Preparing for Dairy Expansion
There is an optimistic outlook for dairy markets in the medium term according to the Kerry Group Chief Executive, Stan McCarthy. Speaking at the Teagasc National Dairy Conference in Tralee, today, Tuesday 20 November, he said that increasing global population, increased urbanisation and food security are huge issues, driving demand for dairy products. On the supply side he said that New Zealand and the U.S. are primed to grow milk supply, with the EU too ready to increase milk output after 2015.
Taking a view on 2013 prospects, Stan McCarthy said that dairy markets have stabilised, and if current market conditions were to remain the same into 2013, then we would be looking at a return to 2011 situation from a price perspective.
Professor Gerry Boyle, Teagasc Director, said that farmers should focus on the risks associated with expansion. He said that the financial risks need to be understood and the only safe strategy for a farmer is to do whatever it takes on his or her farm to make money with the minimum risk. “If a farmer isn’t reasonably efficient to start with, expansion will not help the business – efficiency must come before expansion.”
Teagasc researcher Laurence Shalloo said: “The targets for a 50% increase in milk output set in the Food Harvest 2020 report will deliver substantial increases in net revenue, estimated at over €900 million, within the Irish dairy industry. The achievement of Food Harvest 2020 targets will result in increased milk sales, increased calf sales and increased cull cow sales, which could increase annual net revenue at farm level by of the order of €820 million, depending on milk and beef prices.
However, he warned that the most important feature of expansion for all individual farmers is that the increased herd size and milk output generates higher profits than before expansion, otherwise expansion should not be attempted. He said that the profitability will be dependent on how the increase in milk output is managed at farm level. Managing cash flow in the expansion phase will be a key requirement to ensure liquidity while expansion takes place.
Laurence Shalloo pointed out that there has been a dramatic increase in the number of dairy replacement heifers born on Irish dairy farms. The number of dairy heifer calves born has increased each year with approximately 100,000 additional dairy replacement heifers born in 2012 compared to 2008, indicating that dairy farmers are already preparing for expansion when milk quotas end in 2015.