Cow cull plan could cost dairy farmers €2,500/year

A cull-cow scheme could potentially cost farmers who remain in dairying up to €2,500 per year due to lower processor efficiency.

New analysis by the Irish Farmers Journal puts the farm-level cost of a herd reduction scheme at around €39m in total.

The multimillion euro figure does not include the downstream effect on the rural economy of reducing Ireland’s dairy output, which could be a multiple of €39m.

The Irish Farmers Journal analysis comes amid growing opposition to a possible cull scheme for the dairy herd, particularly from milk processors.

The analysis is based on the expectation that a cull scheme will incentivise the removal of up to 200,000 dairy cows, which corresponds to a reduction in milk volumes of approximately 1bn litres annually or 11%.

This would have the effect of reducing the throughput of milk in processing plants and means there would be less milk to dilute the fixed costs of processors.

This is likely to have a negative impact on milk price as most dairy co-ops operate on a fixed margin basis.

The cull scheme will add 0.5c/l to the costs of processing all the remaining milk produced by Irish farmers who do not take up the retirement/reduction scheme, based on the current processing costs of 8c/l and presuming a 50:50 split on fixed and variable costs.

For the typical 100-cow herd, this corresponds to an increase in processing costs, or a cut to milk price of €2,500 per year indefinitely. A special working group has been established within the Department of Agriculture to examine the feasibility of a dairy cow cull.

A consultation document from the working group is to be forwarded to stakeholders at the Food Vision dairy group this week.

Under the original recommendations from the Food Vision dairy group, farmers who commit to taking cows out for three lactations could be paid up to €2,910/cow.

Processing

While some farmer representatives believe that such a cow cull scheme would be very attractive to milk suppliers, there is mounting concern around the implications of such a move for dairy processors.

Conor Mulvihill of Dairy Industry Ireland said the organisation is awaiting the document from the working group and will formulate an official position on a possible cow cull once the proposals have been examined.

TJ Flanagan of ICOS said any cow cull could not undermine the productivity of milk processors.

“Farmers and co-ops have spent billions inside the farm gate, at processor level and on routes to market. Policies cannot now be introduced that will undermine this investment,” Flanagan said.