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Challenging Times in the Dairy Sector

Challenging Times in the Dairy SectorDairy products account for nearly 30% of all Agri food exports. However, according to ICMSA, approximately €1billion will be taken out of the Irish economy this year as a consequence of falling milk prices. Recent figures state that milk prices are currently at 28 cent a litre. These figures are in sharp contrast to the high of last year, when prices were at 43 cents per litre.

Following the abolition of the milk quotas in April 2015, there was initial optimism and the ambitions of the Irish dairy industry were huge. Irish farmers were now able to take advantage of the growing world market for milk. These markets were, typically, other non-Eu countries, China and the Middle East as the Irish and EU markets were already seen to be fully supplied.
Dutch dairy expert, Bram Prins, has said that if the demand doesn’t keep up with production, milk prices will become more volatile. And this is essentially what has happened. Drops in demand from major markets, such as China and the Middle East, and import bans from Russia have impacted significantly. Combine these with over production and you have the current fall in milk prices.

Stan McCarthy (Chief Executive, Kerry Group) last month, pinpointed China as being the main driver in the decline in demand and stressed that the continuing fall in prices could lead to production becoming a challenging activity.

Element of optimism

So is the dairy industry is genuinely in crisis or is the downward market pressure a temporary aberration?

Well there is some good news on the horizon. According to the ICMSA, international milk prices are close to bottoming out, and they may start to rise in the near future. According to Minister Coveney (Minister for Agriculture, Food and the Marine) milk prices should start to rising going into 2016.

Ireland has other advantages in that the grass-based system makes it possible to produce at a low cost and the government supports growth in the sector. In particular, value added products such as certain food ingredients, supplements and other nutritional products will provide opportunities.

It is also worth noting that according a recent survey by Teagasc and the Bank of Ireland an estimated €1.94 billion has been invested in the dairy sector between 2007 and 2013. Glanbia recently opened its €235 million plant in Bellview near Waterford and the likes of Dairygold, North Cork co-op and Carbery have all invested significantly.
Enterprise Ireland stresses that dairy provides the single biggest opportunity in Ireland, particularly in value added production. New investment is due to create 1800 jobs directly, and ultimately, 4500 in the overall economy.

So while times are currently difficult, there seems to be some small element of optimism as we look into 2016.

Article by Brian Flynn

Article by Brian Flynn

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