Milk Quota Problems

The excellent grass growth last year, a mild winter and an early spring ensured that many producers exceeded their milk quota. So what would be a good policy to cope with this scenario for the coming year as our dairy herd continues to increase?

Most dairy farmers have many cows they could cull for lameness, infertility, high cell counts, mastitis etc. The price for cull cows is likely to remain strong as cattle supplies are tight.

Our average milk yields are low at less than 5,000 litres/1,000 gallons per cow due to disease problems, short lactations, late calving, poor quality pastures, and inadequate nutrition and quota restrictions.

Based on performance from our research institutes and commercial farms the target should be 1,300-1,400 gallons/ cow and per acre.  Almost every dairy herd has the genetic potential to yield 1,250 -1,400 gallons/cow from mainly grass diets with minimum supplementation.

So we could easily cull 20-25% of our dairy herd with long term positive results. The remaining cows would have access to more grass and milk better. The replacements would have a lower yield initially but longer term would be more profitable.

At present we are breeding too many dairy replacements so it would be better to use more beef AI in the dairy herd. Those crossbred calves would be more valuable to the beef industry and achieve higher sale prices for dairy farmers.

Dairy farmers currently restricted by milk quotas can also develop a profitable beef enterprise. Teagasc at Johnstown Castle in Wexford has done some excellent work in this regard.

Lower Milk Prices in 2012

According to Teagasc costs per litre are estimated to have increased by up to 4% to an average of 24.3 cents per litre (cpl) in 2011. This unwelcome trend is likely to continue as feed, fertiliser and fuel prices remain high.

Unfortunately   dairy farmers can expect a significant drop in milk prices this year so margins are under pressure.

Estimated annual average milk price increased from approx. 30.0 cpl in 2010 to 34.0 cpl in 2011 so what price can we expect for 2012? Arrabawn Coop has become the first to drop its milk price by cutting 1.95c/l off its price to leave suppliers on a price of 32.5c/l including VAT for March milk.

Arrabawn is predicting a milk price of 28cpl this year, a projection likely to see other co-ops and plc’s  quickly follow in due course by reducing prices for April by at least 3 cpl. World prices are falling and we export 85%  of our dairy products.

On foot of a sharp 9.9% price fall unveiled by Fonterra’s latest Global Dairy Trade Index. Bloxham Stockbrokers predict the other Irish milk processors who pay around 34cpl, will follow Arrabawn’s lead shortly. Hopefully some new business from China will help minimise a further drop in prices.

The Irish Dairy Board has launched a Kerrygold-branded UHT milk product, which it has been developing for the Chinese palette with Lakeland Dairies, while Glanbia launched a new whey protein brand for the infant formula market, bringing to 9,000 tonnes the volume of dairy ingredients it exports to China.

Milk Quota Problems

The excellent grass growth this year ensures that many producers are likely to exceed their quota. So what would be a good policy to cope with this scenario and avoid a policy of controlled starvation and other negative farm practices?

Mart managers describe the trade for cull cows as very strong. Plentiful grass, combined with high cattle prices, has significantly increased the number of farmer buyers. Factory buyers are also keen to buy any cows ready for slaughter.

Most dairy farmers have many cows they could cull for lameness, infertility, high cell counts, mastitis etc. National Farm Survey data indicates that the average stocking rate is about 1.35 cows per acre.

With milk yields at less than 1,000 gallons (c.4,500 litres) per cow, this gives only about 740 gallons per acre. The reasons for low yields include disease problems, short lactations, late calving, poor quality pastures, and inadequate nutrition and quota restrictions.

Based on performance from our research institutes and commercial farms the target should be 1,300-1,400 gallons/ cow and per acre.  Almost every dairy herd has the genetic potential to yield 1,250 -1,400 gallons/cow mainly from grass diets.

So we could easily cull 20-25% of our dairy herd with long term positive results. The remaining cows would have access to more grass and milk better. The replacements would have a lower yield initially but longer term would be more profitable.

At present we are breeding too many dairy replacements so it would be better to use more beef AI in the dairy herd. Those calves would be more valuable to the beef industry and achieve higher sale prices for dairy farmers. Dairy farmers currently restricted by milk quotas could also develop a profitable beef enterprise while awaiting their abolition.

Low Milk Prices in Britain

While Irish dairy farmers north and south are happy with current milk prices this is not the case in Britain. Over the last year prices for world dairy commodities have increased by 30% however the price of milk in Britain (only 60% self sufficient in dairy products for a market of 60 Million people) only increased by a paltry 5%.

A 5% increase will not cover  higher costs as feed is up by approx. 25 per cent, fertiliser by 41 per cent and fuel by 28 per cent in the past year. A  recent survey indicated that 13 per cent are planning to leave the industry in the next two years, compared with 9 per cent in 2010.

At one time farmers in Britain got a premium for producing liquid milk-50% of the total.  However the Royal Association of British Dairy Farmers chairman David Cotton hit out at the ‘shameful’ milk prices at the recent Dairy Event and Livestock Show. “The UK is  at the bottom of the European 27 milk price league table. The average EU27 milk price for June stood at 30.83ppl, while the UK average was 26.61ppl.”

NFU dairy board chairman Mansel Raymond said UK producers were selling milk on average 4ppl below its worth, on the basis of current EU and world market indicators, equating to £400 million per year or roughly £40,000 per farm.

