There is no doubt that the ending of the milk quota regime brings opportunity for Ireland. Milk quotas were introduced in 1984 as a “temporary” response to over-production in the sector. More than three decades later they are to end and, as a country with a natural advantage in grass-based production, Ireland should gain from this.
That is not to say that this is a one-way bet for Ireland. The international dairy market is hugely competitive and milk prices can be volatile. Sharp falls from the 2013 peak have already hit farm income and the removal of quotas could have a destabilising impact, at least for a period. Farmers and processors have both geared up by investing to increase production, but all sides realise that this is a long-term project, based on global population and income trends.
The additional investment – for example the recent huge investment by Glanbia on the Kilkenny/Waterford border – will also have wider economic benefits, which are particularly welcome as many will accrue to rural areas. The knock-on economic and social benefits from investment in dairy are particularly significant, justifying the support for the sector from Enterprise Ireland and other State agencies.
If we can get this right, in terms of producing competitive products for world markets, then the long-term gains are substantial. Equally, it is important that investments, particularly those at farm level, are based on a clear assessment of the opportunities – and on the basis that increased efficiency is vital. There is a fine line between investment and over-investment.
The experience of New Zealand is instructive. Ireland needs to avoid the high debt exposure built up in the dairy farming sector there and also needs to be conscious of the “green” agenda, with significant environmental problems caused by the pace and nature of expansion in New Zealand in the last two decades. Minister Simon Coveney is correct to identify the importance of environmentally responsible expansion. As well as the obvious benefits of this, it can only help in promoting a favourable image in international markets
At a processing level, a balance is needed. We have a few large national players who will to some extent compete at home and on world markets, though most also work together under the banner of the Irish Dairy Board, soon to rebrand as Ornua, which exports to some 100 countries worldwide. Some of the bigger players have also spun off ingredients businesses, now significant economic players in their own right.
Success in the new environment will depend on a mix of production efficiency combined with the ability to develop added value products for world markets. Our starting position, with an efficient grass-based industry and world-leading processors and marketing, should serve us well.