Waterford TD John Deasy says further urgent measures are needed to help relieve the income pressure on dairy farms.

Following the abolition of quotas just over a year ago, February CSO figures showed a 37% increase in production by the sector compared to 12 months previously.

“However, milk prices have fallen by 20% since February 2015 due to a combination of global factors, and Irish farmers, many of whom have invested significantly, are struggling to cover the cost of production,” Deasy says.

The average February milk price was 24.68c/litre — down from 30.77c/l (also incl. VAT) in March 2015. And short-term indicators look to be static.

With the imminent phased payment of superlevy fines for 2015 set to further impact farmers’ cashflow, Deputy Deasy contacted the Department of Agriculture to see if there was any scope to postpone these instalments for another 12 months in the hope that market conditions can improve.

Secretary General Aidan O’Driscoll informed him that Irish officials “pushed strongly” for a possible deferral to 2017-18 during discussions in the run-up to the March Council of Agriculture Ministers.

However, Brussels had “rejected” this prospect on legal and regulatory grounds.
“While we suggested alternative arrangements it was clear that the proposal enjoyed very little support from other Member States and therefore was not likely to succeed,” the Sec-Gen added.

That means the “optimum repayment model” agreed with farming groups and at government level — 10 equal instalments from May to September in 2016 and 2017 — will proceed as planned.

Nationally some 3,672 farmers (of the 6,109 who incurred the levy) availed of this penalty repayment option; amounting to €35.6m out of a total national levy liability of €71.2m.

The exchequer has already forwarded the money to the EU. It will be repaid by farmers on an interest-free basis by way of deductions from monthly milk cheques covering the peak months of April to August. Co-ops will in turn send these monies on to the Department.

Last week the IFA called on co-ops to desist from any more milk price cuts given the challenges faced at farm level. The industry is heavily represented on the new national dairy forum — a partnership which Fine Gael TDs Deasy and Michael Creed proposed in order to address post-quota uncertainties.
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The need for meaningful, confidence-building measures to support a sustainable milk price is sure to be on the agenda when the incoming agriculture minister chairs the forum’s next session.

Waterford TD John Deasy says the first gathering of the national dairy forum “was really an introductory meeting about the structures involved and the role government sees itself playing with industry groups into the future.
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“It actually turned out to be a very constructive debate as to what measures might be taken to deal with the volatility we’ve been seeing in dairy markets for the last six months. I think the forum will prove an essential mechanism for the Irish dairy industry to put pressure on the government to take necessary steps when an intervention is needed,” he added.

FOCUS ON MARKET DEVELOPMENTS AND PRICE VOLATILITY
 
Department of Agriculture, Food and the Marine | Minister Simon Coveney T.D. today (29/9/2015) hosted the first dairy forum for stakeholders in the sector. The forum has been established by the Minister to focus on strategic issues for the development of Ireland’s dairy sector. Today’s attendees were drawn from the farming, processing and banking sectors, with representatives from Bord Bia, Enterprise Ireland, the Environmental Protection Agency, Teagasc, Animal Health Ireland, and the Irish Cattle Breeding Federation (ICBF) also attending. 
 
Commenting on the background to the forum the Minister said “as we know, 2015 is an historic year for the Irish dairy sector as EU dairy quotas have been abolished. I’ve consistently said this decision provides a great opportunity for the Irish dairy sector but equally sets us some challenges which will have to be managed along the way. This forum is about bringing key stakeholders together to assess their preparedness for this growth opportunity and to focus on strategic issues facing the sector over the next few years”.
 
The first meeting of the forum focussed on market evolution and price volatility. The package of dairy measures agreed at the EU Council of Agriculture Ministers on September 15th, was also discussed. 
 
On market issues, the forum received a presentation from Ornua on recent developments for key dairy commodities and the likely outlook in the short to medium term. Commenting on the presentation and discussion afterwards, the Minister said “there’s no question but that 2015 has been a challenging year for exporters of dairy products as a number of factors, including increased output in dairy producing countries and slowing demand in China and Russia. However there have recently been tentative signs that markets may be starting to stabilise as global production eases off slightly while demand starts to slowly increase again.”

Participants also discussed potential measures to mitigate the impact of volatility, following a presentation by Dr. Michael Keane of UCC, on potential market and policy tools. Referring to this discussion, Minister Coveney said “recent price volatility has been a reflection of turbulent global markets. This means Irish farmers are receiving a reduced farmgate price for their milk this year and I am fully aware of the difficulties which this has caused. 

While some price volatility is inevitable it is important that Irish farmers and processors have the tools to help overcome its worst extremes. The potential tools available go beyond EU market support measures. They include futures markets, longer term fixed price contracts between farmers and processors,  more stable supply and price arrangements between processors and purchasers of raw materials and finished products, and more flexible banking arrangements for farmers, calibrated to allow for periods of temporary market downturn.  Today’s forum provided the opportunity for relevant stakeholders to engage in a collaborative way on these challenges and to consider how they might respond”.
 
Concluding, Minister Coveney emphasised that the medium to long term outlook for dairy remained extremely positive “The main message is that notwithstanding current market developments, global demand is expected to strengthen substantially in the medium to long term and it is essential that the Irish dairy sector is positioned to take full advantage of this opportunity. Today was a useful opportunity to for the industry to engage collectively on how it might go about that.  For my part, I will chairing the first meeting of the High Level Implementation Committee of the Food Wise 2025 strategy tomorrow,  and I am determined that the agencies represented there will play their part in ensuring that the State plays its part in providing the  policy and operational framework  needed to  realise the tremendous  growth opportunity for the dairy sector”.

