Covid-19: Irish dairy in peril as vital export markets dry up

Alan Jagoe (37) might appear to live an idyllic existence, farming in Nohoval, Co Cork, spending his working day out on a 240-acre holding in rolling green hills that look out on to a deep blue sea.

Even here, however, a shadow has been cast by the Covid-19 crisis. He lives on the farm with his wife, Helen, and three young children, Laura (5), Rebecca (3) and Amy (1).

Together with his brother, George, and helped by their parents, Edward and Agnes and George’s partner, Kiera, the Jagoes milk 240 Holstein Friesians, supplying Dairygold with 1.7 million litres annually.

Dairygold cut the price of milk by two cent a litre last month, with another two cent cut forecast for April: “For every one cent drop in price per litre across the year, we are losing €17,000,” Jagoe says.

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The situation for the Jagoes and every other farmer could get much worse. A Dairy Industry Ireland report recently predicted a 10-20 per cent fall in milk prices.

“Last year, milk averaged 32 cent a litre. If it averages 30 cent a litre this year then that’s a net loss of €34,000 to our farm but it looks like it is going to be even worse because of Covid-19, which has closed off milk and cheese [markets].”

The price fall could not come at a worse time, as farmers throughout the State enter their busiest months. Cows produce about 50 per cent of their annual milk yield in April, May, June and July. Peak production should be timed with peak prices.

“That’s what enables you to clear the bills from the winter and spring and provides you with a bit of a buffer going into the autumn, which is used to pay tax and other costs such as fertiliser, veterinary, electricity,” says Jagoe.

If milk stays below 30 cent a litre, which the analysts are forecasting it will do, it puts huge pressure on a lot of dairy farmers

Teagasc estimates that milk costs 30 cent a litre to produce, and that is excluding the farmer’s own labour, which means that farmers need to get upwards of 34-35 cent a litre to ensure bills can be paid.

“If milk stays below 30 cent a litre, which the analysts are forecasting it will do, it puts huge pressure on a lot of dairy farmers, particularly those who borrowed to expand when quotas were lifted in 2015,” Jagoe adds.

“When the years are good, you need to put something aside for the bad years. While 2018 was a good dry year for most [non-farmers], the drought cost farmers a huge amount of money. We spent most of 2019 and a bit of 2020 trying to clear the bills and create a bit of a buffer,” he said.

This year was supposed to be better. “Instead Covid-19 comes,” he says, “Plus, we have no idea what the future holds and when we are going to come out of it. And its impacts are worldwide, so it’s completely uncharted territory for us.”

Exports dry up

The Jagoes are among Ireland's 18,000 concerned dairy farmers. "We really don't know what the full impact of Covid-19 will be,"says the chairman of the Irish Farmers' Association National Dairy Committee, Tom Phelan.

He is urging more European Union supports. "Looking down the road, we don't know whether the recovery will be V-shaped or will it be longer term and what impact it will have on consumption globally."

Ninety-two per cent of Ireland’s dairy farmers’ produce is sold abroad. However, international dairy markets were rapidly brought to a halt by Covid-19 as sales to restaurants, hotels and airlines dried up.

"Irish dairy is an engine of the rural and the national economy"

Milk destined for such customers is now switching into powders and butters, but this has led to a glut that threatens the livelihoods of the 46,000 people dependent directly and indirectly on dairy, warns Dairy Industry Ireland director Conor Mulvihill.

Dairy output this year could fall by €2.3 billion. “Irish dairy is an engine of the rural and the national economy, and it is vital that the necessary steps be taken quickly to enable the industry to be in a position to contribute to the national economic reboot when it occurs,” he says.

Last month, Dairy Industry Ireland urged the European Commission to open up its Private Storage Aid (PSA) option to stabilise the market, whereby companies are paid to store product, but they continue to own it (unlike old-style intervention where it is bought, and more expensively so, by the European Commission).

Storage problems

Late last month, EU Agriculture Commissioner Janusz Wojciechowski announced an €80 million PSA aid package for farmers, but such sums can only be "a first step" if farmers are to be helped out of the crisis, says Mr Mulvihill.

“It’s designed to take some 330,000 tonnes of dairy product into storage – there’s €6 million for 90,000 tonnes of skim milk, €14 million for 140,000 tonnes of butter and €10 million for 100,000 tonnes of cheese.

“So it’s not a lot and the rates are a lot lower than when we had a PSA in 2016 and the cost of storage has gone up a lot since then, plus availability of refrigerated storage is very tight at the moment as well.”

Irish dairy is better placed than others to survive. Farmers in other parts of the EU are dependent "more or less on a fresh market" that "has virtually collapsed"

Because they were already preparing for Brexit, many Irish food companies had already put product into storage, which leaves them with few independent options, and they are competing now with others who need refrigerated storage.

However, Irish dairy is better placed than others to survive, says Mulvihill. Much of its production goes into butter, cheese, skim milk powder, sports nutrition, while farmers in other parts of the EU are dependent “more or less on a fresh market” that “has virtually collapsed”, he said.

Since the Covid-19 crisis began, food sales in shops have grown by a fifth. Though this is welcome, Mulvihill points out that it does not compensate for the 80-90 per cent drop in sales that has occurred elsewhere in the food market.

“PSA is only a temporary solution – it’s taking product off the market and putting it to one side and hoping it will be able to come back on to a better market later in the year,” he says. Sooner or later, that product will have to be sold.