Part of the reason for this is the power of the multiples and because most milk in Britain is sold as liquid milk and branded products to these same multiples. The multiples enjoy excellent margins and often use liquid milk and dairy products as promotions to pull in other consumer business. Either way the dairy farmer looses.

Naturally British dairy farmers are looking at ways to reduce costs and improve enterprise margins and Irish firms at the Dairy Event were benefiting from their enquiries. One way to reduce feed costs is to use more grazed grass so Agrinet & Kingswood Computing both had busy stands promoting their grass measurement software systems.

Improving Feed Efficiency & Profitability

Richard Keenan & Co had a major stand at this event. Business was brisk for their award winning range of mixer wagons. Again the increasing cost of feed was boosting enquiries as the company has a very efficient TMR system supported by excellent nutrition advice from a strong team of Irish and other Ag graduates.

During the show Keenan also launched “the definitive guide to FEED EFFICIENCY in dairy herds”. According to Keenan feed is the most expensive cash cost on a British dairy farm –their estimate is c. 45%.

Feed efficiency measures the kgs of feed on a dry matter (DM) required to produce each Kg of milk solids whether the cow is grazing or indoors during the winter. It is same idea as litres of fuel required to travel any distance. According to Keenan the top 25% produce 1.48Kgs of milk/Kg of DM while the bottom 25% are only achieving 1.24 of milk/Kg of DM.

The difference in margin at £0.73/cow/day in a 100 cow herd each month is almost £2,200. The best farmers also use a better quality and more expensive ration costing £22 per tonne more on a DM basis. Of course the top Keenan customers are using good herd management, PACE technology & a Mech-fiber™ ration to achieve these results.

From Straw to Slats

Many farmers in Britain still use straw to bed their livestock however many are now switching to slatted floors as straw bedding has become  expensive. It is also a time consuming and time is money. There were several Irish firms including Carlow Precast Tanks and O’Reilly Concrete promoting their tanks, slats etc at this event.

Apparently it is much cheaper to manufacture concrete in Ireland so they have a major competitive advantage in this growth market. Most of the concrete products and associated accessories (cow mats etc) purchased by British farmers are Irish made and business is good.

Excellent ASA Conference

The recent Agri Science Association conference in Maynooth was well attended and one of the best ever. Lots of useful info on the ASA website at www.ASAireland.ie According to Dr Joe Glauber, chief economist with the United States Dept. of Agriculture ,   the beef herd in the US is now at its lowest level in 57 years.  The US accounts for around 15% of world beef trade. Glauber expects world prices to remain high. Income growth in developing countries is changing diets and driving demand for protein. China accounts for 60% of world soya bean imports and could become a significant importer of corn.

Irish food and drink exports to China are set to grow by almost 20% this year and will exceed €150m according to  Breiffini Kennedy, Bord Bia Asia Manager.  China will play a vital role in the future growth of Ireland’s agri-food industry, both directly as a customer and indirectly in its key role in underpinning the global demand for food.

Last year, Irish dairy exports to China exceeded €100m and our meat exports, primarily pork, grew by over 50%. Among the branded Irish products in retail outlets are Kerrygold butter, Dubliner cheese and Tayto. There are huge opportunities in China for infant formula, and Ireland accounts for close on 20% of total world production, and there is also growing potential for Irish seafood products

Another interesting speaker was Stan McCarthy, CEO of the Kerry Group which now employs around 23,000 people worldwide. The Kerry Management take a long term strategic view and are currently in a seven year programme to attune their personnel and policies so as to optimise  customer experience and group results.

Most of the group activities are now located outside of Ireland and are no longer in the dairy sector. Indeed 70% of their business is now in food ingredients and Kerry has €400M available to invest in new business acquisitions this year.

Farmer shareholders are happy and suppliers have been told that they can process 20% more milk without any additional investment. Another good news story was Jameson  whiskey which plans to double production capacity in Midleton. Jameson is now among the Top 30 branded drinks in the world and sales have grown by 10% pa over the last 10 years-good news for jobs and cereal growers.

2011 August Blog

The good weather and excellent grass growth this year ensures that we will fill our milk quota and have lots of good hay and silage to feed our livestock. However many producers will  exceed their quota and many more are worried about what their position may be next March.

In recent years  farmers supplying Connacht Gold, Kerry, Lakeland and Town of Monaghan Coop usually had no quota problem as many of their neighbours were always under quota. However with increased cow numbers and good milk prices the situation has reversed.

So while dairy farmers are looking forward to the abolition of milk quota in 2015 they are stuck in a rut at present and confused as to the way forward. This was well illustrated recently by the Irish Grassland Association summer tour to two farms in Louth. Both had large herds on good land and made excellent use of grazed grass.

Low Yields or Feed to Genetic Potential?

Thereafter the policy was quite different. The McGlew herd was supplementing the grass with 600Kgs of concentrates and averaging 5,600 litres of milk from a spring calving system. The plan here is to increase cow numbers by 30% over the next five years and to use cross bred cows.

On the Kelly farm the pedigree Holstein cows average 10,000 litres of milk recorded over 305 days with two tonnes of concentrates/cow fed to yield. Much of this is also home grown and fed using a TMR system. If one looks at the return on investment for the capital tied up in land, buildings, slurry storage, stock etc who is doing better?

In simple terms should a farmer choose to produces 15,000 litres of milk from two or three cows? Most cows if they receive more and better quality forage with concentrates or a TMR supplement to match their genetic potential will produce a lot more milk. In Ireland today many cows are fed on a restricted diet of mediocre grass and occasionally supplementation with “cheap” citrus pulp.

