The cut in the derogation, coming at a time when milk prices have been falling while input costs remain far above their long-term average, means that everyone involved in the dairy industry is feeling the pressure.

Farmers who borrowed to expand in recent years find themselves facing the triple whammy of increasing debt payments, due to soaring interest rates, hugely reduced earnings due to very tight margins, and the possible need to cut production in January to meet the derogation limit.

Farmers facing debt difficulties will be in no position to invest further in renting land to maintain output.

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Even for producers without debt pressure, a decision to sign a long-term lease at high rates right now makes little sense, as there is still so much uncertainty about the future.

While data from the Irish Central Bank shows that there has been no rapid increase in indebtedness in the agricultural sector, it is notable that farmers seem not to have used last year’s earnings to meaningfully reduce their debt burden (see Figure 2).

There are similar pressures across processors – where investments in capacity in recent years may start to look very expensive indeed, as interest rates rise.

Larger processors, such as Tirlán, were in a position to fund expansions with fixed rate bonds, but other smaller companies have had to rely on bank loans, which will prove very expensive this year.

Paying more for credit also creates a vicious circle, where the smaller processor will have less money to pay suppliers and therefore risk being outcompeted for milk by larger co-ops with lower interest costs, or other smaller co-ops who just got lucky on the timing of their investments.