March 19, 2012

 

Ireland's dairy expansion requires US$2 billion on-farm investment

 

 

For the 2015 post-quota era, expanding Irish dairy output by 50% will require EUR1.5 billion (US$1.98 billion) in on-farm investment, making it impossible for farmers to fund new processing costs, according to the IFA.

 

National dairy committee chairman Kevin Kiersey said the dairy sector is on the cusp of a great opportunity. "Despite the current economic and financial uncertainties, global demand for dairy products is rising rapidly, especially in emerging and developing countries which will be unable to supply their own needs for the foreseeable future.

 

"Recent reports by market analysts including Rabobank have stated that the lowest cost regions such as New Zealand, Australia and parts of South America would not fulfil these rapidly rising needs. It is clear that there are exciting prospects ahead for our industry, and Irish dairy farmers are chomping at the bit to avail of those opportunities."

 

However, he said farmers will not be able to fund the extra processing costs and should ensure they have finances in place to meet their own on-farm requirements.

 

Kiersey said: "To increase cow numbers and deliver 50% more milk, IFA has estimated that farmers will need to spend around EUR1.5 billion (US$1.98 billion) between stock, extra land, additional milking, slurry storage and housing facilities and other equipment.

 

"We have made it quite clear to processing co-ops that, in planning to finance extra processing capacity, they must work jointly to make best use of own resources, as well as look to banks and other stakeholders. Farmers, who need to prioritise on-farm spend, cannot be expected to carry the cost of processing expansion."

 

Kiersey encouraged all dairy farmers to sit down with their advisers to map out their business in detail for the next five to 10 years. He cautioned that prudent planning by farmers must factor in possible super levy fines right out to 2015, must refrain from speculation on the outcome of the CAP reform negotiations and must not lose sight of volatility of milk prices and input costs.

 

In relation to the looming likelihood of a super levy fine come March 31, the IFA has produced an overview document to help over-quota farmers assess their own likely personal fine costs.

 

The fine is 28.66c/l over supplied. Ireland has paid four super levy fines in the past 11 years, at a EUR40 million (US$52.7 million) cost to farmers. Figures for the end of January 2012 showed Ireland under quota by 0.03%. The matching figure for 2011 was 1.41% under quota, with Ireland scraping through at 0.4% under at the end of March. The IFA believes it will be nearly impossible for Ireland to avoid a fine this year.

 

Kiersey said: "The calving season, which is under way, is without doubt the busiest time of the year for the 18,000 dairy farms in the country. The next few years will also be the busiest and the most exciting this generation of dairy farmers will ever have lived through."

 

However, he said increasing volatility in dairy prices and higher input costs were new challenges for dairy farmers, and that a major effort of investment and planning would be required on all Irish dairy farms to prepare for and deliver the post-2015 dairy expansion targeted by the Food Harvest 2020 report.