The IFA spring dairy seminars were characterised by the high quality of information presented by the co-op, bank and Teagasc speakers, with lively discussions from focused dairy farmers.

We learned that dairy farmers’ growth plans are mostly incremental and modest and their current debt exposure is relatively low. It was also clear, especially from the Carrick-on-Shannon and the Cavan meetings, that the future of Irish dairying will not just be a Munster story.

Common growth project

CEOs of the local co-ops – Jim Woulfe in Cork, Aaron Forde in Carrick-on-Shannon, Jim Bergin in Kilkenny, John O’Callaghan in Adare and Michael Hanley in Cavan – outlined their strategies to grow the business while delivering the strongest possible milk price to farmers.

Some of those plans require potentially challenging financial contributions from farmers. It is a major strength for us that we have a farmer-owned and controlled industry, with a common project – progressing our expansion plans hand-in-hand so that farmers never have to wonder who will buy their milk in the morning.

Milk price commitments

Many farmers expressed nervousness at being asked to expand without a milk price commitment.

Clearly, in a volatile global market, for a processor to give a cast-iron commitment would be problematic, but there are ways of benchmarking milk prices against recognised indices, or helping farmers secure at least a portion of their incomes. Index-linked fixed-price contracts, such as those developed by Glanbia, were discussed at each meeting.

Farmers’ views on these schemes are mixed. Some – presumably confident of their high levels of efficiency – felt they would prefer to take the highs and lows than to miss out through hedging.

Others, especially those with direct experience, appear to value the degree of certainty it gives them to plan investment and repayments. For this very reason, banks all declared their support for such contracts.

All farmers who expressed support for the concept were adamant that it needed to guarantee a margin, not just a milk price.

Transparency

The value built up in plc shares was raised in both Kilkenny and Adare, where Glanbia and Kerry operate respectively. This has allowed for the formation of the Glaniba Ingredients Ireland (GII) joint venture, share spin-outs and the development of milk price stability funds by Glanbia, and for a substantial value transfer to co-op members equivalent to 10c/litre in the case of Kerry.

However, farmers had strong reservations in both cases. The conditions for the payment of the GII stability fund are unknown and left to the decision of the board.

The value of Kerry plc shares has progressively moved away from active farmers, with family settlements in particular. Transparent milk-pricing systems, fair benchmarked commitments and the provision of optional milk price and margin hedging mechanisms are areas all co-ops must engage with if they want to keep the confidence of farmers necessary to secure profitable expansion.

Consolidation

At all seminars, farmers expressed concern at the significant investments every co-op appears to be making independently, and some were keen to challenge their co-op on how far they would go to consolidate, including mergers.

In Cork, Jim Woulfe stressed the importance in the co-op model to avoid sacrificing commerce to community.

I agree: the name over the door should not matter so much as the business proposition being put to farmers and how fit it is to meet their long-term best interests.

In Cavan, both Michael Hanley and the CEO of Town of Monaghan Gabriel Darcy stressed that profitable consolidation was not just about scale, but about the right scale for what you do.

Buying groups

Co-ops were also asked to address plans to provide farmers with competitively priced inputs and advisory support to help them improve efficiencies. They came under quite a lot of questioning from farmer members of buying groups, who felt there should not be a contradiction between being a committed member of a co-op and a savvy buyer of inputs.

As a member of such a buying group myself, I agree. Decisions are made on value for money, not just prices, and farmers can sometimes need the merchant credit flexibility which co-ops afford them. However, co-ops must price inputs keenly.

Flexible finance available

Representatives from Bank of Ireland (Sean Farrell and Pat Byrnes), AIB (Tadhg Buckley and Pat O’Meara) and Ulster Bank (Anne Marie Butler) spoke at every seminar.

We heard from Bank of Ireland that farmers have invested €1.94bn since 2007 and will need to invest a further €1.5bn to deliver on the Food Harvest 2020 targets.

Banks have developed flexible investment loan packages allowing farmers to vary repayments when margins are low without renegotiating terms and incurring additional costs.

Similar flexibilities also appear to be forthcoming for working capital.

However, as banks rebuild balance sheets by charging comparatively high interest, farmers were questioning the cost of credit when inter-bank interest rates are at an all-time low.

Labour management

At every seminar, Tom O’Dwyer from Teagasc was taken to task for suggesting that 100 to 150 cows could be managed by one labour unit.

Running faster to stand still, chasing tails and being busy fools were the comments passed by many farmers. However, Tom pointed out that this was achievable if non-core activities, such as silage making, slurry spreading, heifer rearing etc, were contracted out.

Where to now?

I was impressed by just how focused dairy farmers are. They have strong expectations of delivery from all stakeholders: from industry on delivering optimum value, from banks on flexible and affordable finance and from Government on supportive taxation and climate change strategies.

There is also a role for the EU on revalued market management post-quotas and indeed for farming organisations in lobbying to obtain delivery on all those issues. This could form the base agenda for Minister Coveney’s recently announced dairy forum.

10 facts from the IFA 2015 spring dairy seminars:

1. Dairygold suppliers plan to expand milk output by 60%.

2. Half of Aurivo farms (average size 60 cows) plan to grow by 20%.

3. One billion litres of Glanbia milk is now covered by the index-linked fixed-price contracts, launched in 2010.

4. From 1993 to 2013, €4.2bn worth of Kerry plc shares (at current value) were spun out to Kerry Co-op members.

5. Lakeland has invested €36m in new powder-drying facilities at Bailieboro to accommodate expansion by suppliers.

6. Sixty-three percent of farmers plan to expand by 2020. Of those, only 8% will grow by 30% or more, 24% by 11% to 30% and 31% by less than 10%.

7. Farmers planning to grow intend to do so by increasing yields (45%), improving grass utilisation (14%) and increasing cow numbers (42%). (Source: 6 and 7 MRBI Ipsos for AIB)

8. The average debt on Irish farms, at €24,000, is under half the EU average and a fraction of Dutch (€800,000) and Danish (€1.4m). The average Irish dairy farm owes €62,000. (Source: Teagasc research for BoI)

9. Forty-one percent of farmers with 20% or less imported feed were likely to earn margins of €2,000/ha or more. Only 6% of farmers with more than 30% imported feed were earning €2,000/ha or more. Every tonne of dry matter from grass is worth €161/ha. (Source: Teagasc)

10. Only 12% of soil samples are satisfactory for P, K and lime. (Source: Teagasc)