Luxembourg dairy farmers are proposing a “voluntary reduction” in milk production to manage costs, but only if there is a compensation package in place. The move comes as milk prices fall across Europe, and Rabobank research highlights that “a little more milk and a little less demand” has resulted in weaker commodity prices in the first quarter of this year. Rabobank warns that lower milk prices and a tightening of farm level margins are looming on the horizon. The Irish Business and Employers Confederation’s Dairy Industry Ireland (DII) claims that the sector contributes over €16bn “to every parish and community across the island” and supports around 85,000 jobs.
DII estimates that over 11 billion litres of milk are supplied by around 20,000 family farms, with the vast majority of these farms heavily engaged with co-ops. Many of these farm families are concerned following a recent round of cuts to farmgate milk prices by co-ops. The Irish Farmers’ Association and the Irish Creamery Milk Suppliers’ Association have both warned that margins for dairy farmers will “be completely wiped out” if there is a further round of price cuts for March milk. If prices fall again, one of the key challenges for dairy farmers will be the “costs per litre” equation. Without “sustainable” milk prices, the balance will be tipped too far towards input costs, eroding the margins that farmers need to stay in business.
Economic modelling previously carried out for DII suggests that any reduction in milk production would have a significant knock-on effect for the wider Irish economy. If milk production were to fall in Ireland to 7.8 billion litres, this could potentially mean that a processor’s annual revenue could fall by 6%. This reduction in production could in turn, according to DII, translate to a drop of potentially €195m in payments to farmers. According to the modelling carried out for DII, the impact of the reduction in milk production could potentially, in this particular scenario, take €70m in wages out of the Irish economy and put a further 3,094 jobs under serious threat.
The European Milk Board (EMB) believes a “surplus of volumes on the market, falling producer prices and a far too low producer income” are key challenges for dairy farmers, not just in Ireland, but across Europe at this time. EMB president Kjartan Poulsen believes dairy producers across Europe are witnessing a drop in prices which is “threatening their farms”. Poulsen believes the sector needs “strong, horizontal producer organisations that each negotiate with dairies”. According to the EMB, dairy farmers also need to increase their “impact and negotiating power”. Several EMB member organisations have already organised protests in their home countries, including Lithuania and Germany, to highlight the crisis in the dairy sector. The EMB is now calling on the European Commission to “analyse trends on the market and take appropriate measures” – one of which the EMB has said could include “a reduction in volumes”.