Better Bred & Better Fed

Worldwide the trend has been to breed higher yielding cows and feed them accordingly. In Northern Ireland (NI) milk production has increased by about 35% over the last 20 years primarily from higher yields per cow. This was because extra quota could be obtained from Britain and NI dairy farmers invested in better nutrition.

Better still from a processor perspective milk production is non seasonal. Connacht Gold, Glanbia, Lakeland Dairies, Town of Monaghan (TOM) Coop can all optimise the use of their processing facilities in the south by using northern milk  thereby minimising costs to the benefit of southern seasonal milk producers. For example TOM Coop now sources 80% of its milk  in the north.

Milk Price Volatile

Dairy prices were down 5.1% recently at the important Fonterra auction – well below EU prices. However in the local and less important N. Ireland auction, prices were up over 4c/litre. This may be partly explained as the number of cows in the UK dairy herd has fallen by 6.7% in the last five years so milk supplies have been tight.

Average yield per cow in the UK is now 7,406 litres per cow and total herd size is 1.85 Million.  The increase in yield/cow has offset the fall in the number of dairy cattle, leading to a 519 million litre increase in milk produced to 13.7 Billion litres. There are 10,881 milk producers and average herd size is 170 cows.

Fortunately for EU and other milk producers China is taking more and more dairy products from New Zealand thereby taking the pressure off international milk prices. For the first six months of 2011 China has taken 38% more whole milk powder from the Kiwis-in fact they supplied 93% of total Chinese imports. China is now also the number one market for USA agri exports.

In the USA a drought has reduced milk supplies by 10% and 6.4% more dairy cow numbers have been culled to date compared with 2010 so this will help maintain milk prices. The Irish Dairy Board (IDB) say there will be one Billion more consumers by 2020 –mostly in Asia and Africa and with higher incomes.

Future of Irish Dairy Board

Currently the IDB handles 60% of its members exports-70% of butter, 80% of cheese and 50% of the milk powder. This % may increase after milk quotas disappear depending on its own success with developing new markets and of course on the members support. All eyes will be on the new CEO and his performance.

According to Fonterra the huge New Zealand dairy Coop the demand for dairy products is projected to grow by 2.7% pa over the next 10 years. And this demand is diverse –China has a projected demand for 36 Million tonnes will want more milk protein while in India with a projected demand for 45 Million tonnes they will want more butterfat. Tetra Pak research forecasts arise of 30% in the global demand for milk and liquid dairy products between 201020 so  all good news.

At a local level we are already seeing the benefits of the Asian market as New Zealand now only sells 25% of its original butter quota to Britain thereby leaving us room to sell more butter on this market. Like the Republic, New Zealand is a seasonal milk producer so there may be an opportunity to cooperate with Fonterra to supply pasture fed products to consumers all year round on the world market.

Good Beef Prospects

Cattle farmers are also having a good year after several years of low prices and poor margins. Long term prospects are also good if producers can improve performance as measured by age of slaughter, meat quality, kill out % etc.

Quite simply cattle farmers need to sell finished cattle months earlier at the ideal target weights and to invest in good breeding and optimum nutrition if they are to make a decent return on their investment in buildings, land, stock,  time etc.

Long term market prospects are excellent with a growing and wealthier world population while supplies are declining in many areas. The beef herd in the USA-the largest in the world is now at a 50 year low and is forecast to fall by another 2% next year.

In Brazil the economy is booming so there is a strong home market in this huge country. It is also more profitable to grow soya bean so their large cattle herd is in decline as grassland is switched to crops. During the first quarter of 2011 production in Brazil fell by 3.1% which is great news indeed for EU cattle producers.

Here in the Republic, dairy farmers are already responding to this opportunity with a 26% increase in the use of beef AI this year. According to ICBF, Aberdeen Angus is the most popular beef breed with dairy farmers while Belgian Blue is their next choice. Herford, Limousin, Charollais and Simmental all had increased AI business.

Most milk producers have the option to breed suitable replacements from part of their dairy herd and to use beef AI on the rest. Even those who do not can easily source good dairy replacements elsewhere. Hopefully the beef industry will invest some serious resources into persuading dairy farmers to develop a profitable beef enterprise to complement their milk production business.

Agribusiness is still in favour with most media pundits, politicians etc which is good news for all concerned in the Agri –food sector. Recently RTE and the Pat Kenny radio  programme gave the Irish Holstein Friesian Association  open day which was attended by Shane McEntee TD, the Minister of State at the Dept. of Agriculture & Food some excellent coverage. Check out www.IHFA.ie

The value of Holstein genetics was well demonstrated at this event as the progeny of one cow made €25K in the sale from an original investment of just over €5K. Using embryo transfer technology this eight year old cow Cradenhill Linkjet Fame has produced 35 offspring worth €100K-truly a cash cow and she is still alive and well.

Lots of useful statistics have become available recently from the CSO (Central Statistics Office), Dept of Agriculture, Food & Forestry (DAFF), NMA (National Milk Agency), ICBF to mention only four.

More Cows Milk Recorded

For example ICBF report that 50% of our cows (500,000) and 40% of our herds are now milk recorded- an annual increase of 5% pa since 2005. With good prices for cull cows dairy farmers can accurately ID those surplus cows which should be culled or used for breeding replacement heifers.

