Dairy sector facing fine of up to €80m for oversupply of milk

Irish farmers are now certain to be stung with a record fine of up to €80 million for exceeding the State’s milk quota this year.

With Europe’s long-standing quota regime ending this month, dairy farmers have been ramping up production.

Figures from the Department of Agriculture indicate the State’s milk supply was more than 5 per cent over-quota at the end of February.

With a superlevy of 28.65 cent imposed on every litre produced over the allowed quota, this would result in a fine of about €80 million.

However, with farmers likely to carry some of the production over into next year, experts believe the final figure might come in a bit lower than €80 million.

Either way, the final penalty will be significantly in excess of last year's €10 million fine, and huge in the context of the €144 million Ireland has paid out in fines over 30 years of the quota regime.

Spread across the State’s 17,500 dairy farmers, an €80 million fine works out at about €4,600 per head.

On the basis of current trends, global milk demand is forecast to outstrip supply by 25 billion litres by 2020, largely on the back of China’s insatiable demand for powdered milk.

150,000 extra cows

About 150,000 cows have been added to the national dairy herd here in the past four years as farmers gear up for the post-quota era.

This is about half of what is needed to hit Ireland's Harvest 2020 target of increasing supply by 50 per cent to 7.5 billion litres.

Despite the positive underlying trends, milk prices have fallen by a third in the past year as a result of over-production, Russian sanctions and a temporary dip in Chinese demand.

According to Teagasc research officer Laurence Shalloo, price volatility will be the governing dynamic from here on in.

Farmers hoping to exploit positive industry trends in the post-quota era will have “to build resilience into the their business plans,” he said.

“The key is to be able to survive the downturn [in prices]so as to capitalise on the upturn.”

Euro weakness

Another positive factor for Irish farmers is the current weakness in the euro, which is unlikely to change for the foreseebale future with the European Central Bank committed to a programme of quantitative easing.

As milk prices are quoted in dollars, this gives European farmers a considerable competitive advantage, Mr Shalloo said.

Despite reporting a 16 per cent fall in profits this week, New Zealand dairy giant Fonterra remained bullish on the prospects for the industry, suggesting the current supply glut in China would ease as authorities run down milk powder stockpiles.

However, it cautioned that global instability in the MidEast and Russia would continue to damage the industry at least in the short term.