With global demand for dairy products set to rise and rise, and the competitive constraints posed by EU milk quotas a thing of the past since April the 1st, it looks like the massive expansion of the diary sector may prove to be one of the great success stories in Ireland’s gradual economic recovery.
Recent years have seen considerable excitement surrounding Irish dairy farming, and the farming/agribusiness sector in general. The emergence of a booming artisan/craft food sector, combined with an increased public awareness of issues of environmental sustainability, have opened up many new opportunities and challenges for Ireland’s largest indigenous industry.
In the process, the wider public perception of farming has changed in recent years from being viewed as something old-fashioned to an industry which is increasingly seen as contemporary and fashionable. As its public face has changed, so farming itself has updated its traditional knowledge base with new research, increased business/market awareness, and constant innovation.
Having shared the difficulties faced by other industries in recent years, dairy farming now seems poised for massive expansion in the years running up to 2020. The growth of world middle-class populations and emergence of strong new markets in Africa and Asia provide a global demand which Bord Bia chief executive Aidan Cotter described as “relentless.” Crucially, 2015 has finally allowed Irish (and other European) farmers to raise to the challenge of these emerging markets, as April 1 saw the historic abolition of EU milk quotas.
The origins of the milk quota era go back to the 70s, when the then European Economic Community’s Common Agricultural Policy offered intervention price guarantees which were well above world market prices. The intention had been to shelter the European farming sector from market fluctuations, but the result in the long term was massive overproduction and surpluses, leading to the notorious ‘butter mountains’ and ‘milk lakes’ so beloved of cartoonists and comedians of the period.
To curb this costly overproduction, which had brought the CAP into disrepute, milk quotas came into effect on the 2nd of April, 1984. Originally intended to last until 1989, the expiry date was extended many times, with the quotas themselves becoming marketable assets. However, the general drift of reforms to the CAP was towards a greater market orientation, and with massive global increases in dairy consumption – projected to continue into the future – the milk quotas obviously had to go. The withdrawal of quotas earlier this April has been carefully planned since 2003. But will this new era usher in unparalleled opportunities for expansion for Irish dairy farmers, or will it open up the sector to perilous market volatility?
Speaking at the National Dairy Conference earlier this year, Simon Coveney struck a note of optimism and excitement. The Agriculture Minister called the withdrawal of the quotas “the most important and exciting development for rural Ireland that we’ve seen in a generation” and “one of the most significant opportunities for the Irish economy” in many years. Coveney argued that the abolition effectively meant that Ireland would be upping its annual milk production from 5.5 to 8 billion litres in the space of five years, a surge which he predicted would yield something in the region of 3,000 jobs in the dairy sector.
Similarly, Irish Farmers Association (IFA) National Dairy Committee chairman Sean O’Leary has argued that Irish dairy farmers are uniquely positioned to reap the benefits of the post-quota era, and as such likely to see massive direct and indirect employment expansion in the years to come. Irish farmers and co-ops have been carefully planning for the expansion for many years, and the IFA’s report on the future of the dairy and agribusiness sector suggests job increases of 9,500 and upwards of €1.3bn in additional annual export revenue.
Not everybody greeted the news with such euphoria, however. The European Milk Board (EMB), an umbrella organisation representing 20 diary associations in 15 European countries, took to the streets of Brussels to stage a protest, fearing a massive new milk surplus, chronic price collapses, and the inability of smaller dairy farmers to keep up with the expansion.
“With quotas being lifted, we’re really scared that production is going to explode and we won’t be able to pay our costs any more,” said Yvan Deknudt, a Belgium diary farmer attending the rally. The EMB warned of an impending “catastrophe” owing to falling prices and an expansion of milk production which exceeds demand by “a long chalk.”
While most commentators do not share the EMB’s alarming prognostications, virtually all have conceded that the optimism must be tempered with cautious, careful planning and farm management. Expansion and increased market-orientation poses challenges for farmers in terms of managing greater levels of investment at farm-level, and learning to successfully adapt themselves to the volatility of global prices.
With regard to market volatility, it is arguable that milk production is always inextricably connected with global prices, even in eras of quotas and price guarantees. In April, 2014, the European Milk Market Observatory was launched, an initiative designed to collate the most up-to-date and accurate market data, thus allowing farmers to make informed business decisions. Nor are farmers entirely at the mercy of the market-place in the post-quota era – “safety net measures” remain available under the CAP’s Common Market Organisation, and at the discretion of individual Member States.
The Irish dairy sector seems uniquely positioned to reap the benefits of this new era in European milk production. We have some 18, 500 family owned dairy farms in the country. Our temperate climate and heavy annual rainfall gives a yearly grass yield which exceeds the European average by a third. Combined with these sustainable, natural advantages, the Irish dairy industry has made huge investments in the years running up to the abolition, both in expanding production capacity and in developing innovative strategies to remain competitive and market-orientated.
Institutions like the Paddy O’Keeffe Innovation Centre, run by Teagasc at Moorepark, Fermoy, Co Cork, are providing a venue for vital research, as well as the education and training of new and existing farmers (see our interview with Dr. Pat Dillon). With these considerable natural and intellectual resources brought to bear, it seems that the massive expansion of the dairy sector is likely to be one of the great success stories of Ireland’s gradual economic recovery, a huge boon to our most traditional and culturally cherished indigenous industry.