The DAFF Animal Identification& Movement (AIM) report for 2010 makes interesting reading. The Charolais breed is the number one sire (37.2%) used on suckler farms closely followed by the Limousin (32%). Not surprisingly some 59.3% of the dairy herd is mated to Friesian bulls while the Aberdeen Angus is used on 13.9% of dairy cows.

The most important counties for cow numbers are Cork, Galway, Mayo and  Tipperary. One serious negative in the AIM report is that 40% of our beef cattle were over 30 months when slaughtered. They obviously need more grass, better forage and adequate supplementation to arrive sooner at the factory gates. This would be a win win situation for farmers, feed suppliers and the meat trade.

The National Milk Agency report makes for interesting reading. Apparently Northern milk producers now supply 25% of the liquid milk (market valued at €550M) consumed in the Republic. There are about 18,295 milk producers in the Republic and 3,194 in N. Ireland but a huge difference in their milk quotas. In the Republic average quota is only 283,000 litres (62,000 gals) while it is 579,000 (127,000 gals) in the North.

A major concern for ROI milk producers is that their share of the retail price has fallen significantly over the years. Since 1995 the retail price has increased by 44% while the price to the producer fell by 1%. The differential between manufacturing milk and higher cost liquid milk is also disappearing and is now only about 3.2c/litre. The dominance of the multiple retailers (79% of market) and own brands (46% of retail sales) does not bode well for the farmer owned Coop/Plc  brands and any price improvements to the hard working milk producer.

Ewes Make a Comeback

According to the CSO sheep numbers in the Republic which had been falling for the last 10 years have begun to recover thanks to improved prices in recent years for lambs and this year for wool. In Dec 2010 there were 3.12 Million sheep in 32,176 flocks –an increase in sheep numbers of 1.35% on the previous year.

Sheep events are now being well attended and there is a buzz in this sector again. There are 3,881 flocks with more than 200 sheep and the counties with the most sheep are Donegal, Galway, Mayo, Kerry, Wicklow, Cork & Roscommon. Excellent analysis of CSO data by Darren Carty in the Irish Farmers Journal recently.

Crop Yields

Yield (2.3 M tonnes is the current estimate) and harvest price prospects for cereals in Ireland appear promising although world market prices are volatile. Data released by DAFF show that certified seed sales for spring barley, oats and wheat increased this year. The Irish Seed Trade expects autumn cereal plantings to also increase. This will also increase supplies of straw which is good news for farmers using the TMR system.

Money Still Growing on Trees

There are now about 15,000 farmers in the Republic with commercial forestry enterprises and long term prospects are excellent as the experts predict that demand for timber will exceed available supplies.

One Ha. of forestry will produce the energy equivalent of + 100,000 litres of oil in its lifetime and we  import 90% of our energy needs. Only 3% of our energy requirements are supplied from renewable resources yet our biomass yields are higher than elsewhere in the EU.

Bioenergy is also more employment intensive than other forms of renewable energy so future prospects are good. For more info check out presentations at the Bioenergy 2011 conference at www.COFORD.ie

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Agribusiness continues to have a great year for most enterprises and prospects look good for the remainder of 2011. However world prices are volatile and likely to remain so according to the world food & agriculture organisation (FAO).

Prices continue to be firm as world stocks decline significantly and the increase in production is small. International food prices dropped 1% in May but were still 37% up on the previous year.

Weather as always is a factor with floods along the Missouri and droughts in parts of Europe. The Iowa Farm Bureau has estimated that up to 150,000 acres of cropland will be inundated and crops drowned by the Missouri River floods and railway transport has been impacted.

EU Droughts Hit Crop Yields

Several months of drier-than-usual weather have parched farmland and cut water reserves in Britain, France and Germany, three key grain producers in Europe and fueling concern for the final harvests.

Parts of central Europe had fewer than 40 percent of their long-term average rainfall from February to April, and drought in much of Europe.

Estimates suggest that Britain’s yields of wheat and barley – will be 10pc lower overall this year. Total farm gate prices for the UK’s combinable crops is £4bn, giving lost yields worth around £400m because of the droughts.

Nevertheless the FAO is forecasting a record world cereal harvest of 2,315 M tonnes. This will not be sufficient to replenish lower stocks as production will only cover consumption so prices will remain high-good news for the producer & bad news   for poor third world consumers.

The FAO forecasts that world dairy production will increase by 2% this year however strong global demand is predicted to increase trade by 5%. Higher feed prices will   impact on milk production increases and limit meat production to an estimated rise of 1% (mainly pig & poultry meat) in 2011.

Milk Production Still Expanding

Due to higher cow numbers and excellent grass growth this year we were over quota in the Republic  by around 5% at the end of May. Milk supplies also increased significantly in Northern Ireland –much of their milk now goes south of the border to Lakeland Dairies and other milk processors.

There is real concern that for the first time in many years that in the Republic we may exceed our EU milk quota next spring.

Paradoxically the European Union itself is under quota by about 7% so if the EU really worked properly there should be no problem. Indeed much of our extra milk products are exported outside of the EU but trade logic is not a strong point with the bureaucrats in Brussels.

Dairy AI inseminations have increased this year by about 9 % so there will be lots more calves available next spring. Milk producers continue to invest in new milking parlours, bigger bulk tanks and farm infrastructure which is good news for the trade.

Cull Cows & Stay within Quota

Cull cow prices are excellent so farmers worried about going over quota now have a great opportunity to sell off inferior animals. These could include those with low yields, poor fertility, health issues, troublesome cows etc. This would make more sense than underfeeding cows and creating future herd fertility problems.

