The downturn on milk prices is very real. Undoubtedly the upturn will come, however, it’s managing until then that farmers need to be focussed on now. Irish dairy farm families are very resilient. Don’t lose faith just because of a cash loss this year. The upturn will come, but you don’t want to become a forced seller of assets in the meantime.
If the continued cost rise at farm level is not balanced by a milk price rise at some stage, less and less milk will be produced, and this is what will drive the upturn.
Dairy farmers across Europe, across the world, won’t continue to spread fertiliser and purchase feed for cows if the cost of production is well below the milk price. In the same way, why would tillage farmers spend big on machinery, fuel and fertiliser to grow barley produced at a loss.
Many thought we had arrived at a new level with global markets, where the price of dairy or grain commodities would sustain or even reward the ‘high quality, lower cost’ Irish produce. A new realisation is dawning as we speak.
A base milk price at or near 30c/litre means all milk suppliers are losing 10 cent on every litre produced.
Given farm inflation, the purchasing power of the current milk price is far less than it was three years ago (see Aidan Brennan's dairy feature).
For the average 500,000 litre producer, losing 10 c/litre is a €50,000 loss in the year for a lot of work.
Yes, one year won’t make or break an industry that has had a good run for the last ten years, however, it can postpone development plans, make college fees harder to find, and force a rethink of what needs to happen at farm level.
So all of this is for individual farmers to grapple with in their own way. What loan repayments the business has, what financial reserves you have and your cost structure will all drive key decisions.
In some countries, business owners would halt principal loan repayments and pay interest only. In essence these are business decisions for each individual farmer to start considering now.
What can industry, Government or our Department do? In New Zealand this week I see its Labour and Green coalition government is delaying agricultural emissions pricing by nearly two years.
The Kiwi government wants to give hard pressed New Zealand dairy farmers more time to adapt business operations and maybe even compensate farmers for carbon sequestered on farm. They have also allocated a once-off €200m package to help farmers with this green conversion.
Thankfully the EU seems to be making progress on how to measure, value and trade carbon as evidenced by the agri committee decision in the European Parliament vote on Wednesday this week.
This fund needs to recognise what all farmers can bring to the carbon party, not just those on lower stocked farms.
Irish farmers continue to invest in better fertilisers, more modern nutrient spreading machinery, and funding more research in methane additives.
All of this while the sector is getting clobbered with more stringent regulations and stocking rate reduction policies. Global milk production is shifting. New Zealand is very dependent on China buying a lot of its milk powder (32% of NZ milk supply goes to China normally).
China currently has domestic problems, so the demand is not there and the Kiwi milk spills onto global markets.
China is also trying to produce more milk itself. About 40% of the global soybean production that’s traded now goes to China.
Most of that protein source is going from South America to China as the likes of Brazil respond and grow more soybean. Similarly, beef production is expanding hugely in Brazil.
We cannot deny an emerging middle class in China or India their progress. At the same time we cannot deny Irish food producers that have a competitive advantage to grow grass or produce grain the opportunity if the business model stacks up.
We have to be real on global production shifts, and Irish farmers will play their part in a sustainability drive, but they don’t want to be disadvantaged while the rest of the world passes them out.