Quotas were introduced following a period of milk production growth across Europe that resulted in excess milk lakes and butter mountains, at a time when Europe was a much smaller market with only 10 member states.

In the years immediately following the introduction of quotas, there was still significant oversupply across Europe, at that time an estimated 10 – 15 %. With European milk prices exceeding those of external markets and international demand for dairy a lot lower than what it is today, export refunds along with intervention and product support subsidies were hugely important market features. Intervention and market supports underpinned everything in the dairy industry from product prices, product mix, quality and also the mindset of the industry at that time.

Ireland, given its reliance on commodities, was more affected compared with other European countries which had large domestic markets for fresh dairy products. A significant proportion of the butter and skimmed milk powder (SMP) we produced back in the 1980s was sold into intervention. An estimated 500,000t of European SMP was used in the calf milk replacer industry, which was subsidised and had a significant presence in Ireland at the time. According to CSO figures, in 1984 Ireland produced 184,000t of SMP, 165,000t of butter and 54,000t of cheese.

From waste to added value

Over the past 30 years, there have been many changes within the industry. However, the volumes of milk produced have been constant at about 5.5 billion litres per year.

Under the constraint of quotas, the industry has expanded abroad where quota was not a limiting factor, diversified into other sectors and invested in adding value to the milk pool. For example, the whey from the cheese 30 years ago was treated as a waste stream which was generally used to feed pigs.

The industry has not only invested in cheese production capacity but also in R&D around whey processing and other value-added streams and now produces over three times the amount of cheese and all whey is now processed into high-value dairy ingredients which are used primarily in the infant formula and sports nutrition sectors.

According to CSO figures, the volumes of butter produced have remained relatively similar to 1984 at 165,000t. However, instead of selling mostly into intervention, as was the case in the early years of quota, the growth in Kerrygold branded butter sales to Germany in particular, but also to the UK and the US has been a real success story for the industry.

The volumes of Irish milk supply used for liquid milk consumption amounted to 516 million litres in 1984 or 9.5% of the total supply that year. Last year, this had fallen to 474 million litres or 8% of our supply, despite the population growing by 1.5 million. Like other developed countries, we are now drinking less milk per capita.

The infant formula manufacturers were present in Ireland when quotas were introduced. However, their levels of production were much lower than they are today. As the infant formula industry expanded its production capacity here, the demand and the outlet for high-quality, infant formula grade dairy ingredients also grew. Ireland now accounts for about 10% of global infant formula production with significant investment in capacity in recent years. The dairy industry also supplies significant volumes of ingredients to infant formula manufactures in Europe and beyond.

International export growth

As the export reach of the industry has grown, with exports going to 138 different markets in 2014, so too have the requirements to meet the highest international standards which are required to gain access to many international markets. The profile of customers now using Irish dairy products also means that product quality, production standards and investment in innovation and capabilities are key.

Dairy exports increased by 3% last year, to leave trade some 56% higher than five years ago. When dairy-based enriched powders are included, the value of dairy exports was almost €3.8 billion or 36% of our total food & drink exports last year.

Irish dairy exports are well-positioned to grow outside Europe, as the sector has an international marketing footprint that is truly global. While as much as 40% of our total food and drink exports are destined for the UK market, just 32% of our dairy exports go there, with 40% of our dairy exports going to international markets.

The balance of our dairy exports is destined for continental European market. The growth in dairy exports in recent years has focused on Asia, Africa and the Middle East, which now account for 80% of dairy exports to international markets.

Striking trend

The most striking trend of all is the sustained growth in exports to China, which is now our dairy industry’s second largest market after the UK, driven largely by the growth in infant formula exports. The progress made is highlighted by the fact that in 2008, China was 13th in terms of export markets.

The forecasted additional 2 billion litres of milk which Irish farmers will produce will need to be exported to markets outside of Europe. With production rising across Europe by anything from 1-3% per year over the next five years and European consumption growing at a much slower rate, then sales to international markets will become ever more important.

The investments being put in place in Ireland at both farm and processing level, in innovation and research with the new Dairy Processing Technology Centre, Moorepark Technology Ltd and Food For Health Ireland, the auditing of dairy farms as part of the Sustainable Dairy Assurance Scheme and the promotion of Ireland as a sustainable, grass based source of dairy, will ensure that the Irish dairy industry will be in a good position to expand its global reach in the years ahead.

This will build on our already solid reputation as a premium supplier of dairy globally.

This article features in an 80-page End of Milk Quotas magazine which is available to all digital subscribers of farmersjournal.ie from 6am on 1 April and to all print customers on Thursday 2 April