Fine Gael TD John Deasy says this week’s opening of the new €50 million TAMS II Dairy Equipment Scheme is essential for Waterford farmers looking to increase production efficiencies following the abolition of milk quotas.

With a standard aid rate of 40% available, the funding will assist dairy farmers to modernise milking parlour technology.

Deasy said: “Already we're beginning to see major volatility in global milk prices. Demand from China has eased and Russia’s response to EU sanctions has had a major effect on prices. It has been compensated by a drought in New Zealand, but we now know we’re in a global market.

“Waterford farmers should avail of TAMS II as much as they can. The long term outlook for milk is still very good but a lot will depend on how efficient and technologically advanced individual operations are,” he added.

The scheme covers investment in milking machines, milk cooling and storage equipment, water heating and in-parlour feeding systems. All applications must be made online. The first funding round opens next week and runs until early October.

A proposal by Fine Gael TDs John Deasy and Michael Creed for a new high-level oversight structure to manage the “dramatic” change and growth within the Irish dairy sector has been adopted by Agriculture Minister Simon Coveney.

The two Munster deputies put forward the concept after holding a series of meetings with key industry players ahead of the abolition of EU quotas on March 31 — a development that’s seen many milk producers, particularly younger farmers, investing heavily in expansion.

Arising from these discussions the party colleagues suggested that a new partnership be established to manage the volatility that will occur within the domestic dairy industry, mirroring the situation globally.

Having taken their template on board, the Minister confirmed its implementation at the start of a special Dáil debate on the sector, held on the eve of the opening of Glanbia’s new €235m milk processing plant at Belview.

“We are going to set up a dairy forum so as to ensure all the stakeholders with a vested interest are part of the discussion — and I will chair it,” Mr Coveney said. It will be modelled on the beef forum, albeit “less adversarial”.

Contributing to the debate, which he requested last December on foot of an adverse Teagasc milk price outlook for 2015, John Deasy said his idea for an oversight structure was prompted by the need to carefully manage “the completely new frontier” facing the sector.

Waterford is one of the country’s dairy heartlands with some 750-plus milk producers making a massive input to the wider economy. He says dairy expansion on the scale envisaged offers “enormous potential for rural Ireland,” at a time when many are talking about its demise.

However, reflecting on the vast Irish dairy landscape that prevailed before EU supply controls were introduced 31 years ago — around 65,000 milk producers in 1983 compared to circa 18,000 now — he acknowledged that “one of the main challenges is to keep as many people in this business as possible”.

But despite the inevitable market fluctuations that will be part and parcel of the post-quota era, the outlook for the sector is extremely optimistic, he feels. Mr Deasy said many industry sources he has spoken to regard the projected 50% growth within the domestic dairy sector over the next five years as “conservative.” 

Indeed, the Minister said it’s “reasonable to assume the Irish dairy industry will double over the next 15 years, if not before that”. Agreeing with his view that the conditions for such rapid expansion “are really only available to Ireland within Europe,” Deputy Deasy said the new oversight forum should be about “capitalising on our competitive advantage”.

Crucially, this optimistic perspective is shared by the banks. “Collectively, they have identified the Irish dairy sector as having incredible growth potential and are financing it accordingly. We met AIB and Bank of Ireland and they are competing to get a piece of a massively growing industry,” he said.

“There is no stopping the banks when it comes to lending as they see this as a good bet. If anything,” he suggested, “the new forum will need to take a look at their lending practices over the next three years and keep an eye on that. 

Noting “there is a comparatively low farm debt average in Ireland compared to other countries,” Mr Deasy said “the financial fundamentals for expansion are also far better here than among our European counterparts, and in places like Australia and New Zealand — though to a certain extent the sector’s continued viability will reply on managing the efficiency of dairy farms on an ongoing basis.”

Remarking that the Minister has done a very good job in preparing for the ending of the quota regime (such as the recent €35m investment in new dairy technology centres in Limerick and Cork) the Waterford TD said the partnership proposal he and Michael Creed put forward “is about accentuating the positive and the benefits that will accrue from better organisation in our domestic dairy sector.”

While what Mr Coveney called the quota “straitjacket” is being removed, Deputy Deasy acknowledged: “The reality is that the increased volatility we’re seeing will continue and maybe worsen across milk markets worldwide over the next 5–10 years as supply and demand finds its level.

“Given the relative unknown farmers are entering into, there needs to be an efficient and flexible oversight structure in place. It would bring all the stakeholders’ resources and expertise together within an effective strategic framework; coordinating their expertise in a cohesive, focused way.”

“The Minister saw that the changeover to unrestricted production would benefit considerably from this sort of proactive approach — and the fact he himself will chair it will give the forum added weight and impetus”.

Central to its workings will be the type of pricing models already being developed to counteract volatility. Also, “Having discussed is the spreading out of superlevy payments over three years, which is happening, another issue we’ve delved into is the degree of fragmentation that exists when it comes to offering farmers fixed milk price contracts,” Mr Deasy said. 

“Certain cooperatives do, but not all. Glanbia have run a very successful offer which is now oversubscribed and entering its fifth year. But in other parts of the country fixed price schemes have failed for various reasons, or are not available at all”.

He foresees the forum “reacting to whatever regulatory, legislative and commercial measures are required within what will be a rapidly changing environment, and evolving in response to trends and market realities.” 

The intention, he stressed, is “not to create quangos or add to budgets” — but rather to put the resources and know-how that already exists to best use. 

“We’re already seeing an increased level of coordination between the Department and the other key participants, including the Irish Dairy Board, Teagasc, the farming organisations, processing groups, and banks. It’s the perfect opportunity to adapt the Department’s institutional experience and incorporate it into a new industry partnership.”