One problem on the horizon is how will the milk processors cope with the extra milk supply after 2105. Dairy farmers need to know how much extra milk they can supply. To date only Kerry Plc have give producers an undertaking to accept 20% more milk based on existing quotas.

Obviously extra processing will be expensive and will have to be paid for in some way by a levy on extra supplies, a levy on new suppliers or a mix of both. The actual extra capacity will also depend on the supply pattern and how attractive it will be to supply extra milk off peak.

Coveney Shock to System

The decision by Minster Coveney to  terminate the new grants scheme for dairy, sheep and other equipment has upset farmers and Agribusiness. Aside from milk & lamb producers, pig and poultry farmers have also been impacted as they urgently need to upgrade their housing & equipment to meet EU animal welfare directives. 5,000 farmers will be excluded from grant applications by this decision.

The EU have been pressurising Ireland to improve water conservation so terminating the new grants for rainwater harvesting seems a daft idea. Around 50% of the grants payable are probably recovered by the exchequer in VAT plus the savings made on social welfare as the work on farm will reduce unemployment levels on a seasonal basis.

Money Grows on Trees

Irish board and saw mills have successfully weathered the collapse of the construction sector which had been a major market. Indeed we are now exporting to new markets in France, India, the Middle East, Turkey etc. Since 2007 our saw mills have increased exports from 381,000 to 621,000 m³ while imports have been dramatically reduced. Last year our timber exports increased by €60 M to €240M. Good news indeed for farmers thinking about forestry as a long term secure investment.

Agribusiness is having another good year and prospects look good for the remainder of 2011. World prices for dairy commodities are buoyant and EU exports are well up on the previous year. The best EU performance was for cheese –up by 17% to 106.000 tonnes. Butter and skimmed milk powder exports also increased.

However Irish cheese exports to Britain are expected to fall as milk processors switch supplies to dairy products which are delivering a much better return.

The Teagasc National Farm Survey results show that average farm income increased in 2010 to €18,000. However this simply brings incomes back to  2008 levels. Dairy and tillage farmers benefited significantly from the recovery in global markets.

However average income on commercial full-time farms (c. 30,000) was approx. €43,000 in 2010.Average incomes on dairy farms increased to approx. €47,000 due to a 30% increase in milk prices and only modest cost increases. On tillage farms incomes increased to about €33,500.

Another positive development in Agri business is the significant increase in the use of online services. For example farmers claiming the Single Farm Payment are now making 70% of their applications online presumably using their Ag consultant or Teagasc adviser.

Milk Production Expanding

Due to higher cow numbers and excellent grass growth during March/ April milk supplies have increased by over 17%. So there is some concern that for the first time in many years we may exceed our EU milk quota next spring.

After years of falling dairy cow numbers and  milk yields it is a positive development to see the reverse. According to ICBF dairy farmers for the second year in a row are recording more cows although by EU standards the level is still very low. The number of herds recorded is now around 1400 and average herd size recorded is 70 cows.

Dairy births have also increased this year by about 11% so milk producers will now have the opportunity to cull many inferior cows from their herds while they wait for the abolition of EU milk quotas in 2015.

Longer term dairy farmers have the opportunity to rapidly increase milk production by expanding herd size and in particular by improving milk yields. Teagasc reckon that we can increase milk production by 47% based on an increase of 24% in cow numbers and annual productivity improvements of 1.5-2%.

This is certainly achievable as since the introduction EU quotas our dairy cow numbers fell by 26% and we still succeeded in filling our national quotas when we had good grass growth conditions-eg when cows were on an adequate plane of nutrition.

Average milk yield is now only about 4,500 litres however most of these cows have the genetic potential to produce far more milk solids if the quality of forage is improved, more available and supplemented with top quality concentrate diets.

Booming Beef Exports

Irish beef is also selling well and farm prices  have hit €4 per kg due to tight supplies, record offal prices and a strong beef market. Sheep farmers have also done well with excellent lamb prices for Easter.

Last year our combined beef exports were valued at €1.8 Billion an increase of €110 Million   on the previous year. Live exports also increased by 15% to €245 Million. However livestock numbers are down so the value of exports will fall over the next 12 months.

Our beef exporters now sell their meat products to 75 major EU retailers compared to only 27 in 2001. The three major meat processors control 60% of the kill while another four are responsible for 25% of the market. The Republic is now the largest net beef exporter in the northern hemisphere.

33,000 beef farmers participate in the Bord Bia quality assurance scheme and are rewarded with a modest premium of €20 per head. Positive developments in the market include higher returns for forequarters and offal plus the recovery of markets in Germany lost after the BSE crisis.

Creaming the Consumer

Of course those really creaming the food industry are the powerful retail multiples. One pig farmer recently pointed out that his share of the retail pig meat price has fallen from 27% 10 years ago to only 17% now-no wonder our hard working and very efficient pig producers have been losing lots of money in recent years.

The IFA recently introduced a certified DNA programme which will ID the source of pig meat and should be a big help in minimising problems for consumers and producers rising from misleading labelling by retailers. Unfortunately their offices were recently raided by the Competition Authority allegedly because of a complaint from a retail multiple. One wonders how this is in the consumer interest.

Tesco are number one in Ireland at over 27% and continue to increase market share. Aldi and Lidl are also doing well – they now have over 10% of the market in the Republic. The significant number of non nationals in the state and the recession has undoubtedly helped their business.

