Dairy farmers need robust systems to survive dairy cycles

Dairy farmers in Europe will feel the brunt of the 2015 dairy market downturn, according to Cork farmer Michael Murphy, who is also an investor in dairy units in New Zealand and the United States.

He warned that the milk price “could be stuck at 25-27c/litre for the entire year”. In such a scenario, “Europe will feel the attrition like never before”, he warned.

Speaking ahead of the Positive Farmers conference, that he is involved in organising, he described the current price drop as a “reality check” before Irish farmers get into too much debt.

“We are price takers, so we need a system that delivers in low- and high-price years. Farmers need to ensure that their farming system is profitable throughout the price cycle,” added Murphy.

One of the central messages of the forthcoming Positive Farmers conference is that grass-based systems will deliver some profit in bad years and good profit in good years.

“The system centres on growing 15 to 17t/ha of grass and capturing 85% of it at an average ME (metabolisable energy) of 12,” he said. “Seventy-five per cent of the cow’s diet should be grazed grass,” he added.

By implementing such a system, “you will be one of the last in Europe to topple over”, said Murphy.

“This downturn is an opportunity to get the business model clear so that it is profitable in all years. If people properly use our comparative advantage and are rational in their investments, then we are very well placed to expand sustainably. Cheap grain reduces the grass advantage, but taking the long-term view, everybody in Ireland that is doing a really good job will have a cost base that nobody in the EU can match.”

However, he warned that competitive advantage is not guaranteed.

“It is only delivered when high grass utilisation is achieved.”

A regular visitor to New Zealand for decades, Michael Murphy said that farmers there are only starting to feel the pain now, as they continue to receive high deferred payments from last season.

Dairy processor Fonterra was slow to send back market signals, he pointed out, resulting in farmers committing to expenditure.

“About 65% of cost is incurred prior to Christmas,” he explained.

If a drought took hold in January or February, Murphy said that NZ farmers would very quickly switch to once a day milking or dry off herds entirely.