It was interesting to listen to entrepreneur Sean Gallagher address the Teagasc National Dairy Conference this week. In his presentation, he highlighted the need for farmers to look at themselves as business people. The need to view the farm as a business is something that is often overlooked, with production issues taking preference. Teagasc deserves credit for recognising the need to broaden the lens.
One of the more salient points raised by Gallagher was that hope is not a strategy for the future. Given the uncertainty in the market, his comments are well timed and can be applied to all sectors.
For farmers betting on the hope factor to improve dairy markets in 2016, Dutch expert Mark Voorbergen provided little comfort. His message was simple: the supply and demand balance would only swing back in farmers’ favour when prices fall to a level that reduces production and increases consumption.
Worryingly for farmers, Voorbergen does not believe prices are yet at a level that will reduce production in Europe or the US. He is forecasting a 12- to 24-month period before production declines and surplus stocks flush through the market. However, as Jack Kennedy reports on page 38, the Dutchman does forecast an upward price trend over the next six to eight years.
What is becoming clear is that in a global market, irrespective of the commodity, low prices correct low prices and high prices correct high prices. Unfortunately for farmers, the rate of correction tends to be much slower in a downturn than an upswing. In such an environment, the focus must turn to protecting and developing international competitiveness across global markets.
New Zealand’s focus on driving production at the expense of protecting their international competitive strength is largely responsible for the financial stress their farmers are now facing. Ironically, despite having traditionally been the first to implement large-scale dairy cow culls when global markets were under pressure, the US is not doing that this year. This is partly due to access to cheap energy along with the margin protection programme introduced under the US Farm Bill.
Instead of relying on the hope factor, Ireland must learn from the mistakes of New Zealand. Growth in our dairy sector will only be sustained if it does not come at the expense of international competitiveness. Whether it is beef or dairy, Ireland does not have a global competitive advantage when operating high-input systems. Therefore, the focus must remain on developing efficient grass-based systems.
I think back to the findings presented at the Teagasc open day in Moorepark in July:
An extra tonne of grass DM increases profit by €267/ha. Moving from 4.5 to 5.5 lactations through better breeding adds 1.5c/l.A seasonal grass-based system that is environmentally and labour efficient is better for the long-term future of the industry. We should not take any comfort in the erosion of New Zealand’s global competitiveness. The industry is already starting to fight back with the focus now on reducing production costs by NZ$1/kg of milk solids, or the equivalent of 20%. Interestingly, 60% of the potential savings identified are focused on increasing the use of on-farm feed and reducing dependency on concentrates. Aidan Brennan goes into detail on pages 40 and 41.
The challenge to remain competitive extends beyond the farm gate. As highlighted by Voorbergen, the need for efficient high-quality processing facilities with the capacity to produce the right product mix for emerging dairy markets is integral to adding value for farmers.
While Ireland is responsible for just 1.1% of global dairy production, we produce 15-18% of the world’s infant formula. It is therefore unacceptable that the primary producer is not in some way insulated against global commodity trends. The leading brands must be forced to come to the table with a guaranteed price that underpins profit for those supplying the raw material.
As an industry, we have two options: we can either fully exploit the areas which will drive our international competitiveness and over which we have control, or we live in hope – hope that Russia will reopen, hope that the Chinese will start buying again and hope that there will be a weather event which will have a negative impact on production. Clearly hope isn’t a strategy for the future..
It was interesting to listen to entrepreneur Sean Gallagher address the Teagasc National Dairy Conference this week. In his presentation, he highlighted the need for farmers to look at themselves as business people. The need to view the farm as a business is something that is often overlooked, with production issues taking preference. Teagasc deserves credit for recognising the need to broaden the lens.
One of the more salient points raised by Gallagher was that hope is not a strategy for the future. Given the uncertainty in the market, his comments are well timed and can be applied to all sectors.
For farmers betting on the hope factor to improve dairy markets in 2016, Dutch expert Mark Voorbergen provided little comfort. His message was simple: the supply and demand balance would only swing back in farmers’ favour when prices fall to a level that reduces production and increases consumption.
Worryingly for farmers, Voorbergen does not believe prices are yet at a level that will reduce production in Europe or the US. He is forecasting a 12- to 24-month period before production declines and surplus stocks flush through the market. However, as Jack Kennedy reports on page 38, the Dutchman does forecast an upward price trend over the next six to eight years.
What is becoming clear is that in a global market, irrespective of the commodity, low prices correct low prices and high prices correct high prices. Unfortunately for farmers, the rate of correction tends to be much slower in a downturn than an upswing. In such an environment, the focus must turn to protecting and developing international competitiveness across global markets.
New Zealand’s focus on driving production at the expense of protecting their international competitive strength is largely responsible for the financial stress their farmers are now facing. Ironically, despite having traditionally been the first to implement large-scale dairy cow culls when global markets were under pressure, the US is not doing that this year. This is partly due to access to cheap energy along with the margin protection programme introduced under the US Farm Bill.
Instead of relying on the hope factor, Ireland must learn from the mistakes of New Zealand. Growth in our dairy sector will only be sustained if it does not come at the expense of international competitiveness. Whether it is beef or dairy, Ireland does not have a global competitive advantage when operating high-input systems. Therefore, the focus must remain on developing efficient grass-based systems.
I think back to the findings presented at the Teagasc open day in Moorepark in July:
An extra tonne of grass DM increases profit by €267/ha. Moving from 4.5 to 5.5 lactations through better breeding adds 1.5c/l.A seasonal grass-based system that is environmentally and labour efficient is better for the long-term future of the industry. We should not take any comfort in the erosion of New Zealand’s global competitiveness. The industry is already starting to fight back with the focus now on reducing production costs by NZ$1/kg of milk solids, or the equivalent of 20%. Interestingly, 60% of the potential savings identified are focused on increasing the use of on-farm feed and reducing dependency on concentrates. Aidan Brennan goes into detail on pages 40 and 41.
The challenge to remain competitive extends beyond the farm gate. As highlighted by Voorbergen, the need for efficient high-quality processing facilities with the capacity to produce the right product mix for emerging dairy markets is integral to adding value for farmers.
While Ireland is responsible for just 1.1% of global dairy production, we produce 15-18% of the world’s infant formula. It is therefore unacceptable that the primary producer is not in some way insulated against global commodity trends. The leading brands must be forced to come to the table with a guaranteed price that underpins profit for those supplying the raw material.
As an industry, we have two options: we can either fully exploit the areas which will drive our international competitiveness and over which we have control, or we live in hope – hope that Russia will reopen, hope that the Chinese will start buying again and hope that there will be a weather event which will have a negative impact on production. Clearly hope isn’t a strategy for the future..
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