2011 March Blog

With a new government in office agribusiness is looking forward to a good year despite current high fuel prices courtesy of Colonel Gaddafi and his attempts to stay in power for another few years. The electorate have sent the Green party to the compost bin so perhaps the Carbon tax may be scrapped as it is a heavy burden on farm contractors and the industry.

As regards the urban greens they should note that the carbon footprint of Irish food products is amongst the best in the EU according to a major study just published by the Joint Research Centre of the EU Commission.

The study evaluated the full net carbon emissions of a range of livestock products, taking account of all on-farm emissions related to livestock rearing and the production of animal feed (even from  outside the EU), as well as emissions caused by the input of  fertilizers, pesticides, energy and land for feed production.

Irish milk has the lowest carbon footprint in the EU at 1 kg CO₂-eq/kg milk, compared to the EU average of 1.4kg.  Irish pork also has the lowest footprint as does our chicken. Unfortunately according to the Irish Farmers Journal 50% of our poultry is now imported so Irish producers are not rewarded for higher EU environmental standards demanded by the multiples and the associated costs.

Irish beef has a footprint of 19 kg CO₂-eq/kg beef, well below the EU average. The carbon footprint of Brazilian beef was estimated to be 80 kg CO₂-eq /kg beef when land use change is included. Not to mention the destruction of those Amazon rain forests to create more land for agricultural use.

Alternative Energy Sources

Ireland is lagging behind the rest of Europe in using Anaerobic Digestion to produce energy from organic waste. This technology could help us improve energy security.

Apparently one quarter of the biodegradable waste in Europe is used to produce biogas through Anaerobic Digestion (AD). There are 195 large AD sites with a capacity for 5.9 million tonnes of organic waste and an additional 7,500 digesters which process agri residues, energy crops and organic waste so there is large potential for CO2 savings, soil improvement and to recycle nutrients using AD.

The resulting biogas can produce heat and electricity or can be upgraded and sold as a biofuel or injected into the gas grid. Biogas can be supplied from crops (grass), farm by-products (slurry or manure), and from organic municipal waste. These potential feed stocks are indigenous and renewable, and  can provide largely carbon free, renewable sources of energy while reducing the environmental impacts of waste disposal.

Agri Education in Demand

A good measure of the improved  Agri confidence in recent years is that the demand for Ag courses has increased by 45% since 2007 according to the Central Applications Office so the points required for University College Dublin have soared. This is also good news for Universities in Britain such as Harpers Adams who also cater for Irish students.

Tractor sales also recovered in Jan & Feb with an increase of 13% over the previous year. Grass, slurry and tillage machinery is also selling well despite the credit crunch. Prices for conacre has significantly increased for tillage ground as cereal growers buoyed up by good forward world prices are planting a much bigger area.

According to Teagasc the total winter cereal area has increased substantially with the wheat area estimated at 75,000 hectares and barley at 35,000 hectares. We currently have the highest cereal yields in the world and the Irish Seed Trade Association recently launched a new brochure in conjunction with Teagasc to promote the use of certified seed and to support the investment in plant breeding.

Milk Producers Could Cream It in 2011

Milk prices are looking good as India –the worlds largest producer has withdrawn export subsidies and banned exports of casein and milk powder. This is because of a 20% increase in domestic milk prices during 2010.Their exports last year were valued at $110 M. Another factor impacting on milk supplies will be the increased cost of feed however this will have less effect on grass based production systems.

China, the biggest importer of New Zealand dairy products by value, purchased about 353 Million kgs of the milk products in 2010, up from 69 million kilograms in 2008, according to Fonterra Coop the world’s largest exporter. Food safety concerns and a strong currency are prompting a flood of Chinese parents to sweep supplies of milk powder from Hong Kong shops, triggering citywide shortages.

Two years after the melamine-tainted milk powder scandal hit mainland China and made nearly 300,000 children sick, ongoing problems continue to undermine public confidence including the seizure of over 100 tonnes of tainted milk powder last year.

Such safety concerns have fuelled rapid growth in milk powder imports, which nearly doubled to an estimated 340,000 tonnes in 2010, making China the world’s largest market for such infant formula.

Agri Investment Delivers Environmental Benefits

Increased grant aided farm storage for manure and slurry has already helped to improve groundwater quality. According to the Environmental Protection Agency   85% of groundwater tested was “of good status” in 2007, 2008 and 2009.

The EPA expects that, in time, the improved storage, plus reduced use of inorganic fertiliser, will reduce nitrate and phosphate concentrations in groundwater. The major water pollution culprits continue to be ancient local authority sewage systems.

Agri Research Forum

Over 200 participants  attended  the recent Agri Research Forum in Tullamore, where 170 papers are being presented by scientists from Teagasc, University Colleges  Dublin and  Galway, Agrifood and Biosciences Institute (AFBI, N. Ireland), University of Limerick, NUI, Maynooth, Queen’s University  and Waterford IT.

Waste water is generated on farms from wash water, yard runoff and liquid manure.   One interesting study looked at the use of reed beds to recycle waste water.  The researchers found that  significant reductions in enteric bacteria were observed in reed bed systems with E. coli etc non-detectable in the final effluent.

New Year Looking Good for Agribusiness

Milk producers had a good year in 2010 and look forward to 2011. A good example of this confidence is that in the latest milk quota trading scheme, 542 applications were received from sellers and 2,707 applications from buyers.

