage allowance and are running shy of their limits out of fear and lack of knowledge. Whether fertiliser usage will pick up in coming years with a knock-on effect on output remains an unknown but it is likely that farmers will continue to err on the side of caution given the significant penalties that can apply for falling foul of these new regulations.
Looking forward the introduction of the feed register which is likely to happen in the coming year will also affect farm production where the nutrient values of bought in feed are factored in for the purposes of limiting the quantity of fertiliser that can be used. Yet more regulations are likely to stem from the Nature Restoration regulations the full ramifications of which are yet to be revealed as national governments formulate domestic plans.
On the demographic profile of farmers, the National Farm Survey reveals that the average age of farm operators is 58 years of age and increasing rather than decreasing and to adapt a phrase Ireland is no country for old men or women when it comes to dairying. The age profile of dairy farmers suggests that within two decades at most substantially all of Ireland's dairy farmers will either have transitioned the farm to the next generation who may pick up the mantle or will have exited dairying altogether.
One might think that this surely couldn’t happen but any analysis of the dairy industry of our nearest neighbour the UK suggests that it can. In the year 2000, just over two decades ago there was 23,286 dairy farmers and presently it is estimated that two-thirds of these farmers have exited in the intervening years.
Whilst the British could be criticised for having a system that lacked support for their farmers, to be fair their decline was in my view not as a result of a massive onslaught of regulations which we on this side of the pond have had foisted on us in recent years.
One of the areas which does create some hope for the future is that so much more can be done to help those already in the industry and to help those who wish to become dairy farmers either by working collaboratively with retiring dairy farmers or as new entrants.
On the funding side, the volatility of dairy farming profits has swung wildly these past few years and what was traditionally seen as a conservative and prudent approach in the form of fixed milk price scheme backfired on a monumental level and to such a degree that the majority of dairy farmers will never take up such schemes again.
The breakdown of the perceived safe haven of fixed milk price schemes leaves a vacuum both for the farmer but also for lenders who equally banked on steady incomes when it came to financing. Unless a radical approach to flexibility for new entrant loans is forthcoming from lenders which can mirror the volatility of profitability it will be very difficult for new entrants to secure funding for conversion to dairying.
One has to wonder whether processors will play a role in offering financial support to new entrants in the coming years as processors scramble to maintain volume. The truth is that existing and committed dairy farmers who are in it for the long haul need others with them.
Whilst at an individual parish level farmers may compete with each other for available land, if a critical mass of dairy farmers is not maintained then dairy processing facilities become inefficient which affects the milk price for everyone, were a processor volume to collapse it would be the equivalent of trying to run a self-propelled silage harvester outfit to pick up single eight-foot swarths.
