ANALYSIS:About 20,000 dairy farmers and 30,000 other processing sector jobs are at stake

THE DAIRY industry which for decades has been the jewel in the crown of Irish agriculture is rocking on its heels in its attempts to cope with low prices, world over-supply, a decline in demand and, in recent times, an unwillingness by banks to provide credit to keep going.

Dairying was for many years the most profitable of farming activities, providing the farmer with a monthly milk cheque, the creamery with raw material to process, and smaller farmers with surplus animals for the beef sector.

But in the last 18 months things have gone terribly wrong for the dairymen who have now dwindled in number to about 20,000, about half the figure of 15 years ago.

That was a natural progression, as Ireland’s dairy farms got bigger and more productive, while smaller operators – many of whom had off-farm jobs – abandoned labour-intensive milking of cows, and turned to rearing beef or sheep which requires less time.

The year 2007 was one of the best on record for dairy farmers, as increased demand for dairy products and food shortages drove up prices they were receiving to almost 40 cent per litre.

In that year, according to Teagasc, the increase in farmgate prices drove the average family farm income on specialist dairy farms up by 41 per cent to €51,000, while milk output increased by 29 per cent.

The age profile of dairy farmers here is high, and many who had considered retiring purchased extra stock instead, and planned for an even brighter future.

Entrepreneurs ploughed their money into new milking parlours, and purchased animals and milk quota to join the boom. This was mirrored on dairy farms across the world.

But by the middle of last year, as the global crisis deepened, the demand for dairy products – which has traditionally been linked to the price of oil, also fell.

The good days faded fast and since the beginning of this year, most farmers are producing milk at below cost.

The experts say it costs upwards of 27c/litre to produce milk. Now, farmers are receiving just 20 cent per litre and the expectation is that this price could fall even further, to as low as 18c/litre. Few dairy farmers will make a profit this year – most will lose up to €20,000.

Ireland may have a great advantage in the production of milk because of the climate and the fact that we can produce quality milk off grass, but we have a major problem with the multiplicity of small processors, mainly farmer-owned co-operatives, which do not have the scale or the equipment to survive.

The Irish co-operative movement, ICOS, has been attempting to bring these together to co-operate in the collection, processing and marketing of dairy products, but even the fact that virtually all of these operators lost money last year does not appear to have increased the urgency which is required to ensure the survival of the industry here.

There is a demand too for more research and development to be carried out to produce new branded products which can bring the industry away from producing commodity products.

There is a real urgency for a new brand such as Kerrygold butter, which is Ireland’s only true globally traded dairy product.

But right now, farmers and the industry are looking to Europe to seek their salvation.

Some blame the EU for allowing a slight increase in milk production quotas, which led to an even deeper flooding of the dairy market from spring this year.

Their journey took them to Luxembourg earlier this week to protest at a meeting of EU farm ministers in support of a demand for more support for the sector.

The Irish farmers who took part joined with their counterparts from across the Union, all of whom said they too were losing money.

In Britain last week, the company which handles 10 per cent of the entire milk market there, Dairy Farmers of Britain, which employed 2,200 people and had 1,800 farmer suppliers, went into receivership, owing £100 million (€117 million).

Irish farming organisations have been quick to point out that some national governments have moved to help the ailing sector, and the German government, for instance, has introduced a subsidised lending scheme for farmers at below 1 per cent to help them survive current market weaknesses.

All of Europe’s farmers and processors want the Commission to continue buying up surplus product even after the August deadline it has set is reached, and they also want increased export refunds to help them export outside the EU on to world markets.

Should that aid not come, the further shrinkage or indeed closure of the dairy market will have major implications not only for rural Ireland but for the economy as a whole, because dairy exports were worth €2.2 billion last year.

Many dairy farmers say they cannot continue to produce at below-cost for much longer, while the co-operatives say they cannot pay money they have not been able to get from the markets to the farmers, while about 30,000 jobs in the processing sector are at stake.

The farmers are also targeting the supermarkets and accusing them of taking excessive profits while farmers have to struggle with the same level of prices they received in the mid-1980s for their milk.

While it is hard to envisage Ireland without a dairy industry, in these uncertain times, when no one seems able to predict what is likely to happen, there are genuine fears that the sector may go the way of the sugar beet industry.

Chillingly, the EU Agriculture Commissioner, Mariann Fischer Boel, who presided over the closure of the beet industry here, has said one of the cures for our current ills could be for farmers to produce less.

It was that logic which led to the end of the sugar industry in Ireland.