Sources in the Dutch Dairy Board say the market is less certain in 2011. Milk supply is still growing in all export regions, and provisional figures show 2010 milk output in the EU-27 up to August was 0.4% ahead of 2009.

The milk production trend in New Zealand is at record levels however Russian and Chinese demand has been offsetting growth since last May in global milk production, diversion of US products to the world market, and the sale of EU intervention stocks.

Rabobank sources said uncertainty remains high, but anticipated that the global dairy market will remain tight in 2011, because the current milk supply growth will be hindered, principally by higher feed costs and farmers needing to reduce debts.

Last month New Zealand declared medium-level droughts in their biggest milk-producing region.  Fonterra, which accounts for c. 40% of the global trade in butter, milk powder and cheese, raised its forecast payment to farmers by 4.5% citing international prices.

Last Dec also saw United Dairy Farmers milk auction prices in N. Ireland move up to 26.98 pence/ litre- the highest since the auction started in 1995, even surpassing  the  boom year of 2007.

United Dairy Farmers CEO David Dobbin said, “Milk prices have recovered well from the market collapse in early 2009. We hope that will continue as farmers are facing increases in feed and fertiliser prices driven by strong global commodity markets.”

Irish Expansion in Milk Production?

Expansion in milk production is a popular topic for discussion since the publication of the Harvest 2020 report which targets an increase of 50% before 2020. This  is  ambitious however production did increase by 72% in the 10 years prior to the introduction of EU quotas.

With all the improvements in technology, breeding and the continuing increase in the number of well-bred dairy heifers, the least of the problems will be at farm level — if milk prices and availability of finance are favourable.

The forecast for dairy prices is positive for the medium/ long term, but there will be volatility.  Teagasc forecast  between 23 cent and 33 cent/ litre while Rabobank, forecasts a world price of 29.5 cent, plus or minus five cent/ litre.  Teagasc forecast a 28% increase in  production, compared to the 2020 target of 50%.

World milk price volatility can only increase when EU milk quotas go in 2015 so Glanbia’s 28c/l plus VAT for three years for at least 15% of a farmer’s milk quota is a welcome initiative. The scheme was developed in partnership with some key Glanbia  customers.

Glanbia  is exploring similar price fixing partnership opportunities with other key customers. The scheme will be available for up to 25% of manufacturing milk suppliers from January. Glanbia is using this initiative   to raise  quality and improve supply profile .

Danone, the French owner of the Cow & Gate and Aptamil brands is to expand its baby-food business in Ireland. The company will treble manufacturing capacity to 100,000 tonnes pa in Macroom.

This expansion is a huge success for the Irish dairy industry, which already produces 15% of the global  infant formula for US and other multinationals. These added value products are required by Irish milk producers to guarantee high and stable milk prices.

Reduced Beef Price Threat from Brazil

In 2007, Brazil was the main low cost supplier of beef to international markets. But a stronger currency and a 50% domestic annual cattle price increase so this exporter no longer undermines the EU market with low priced beef supplies.

Beef production in the EU region is forecast to fall by 2%, mainly in France, Germany and Britain. Spanish output is expected to increase 3%, while Polish production is forecast to grow by more than 2% (since 2007, Polish output has increased 17%).

German exports are forecast to double to 38,000 tonnes, Spain and Italy are also expected to ship more beef to Turkey and Russia. EU-15 supplies are forecast to fall by 1%, a trend led by France, Germany and Britain so  increased retail prices are expected.

During 2009 dairy farmers  opted out of rearing male offspring from their herds, and live exports of calves rocketed, which will have a serious effect on  supply for slaughter within two years. Live exports at 340,000, were the highest in a decade, among them 58,000 finished cattle, four to five times the normal level.

Farmers were paid 3-4 cents/kg less than in 2009  for O3/ O4 animals (42% of the national kill). So farmers were getting €30-50/ head less for the similar animals. Strong  autumn slaughtering’s should lead to tighter supplies and higher spring prices.

Good Prospects for Bioenergy Crops & Forestry

The Government announcement of €119.8 million funding for the forestry and bioenergy programmes in 2011 was welcome news. It should be sufficient to support an afforestation of at least 7,000 ha. Timber prices increased dramatically in 2010  – a major export achievement since the collapse of the  construction market.

Bord na Mona is also committed to consuming 300,000 tonnes pa of biomass such as willow by 2015, increasing to about 500,000 tonnes by 2020. It is willing to enter into 20-year contracts and pay growers to deliver chips to the power station at Edenderry.

The contracts are of particular interest to farmers availing of the Government grants for establishment of willow crops. These grants cover half of the €2,600 per ha establishment cost.

For the first 200 ha contracted, Bord na Móna has offered to fund the other 50%, if the farmer so desires. Their price offer is €32 to €38/tonne ex-gate for willow chips at 55% moisture content. All prices are index linked (upwards only).

Food Harvest 2020 is an Impressive report on the Irish food and drinks industry. Their vision is for an innovative industry, efficient and a global leader in environmentally sustainable production.

On the basis of the available 2008 data the high powered Committee believes that growth of 40% in the added value output of this sector is achievable by 2020.

Dairy

Given projections for significantly increased world demand, the abolition of EU milk quotas in 2015 presents a real opportunity for a significant increase in milk production. A significant cost advantage is our environmentally sustainable rain fed grass-based system.

The achievement of a significant increase in milk output requires a milk price and cost structure that will provide viable family farm incomes.

At national level, the issues of land availability and optimum processing capacity will have to be addressed. The Committee believes that a 50% increase in milk production by 2020 could be achievable.

