January 2, 2009

Irish dairy sector to remain sluggish for H1 2009

The global economic slowdown indicates there is little room for optimism for any immediate improvement for the Irish dairy sector in the first half of 2009, according to an industry leader.

World dairy prices collapsed in 2008, with demand for dairy products and exports declining. Returns also fell to the lowest level in 30 years.

The Irish dairy industry experienced harsh cuts throughout the year, affecting all products, while dairy consumption decreased as consumers reduce their spending on poor economic conditions, said Michael Hanley, chief executive of Lakeland Dairies, Ireland's second largest dairy processing co-operative.

Commodity and food ingredient buyers currently favour US dairy products due to the weakness of the dollar, while the US, New Zealand and France have increased their milk production, said Hanley.

Prices are also pressurised due to the surplus of dairy produce on international markets.

Hanley said it is hoped that the EU's early introduction of intervention in January instead of March 2009 would help the market situation, and Brussels should consider other short-term market support mechanisms.

Hanley said the recent EU health check review shows that Europe will continue to strive for a free market without any subsidies, which will divert funds from the single farm payment into rural development and conservation projects.

Quotas will also be increased by 1 percent per year from 2009 to 2013 before they expire completely in 2015, in order to prepare farmers for a quota-free era.

However, the extra quota is expected to have negative impact on milk prices until economic conditions improve and dairy market demand increases.