Dairy farmers urged to keep a grip on costs

Don’t use higher milk price as justification for high borrowings, warns analyst

IRISH dairy farmers should not chase increased production driven by higher costs, dairy expert Michael Murphy has warned.

This approach left thousands of farmers across Europe, North America and New Zealand struggling with unsustainable debt levels during the recent downturn in milk prices, he said.

The Cork-based dairy analyst, who has significant farming interests in New Zealand and the Americas, urged farmers to keep a firm grip on costs despite the recent lift in milk prices.

“Many New Zealand farmers really chased high milk production and moved away from their low-cost systems,” Mr Murphy explained.

He said expensive land was the main driver of higher costs on New Zealand holdings, which had increased to around €5,500/cow on average.

“The top 10pc of farmers [in New Zealand] did not go down that road, but the majority did, and they’re having a horrid time as a result,” he said.

High borrowings were also a feature of the Danish and Dutch dairy sectors, Murphy pointed out. Average debt levels in Denmark are around €20,000/cow, while Dutch holdings are carrying about €10,000/cow.

Debt levels

In contrast, average debt levels on Irish dairy farms are closer to €1,000/cow.

“Ireland should learn cheaply from the experiences of other countries,” the Corkman said.

He pointed out that Irish farmers should make the most of the natural competitive advantages they possessed and concentrate on low-cost milk production.

“The line Moorepark is advocating is absolutely 100pc right. We have to focus on growing and capturing as much grass as possible,” Mr Murphy insisted.

He said good grassland management and soil fertility, allied to the compact calving of fertile crossbred herds, were the key ingredients for a profitable dairy operation.

“Our management systems have served us well in the downturn. We should continue to do the same thing at 32c/l as we did at 22c/l,” he said.

Mr Murphy predicted that recent improvements in milk prices would continue through 2017 and that farmers’ incomes would strengthen as a consequence.

However, he cautioned that milk suppliers would have to keep spending under tight control to reap the benefits of this upturn.

“Farmers should only invest in what it makes sense to invest in. Don’t spend money on over-elaborate machinery and buildings.”