Dairy market supports urgently needed to protect farmers, dairy co-ops and rural economy

April 21, 2020

Irish dairy farmers may face significant milk price reductions with devastating impacts on farmer profitability and the wider rural economy, unless market measures are implemented, a major new report has revealed.

The report, ‘The Potential Impact of COVID-19 on the Irish Dairy Industry’ was commissioned by Dairy Industry Ireland (DII) and conducted by business advisory firm EY, has been submitted to government and the European Commission for their consideration. DII represents primary and secondary dairy processors in Ireland. It is an Ibec trade association.

Of the key findings the detailed report finds that, as a matter of urgency, measures to support the dairy market in the short and medium term are needed to protect farming, dairy processing and the overall rural economy. Currently the sector supports c.46,000 people in direct and indirect employment across Ireland.

The spread of COVID-19 has had a dramatic impact on international dairy markets. In particular, the foodservice sector has been adversely affected with restaurants, airlines and hotels shut across Europe. Milk destined for foodservice customers is now switching into other production areas such as powders and butter. This has created a significant oversupply with a severely reduced market demand which, in turn, has depressed the price paid to farmers.

Supply chains have also been fundamentally disrupted with a critical shortage of shipping and logistical routes to markets currently substantially paralysed across the globe.

Commenting, DII Director Conor Mulvihill, said: “The report highlights in stark terms the threat facing the Irish dairy processing industry as well as farmers and the rural economy without national and EU supports.

“The Minister for Agriculture Michael Creed and his team have engaged in trojan work in seeking to activate EU supports to the industry, but this report clearly shows that far more needs to be done to protect the industry at national & EU level. 

“Irish dairy is an engine of the rural and the national economy and it is vital that the necessary steps be taken quickly to enable the industry to be in a position to contribute to the national economic reboot when it occurs.”

The report, which found that the dairy sector was anticipated, pre COVID-19, to generate output of  €11.3bn  in the Irish economy in 2020, states that in order to offset  financial losses and supply chain issues, supports through Aids to Private Storage are urgently needed to “address the market imbalance”.

The report also recommended that the Government / EU could help limit the exposures of the companies by underwriting extensions to existing export credit insurance. This is now allowed under EU competition law.

Irish dairy processors export 92% of all products produced with the EY report finding that Irish dairy has a significant exposure to global markets worst affected by COVID-19. The report found that 76% of Irish dairy export volumes are exported to countries in the top 15 most effected COVID-19 countries.  

Separately, the report highlights the need for an additional €550m in working capital to assist processors deal with increases in stock and associated storage costs as a result of less product being exported.