Tillage farmers were the first to become exposed to the vagaries of a world market. However, the profitability from our beef and dairy sector is now heavily exposed. The effect of a drought in New Zealand on Irish milk prices in the spring and the growth in Irish beef exports to Germany following the introduction of a 25% tax on beef exports from Argentina — just two examples of how Irish farmgate prices now respond to any shift in the global supply and demand balance.

Unstable governments, food scares and extreme weather conditions — all factors that can dramatically skew the supply and demand balance in relation to the value of agricultural outputs and inputs. When operating within the confines of the EU, the main markets for Irish exports were largely immune from these volatility drivers. A global marketplace does not offer the same protection or stability.

Inside the farmgate, the best method of safeguarding the business against volatility is driving production efficiencies. Any development of our beef and dairy industry must come from an efficient and profitable production base.

But we must learn the lessons from New Zealand. A growth focus over the past 10 years has significantly eroded the sector’s ability to withstand any downturn in the global market. A 50% increase in milk production has seen debt levels treble to NZD 30 billion (€18bn or the equivalent of almost €4,000 per cow) while at the same time production efficiencies have declined and costs increased.

Market intelligence will be a key factor in helping Irish agriculture chart its way through what will be a volatile global market. We need to understand how factors such as government policies, shifts in input costs and changes in consumer requirements impact on the global supply and demand balance and, subsequently, farmgate prices.

The Alltech Global 500 conference held in Dublin this week gave an excellent insight into the global trends in beef production. There is no doubt that we are seeing a rebuilding of national herds in some of the main beef exporting countries. In Australia, favourable weather conditions have seen the national herd grow to 29 million head, up four million since 2007.

The drop in grain prices is affecting production costs in countries reliant on feedlot finishing systems. In the US, one of the most influential players on the world beef market, the fall in grain prices has seen the cost per kilo of gain on feedlots fall by 35% to 40% or to the equivalent of just €1.10/kg liveweight. Reduced feedlot costs combined with an increased breeding herd clearly points to increased global production in the years ahead. How will this affect the supply and demand balance? While it is likely that market demand will increase, a period of readjustment is likely during which prices will come under pressure.

We must also be mindful of the differential that has once again opened up between the EU and the South American price. Increased production levels, lower costs and currency devaluation have seen beef prices in Argentina fall back to the equivalent of just €2.35/kg while, in Brazil, prices are closer to €2.10/kg. This differential once again makes the EU market a prime target for South American exports.

While global beef production may be picking up, the rate of growth in the New Zealand dairy sector is forecast to slow significantly over the next decade. Little or no capital gains in land value, tighter credit conditions and stricter environmental regulations are forecast to see the annual growth in milk output slow from 5% to 1.8%. The slowdown in the NZ dairy industry should help underpin demand for an increase in EU production post 2015. However, it will not give the market immunity from volatility. With 80% of global dairy production based on high input grain systems, the fall in the global grain markets will drive production in other regions.