This 2.75 billion litre increase would enhance the primary output value by c. €700M with further benefits in increased product values, export earnings and employment.

Milk Processing Capacity

However can the Coop & Plc processing sectors ensure that capacity meets the increased milk supply post quotas. Indicative costings are in the region of €400m so the industry must investigate efficient solutions to processing a seasonal milk supply.

According to our National Milk Agency the milk supply profile in 2009 had a peak to trough month ratio of 4.9/1-compare this to N.Ireland with a peak to trough month ratio of 1.5/1 so a less seasonal system would significantly reduce investment requirements & associated costs.

Since 1993, annual milk supplies in N. Ireland have increased by 463 M litres or 35% because of access to quota in Britain. Increased production has come from higher yields –not extra cows as envisaged by Teagasc & some other experts commenting on our future expansion opportunities.

Northern Suppliers Power Ahead

Average annual milk supplies per supplier in the North were 527,000 litres in 2009 versus 254,000 litres in the Republic. N.Ireland also has a grass based system however cows receive twice as much supplementary feed so average milk yields are much higher.

The report highlights the need to research strategies which reduce GHG emissions (methane gas etc) in the sector. This research would include new technology, improved herd management (breeding, fertility, nutrition, etc) etc. In this regard it should be noted that high yielding cows produce less methane per litre of milk.

We have not filled our existing milk quota in the Republic over the last three years. Bad weather which impacted on grass growth and poor milk prices have been blamed. However dairy farmers could have made up for the forage deficit with supplementary feeding if they believed milk production was profitable.

In the West of Ireland and border counties milk quota has not generally been a problem most years so can we be confident that a focus on our traditional low cost, low output (and associated low income)  production system can expand after 2015?

Some Problem Areas

Fertiliser usage cannot be increased on many farms due to the Nitrates directive and replacement stock will be in short supply due to poor herd fertility. If the credit crunch continues finance will be a problem on many farms. Most farmers are over 35 so have no appetite for expansion and lack confidence due to the perceived risks.

Many other farmers are on fragmented holdings and cannot acquire more land (leasing or purchase) close to housing and milking equipment. So their only option is to push up milk yields per cow. This can be quite a profitable option for good producers as the return on a limited investment per cow can be quite attractive.

On many other farms particularly in the south west or south east farmers wishing to expand can switch land from cattle, sheep or tillage. In other cases many older farmers will be retiring with no successor so their land will become available to younger and more progressive farmers.

However the facts still remain that for those who wish to follow a traditional low output seasonal system one will need more cows, more land, more buildings, more slurry storage and more labour. So the capital costs on farm will be high and the return on investment will be low.

Add in extra processing costs for commodity products (added value products cannot be produced from a seasonal system) and the levy farmers will pay for this additional processing can we really achieve more added value and a 50% increase in milk production by 2020. Let the debate begin…

Better Times for Producers

The good summer & autumn weather and higher milk prices has boosted morale, farmers are looking again at new Agri investments. Last August the Irish Farmers Journal reported that in an independent survey they commissioned of nearly 400 farmers at nine Agri events 57% were planning to invest over the next 12 months.

The most popular areas for investment will be in winter housing, livestock and machinery. Only 40% of this investment will require borrowings and 50% of farmers will be able to finance expansion from their own resources.

The good weather and optimism has boosted attendance at Agri events such as farm walks, Grassland Open Days & the National Ploughing Championship in Athy which attracted record crowds and enjoyed excellent weather conditions. Trade exhibitors were also well pleased with the level of positive enquiries.

Lots of Grass & Below Quota?

Due to good grass growth this autumn most livestock farmers now have adequate silage stocks and quality is ok. Nevertheless we are still 6% under our national milk quota as of the end of August according to the Dept. of Agriculture & Food. So why not feed those cows better and be in a win win situation.

We have not filled our quota over the last three years so if we get another late spring the same could happen for the year ending in March 2011. So the expectation that we could significantly increase milk production when EU quotas end in 2015 could well be incorrect.

A reduced area of cereals was planted last spring so straw is more expensive and world cereals prices have increased – livestock farmers will have to pay more for animal feed this winter and next spring.

Higher Feed Prices Hit Pig & Poultry

Increased feed prices will have the biggest impact on pig and poultry producers who use a lot of feed, operate on low margins and have to compete with low cost imports from outside the EU. Cattle & dairy farmers will fare better as they use little feed.

The exception are  those farmers who finish cattle as they have not made any money in recent years due to low prices and are quite annoyed with the  meat factories who consistently pay lower prices than they do in Britain. The likely result is that the supply of finished cattle will decline further as farmers exit this unprofitable enterprise.

Cereal growers have responded to a good harvest and higher prices by increasing the area of land planted. In fact popular varieties of cereal seeds are sold out. Long term prospects seem good as Rabobank estimate that the global demand for cereals/oilseeds will increase by 500 M tonnes by 2018.

More Seasonal Milk Production Could Be Expensive

Teagasc and others suggest that increased milk production can come from our spring calving and low cost, grass based system. However this will put pressure on processing capacity as most of our production is seasonal. Massive investment will be required to fund increased capacity so farmers may have to pay a levy on extra milk produced.

The Agri-food sector is having a good year with exports up by 8% for the first five months of the year. According to Bord Bia exports in May were 23% up on the previous May helped by a stronger dollar and sterling. The global market is in a more positive demand/supply balance and commodity prices are rising.