Cantillon: Dairy industry split on curbing supply

To cut or not to cut, that is the question facing Ireland’s beleaguered dairy farmers.

With overproduction in Europe now cited as the main cause of falling prices, pressure is mounting, most notably from Germany and France, for supply cuts across Europe to rebalance the market.

This must seem like a cruel joke to Irish farmers, who were sold quite a different vision of the post-quota world. Many shielded themselves from the worst of the downturn last year by selling more at lower prices.

However, accelerating supply in a falling market runs counter to the basic laws of economics and was bound to come a cropper at some stage.

The latest milk supply statistics show the industry here increased output by 18.5 per cent to 6.5 billion litres in the first 12 months since the ending of quotas.

Germany and France, Europe's two largest producers, recorded more modest output increases of just 3.7 per cent and 1.3 per cent, but their production footprints, at 31 billion and 25 billion litres respectively, are colossal compared to Ireland.

With no sign of an upturn in prices, the Irish Creamery Milk Suppliers’ Association (ICMSA) earlier this month broke rank with the industry, calling for the introduction of a voluntary supply reduction scheme, a move that would have been unthinkable a year ago.

So far, the State’s largest farming lobby, the Irish Farmers’ Association (IFA), has remained opposed to restricting supply as has the Government.

Reacting to the latest CSO numbers, IFA dairy boss Seán O’Leary insisted the market was showing signs of correcting. He referenced a fall-off in French milk production in March as well as slower growth in Germany, and a decline in the UK output, while acknowledging stronger growth in the US because of cheaper grain.

“EU average quotes and international futures have all been firming – albeit timidly and from very low levels. It is fair to think that we are seeing the first signs that global supply and demand has slowly started to rebalance,” he said.