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Benchmarking Expansion on Irish Dairy Farms

Professor Gerry Boyle, Teagasc


13 March 2012


With the milk quota system scheduled to end in just over 12 months, it is fitting that we should address the challenges that expansion will bring for both existing dairy producers and prospective new entrants to milk production.

In the past we in Ireland feared that quota elimination would undermine the Irish dairy sector. The rapid growth in Irish milk production after we joined the EU in 1973, outpaced the growth in new dairy market opportunities and this meant that the sector in Ireland was more heavily dependent on the intervention price mechanism than many other EU Member State.

Following several years of rapid growth in EU milk production, ultimately the EU took action in the face of a growing dairy surplus by introducing the milk quota system in 1984. For a time the system served Irish dairy farmers well, ensuring stable milk prices in a time of limited input cost inflation.

However, active consideration of the removal of the quota began in the mid 1990’s, as the price cost squeeze took hold, putting pressure on dairy farm incomes.

If quotas were removed and support prices radically reduced, the conventional wisdom was that Irish milk prices would drop dramatically. It had been long considered that the fate of the Irish milk price was linked inextricably to these EU support price.

However, a growing body of international studies, including work from the Teagasc FAPRI-Ireland team, suggested that the price impact of quota removal would be far less than feared.

At the same time work by my Teagasc colleagues in Moorepark was continuing to push out the frontier of what was achievable in pasture based dairy production, improving our competitiveness with respect to more intensive, and largely feed based, continental systems.

Many in Ireland wanted to see an end to the quota system as early as the year 2000, but caution prevailed. Eventually, opinion around Europe was gradually swayed and the decision to remove quotas was finally taken in 2010. Full removal would come in 2015 with a number of small quota increases in the intervening years aimed at achieving a smooth transition (or a soft landing) from the quota system for the EU dairy sector.

Today world demand for dairy products continues to grow at pace, boosted by both population growth and rising income levels. This has created new international market opportunities for the Irish dairy sector beyond the borders of the EU.

In spite of this growing demand, the forces of international competition in recent years have seen milk production fall in southern and eastern regions of the EU, while quota has remained a constraint in many parts of North Western Europe, the UK being a notable exception.

As you will be aware, Food Harvest 2020 sets out an ambitious target of 50 percent growth in the volume of milk produced in Ireland by 2020, compared with the level in 2007-2009. In setting this target, industry stakeholders took account of both the challenges that would arise in bringing about this expansion and the achievement it would represent if fulfilled.

And so the theme of today’s event is a high level discussion of the farm level challenges that will be faced in bringing about an expansion in Irish milk production in the next 5 to 10 years.

Dairy farmers will be faced with on-farm strategic decisions relating to how this additional milk is produced. It is acknowledged that each farmer faces a different expansion challenges and therefore producers may want to consider various alternative strategies based on their own circumstances in order to meet their own expansion goals.

It is also recognised that each Irish dairy farmer has different resources available to them, has different values, has a different range of skills, knowledge and aspirations, has a different attitude to risk and has their own definition of success. As a result, there are a number of different approaches taken to milk production currently. Certainly, some of these are based on tradition ‘This is the way we always did it’ and there is scope for improved efficiency on the majority of dairy farms.

Currently advisers assess the relative merits of the current milk production ‘system’ on a farm, with the farmer, with reference to research performance figures. Comparisons can be made in terms of, for example, productivity (milk solids per cow or per hectare) or profitability (net profit per cow or per hectare). But such comparisons will be confounded by, for example, differences in the owner’s managerial ability, soil type and milking platform.

Teagasc will work closely with Irish dairy farmers to benchmark progress through the post quota expansion that is imminent. With this in mind, my Teagasc colleague Tom O Dwyer will review the findings of a recent report produced by Teagasc examining how expansion objectives should be communicated and measured. Tom will describe the new Dairy Score Card system which will be used to benchmark the expansion of individual Irish dairy farms against comparable farms from 2015 onward. It is acknowledged that expansion challenges will differ from farm to farm, although through collaboration with industry stakeholders Teagasc is confident that a clear and concise expansion strategy can be identified and conveyed to Irish milk producers, so that each farm can adopt the right approach.

The difficult production conditions of 2012 and 2013 were a reminder to us that our systems must be resilient to climatic challenges as well as economic shocks. My colleague Brendan Horan will present the result of research which he and colleagues have undertaken to ascertain how the resilience of the Irish dairy sector can be assured.

While we in the South have had to operate within the rigidities of the milk quota system, our neighbours in the North have faced a different set of constraints. On the one hand they have been able to acquire milk quota from Britain over the last 20 years or so, while on the other they face environmental restrictions which are less accommodating than in the South. Today my Teagasc colleague Patrick Gillespie will review the expansion experience of Northern Ireland during the quota era and will draw comparisons between the economic performance of Northern Ireland dairy farms with dairy farms in Ireland over the recent years.

Finally, I am delighted to welcome Jim Woulfe, Chief Executive Officer of Dairygold, our guest speaker at today’s Teagasc Dairy Expansion Seminar and I look forward to hearing Jim’s insights into how the expansion in milk production will effect both producer and processor alike.

After the coffee break a panel discussion will explore the challenges associated with dairy expansion and you will have your opportunity to quiz the panel and air your own views.

I look forward to a lively discussion and a thought provoking afternoon.