Strong 2014 Dairy Incomes Hide Huge Exposure to Volatile Margins – O’leary

Commenting on the 2014 Teagasc National Farm Survey (NFS), which highlighted strong incomes in the dairy sector, IFA National Dairy Committee Chairman Sean O’Leary said this very positive result for dairy farmers in 2014 needs to be put in the context of a level of volatility that was predicted by Teagasc last December and could result in a 2015 dairy income only half that of the 2014 figure.

“If we analyse the 2014 NFS, we see that milk prices fell by 3% for 2014 over 2013, while volumes of milk produced grew by 5%. This higher output has led to a historically high superlevy of €69m, which will also have to come off dairy farmers’ margins from 2015,” he said.

“Teagasc says the 9% increase in the average dairy farm income was mostly driven by lower expenditure. The average bill for concentrated feed fell 25%, while bulky fodder purchases fell 20%. This clearly reflects the vastly better production conditions in 2014 when compared to the dreadful spring of 2013. The net result is that the average gross output value for dairy farms fell by 1% in 2014,” he said.

“The good 2014 figures must not let us forget just how exposed dairy farming incomes are to volatility, as a result of wild variations in milk prices and input costs. Since the peak of 2014, Irish milk prices have fallen by a massive 22%, as compared with an EU average of 17%. That’s an 8c/l price cut which, assuming no further adjustment, would cut €28,000 over a whole year’s average dairy farmer’s income,” he said.

“Dairying is clearly a profitable enterprise when margins are good and conditions are positive. But I am concerned that easy headlines underplay both the level of investment, labour and skills engaged by Irish dairy farmers, and their very real exposure to extremely volatile incomes,” he concluded.