In the first of a three-part series looking at the future of the dairy industry, Agriculture Correspondent Seán MacConnell finds that processors are coming under pressure on international markets, while farmers protest at the milk price paid by big companies such as Glanbia and Kerry

Ireland's agricultural heritage is based on the cow. In the past we have almost been Hindu-like in our regard for the cow.

Many of our ancient Brehon laws deal with the cow. Fines were determined by the number of cows a defendant had to hand over if found guilty of a crime.

The Irish word "bóthar" defined the size of a road as the width of a cow and a calf walking side by side.

Centuries after Silken Thomas was reputed to have paid 1,200 cows for his horse, wealth in the countryside was still being defined by the number of cows a farmer owns.

However, times are changing and we could now be at a point in our history where the link between wealth and the cow may be broken for the first time in centuries.

With colossal prices being paid for farms near towns, for housing and other developments, road frontage has become more important than milk quota on farms.

A number of internal and external factors have come together and resulted in a sizeable number of our dairy farmers exiting the industry, with more to follow.

The most important of these factors is that many farmers say that what they are being paid for the milk their cows produce does not allow them a decent living.

They say the prices they get now are even lower than they were receiving 15 years ago, while the costs of production have climbed steadily.

The milk processors say they are coming under increasing pressure on international markets, where we sell 90 per cent of our dairy products, and they cannot afford to pay the kind of prices being demanded by the farmers.

The processors cite the cuts in EU market supports which were agreed in the recent reform of the Common Agricultural Policy, which has virtually abolished intervention for dairy produce and has slashed the level of export refunds on dairy exports leaving the EU.

This, they say, has reduced the returns they can pay to their farmer producers, many of whom are shareholders in the processing companies.

For the first time in living memory, farmers have protested at Kerry plc about milk prices and protests are commonplace now at Glanbia, Lakeland and other co-operative meetings.

In terms of policy, the EU, which determines the milk regime, is under extreme pressure to accommodate a

World Trade Agreement in agriculture and the consequence of this drive has been to steadily reduce market supports and direct supports to producers.

Irish farmers are limited in what they can produce because of the EU milk quota system, which allows our remaining 20,000 dairy farmers to produce just over 1.1 billion gallons annually.

Last year and the year before, Ireland's dairy farmers failed to fill the national quota, which is an ominous sign of what may happen in the future.

While there was an important weather factor involved this year - a wet spring and drought in the summer - the rate at which dairy farmers are selling off their stock is alarming.

For instance, in a recent edition of the Irish Farmers Journal there were an unprecedented 16 dairy farms for sale.

Of these, according to Shirley Busteed, who monitors farm sales for the journal, eight farms had milk quotas of more than 100,000 gallons and four of them had quota rights to produce more than 150,000 gallons of milk annually.

"In the past year much more land is being offered for sale and an increasing amount of these farms are in the dairy area," she said.

Recent sales of dairy farms across the State have seen prices of between €8 million and €10 million paid. Many of the purchasers will not produce milk on these lands in the future.

Richard Kennedy, who is chairman of the Irish Farmers' Association's powerful dairy committee, said the large amount of equity in farms has been a contributory factor in some of the bigger operators getting out.

"If the price of a farm was determined by how much the purchaser could get back from farming, no land at all would be sold. It is mainly hobbyists, stud owners and developers who are buying up the farms now," he said.

"I am encouraged by the fact that many of the herds from farms being sold are being purchased by dairy farmers who are expanding their quota.

"It is interesting that most of the dairy farms on offer now are the larger ones," he said.

"I have no concern that the dairy farmers of the future will not be able to fill the national quota. They will but we can presume there will be fewer of them," he said.

"You are not looking at an industry in crisis, you are looking at an industry in transition. That is what I believe," said Mr Kennedy, who is a member of the Irish Dairy Board.

"That is not to say there are not problems facing us. We are getting the same money for our milk as we did 15 or 20 years ago and that is not sustainable," he said.

"If this continues then there will be a crisis because we cannot continue to do what we are doing for little or no return."

Mr Kennedy said another major problem is labour. It is increasingly difficult to find skilled labour for dairy farms and when it is found it is very expensive.

Both he and Jackie Cahill, who is president of the Irish Creamery Milk Suppliers Association, agree that the economics of dairy farming mean that in order to expand above 150 cows, the dairy farmer has to invest in a further 150 cows to fund extra labour costs.

Mr Cahill said that many of the larger farmers exiting the industry were doing so because they wanted to realise the asset value of their farms.

"The big dairy farmers of over 150 cows are selling their farms for anything between €8 million and €10 million and who can blame them if they have had enough of the industry?" said Mr Cahill.

"I am not in despair about the future but a major realignment has to be made at processing and marketing level and, of course, there has to be a major rethink at EU level."

"The future is going to be about value added and as a result we have to try and get the level of manufacturing milk produced down to under 50 per cent of what is being processed. It is currently way over 55 per cent," said Mr Cahill.

Both men expressed concern that the new milk quota exchange system put forward by the Department of Agriculture to free up quota for new entrants at a reasonable price might not work.

"A lot of people will not want to commit themselves to either selling or buying quota and it could get off to a very slow start," said Mr Kennedy.

The primary concern of both the main farm organisations is that the medium-sized dairy farm will survive into the future, and that will mean getting to a position where farmers are receiving more money for their milk.

Next week: Seán MacConnell looks at the processing sector. In part three he will examine the options facing policy makers.