Dairy farmers say they can no longer absorb a significant spike in the cost of production of milk products, and that consumers will have to accept rising prices for the likes of milk, cheese, and butter.
Irish dairy cows produce over eight billion litres of milk annually, but in the last year wholesale dairy production costs have risen by nearly a fifth, leading to a spike in prices for consumers.
Latest figures from the Central Statistics Office show that between February of this year and the same month in 2024, the average price of two litres of full-fat milk has risen by 26 cent, to €2.44, while a kilo of Irish cheddar cheese is 50 cent more expensive, at €11.14, and the price of a pound of butter, or 454 grams, is up 70 cent to €4.43.
President of the Irish Creamery and Milk Suppliers’ Association Denis Drennan said that “we’ve probably gotten people into a bad habit, because the price of food hasn’t increased in-line with inflation.
“Anybody living in the cities or towns of Ireland, their cost of living has gone up, inflation has increased the price of their gas or oil, fuel for their car, their electricity bills. The same thing has happened on farms.
“My cost of production has increased exponentially in the last number of years and the farmer can no longer sustain those costs. Those costs are going to have to be borne by consumers in the future,” Mr Drennan said.
According to Mr Drennan “very few young people” are entering dairy farming because of uncertainty.
Beyond the challenges of rising costs, he said “environmental pressures” are also a reason why this is happening.
“Whether it be biodiversity, water quality, greenhouse gas emissions, it’s a very uncertain sector as regards what’s coming down the line next.
“We will have to implement certain measures on our farms, we’re willing to do it, but a lot of these come at a cost. Farmers can no longer absorb those costs, it’s going to have to be reflected on supermarket shelves,” he added.
Farmer-owned cooperatives are also feeling the pinch on costs.
They use milk to make a range of cheese, butter, and milk-powder products, with very little of these products sold in Ireland.
18,000 tons of butter go through the butter plant at the Arrabawn-Tipperary co-op in Nenagh every year, with 99% of it destined for the export market.
This means co-ops compete in a global market, which increases demand and therefore the price of Irish dairy while production costs are also higher.
Chief Executive of the Arrabawn-Tipperary Co-operative Conor Ryan said that “traditionally in a business like this your primary concern was around labour costs, but in the last three or four years energy has become by far the biggest issue we have.
“We’re principally using natural gas and electricity for the processes, probably at the moment we’re running double what the normal cost of energy was.
“We have developed a solar farm behind our plant to create solar energy, which will give us 15% to 16% of our energy annually, but we are looking at everything we can to reduce our energy bills,” he added.
Mr Ryan said that outside of energy, labour is another factor driving up costs.
“Wage rates are really increasing in our sector. To get good people you have to pay the going rate and we’re competing with some of the biggest companies in the world in Limerick or above in Dublin,” he said.
The impact of higher production costs is being felt all the way through the supply chain, including by small independent food retailers.
Killruddery farm shop in Bray, Co Wicklow produces much of what it sells on site – insulating itself somewhat from cost spikes – but that is not the case for dairy produce.
Sophia Noone, part of the retail team at the farm shop in Killruddery, said the business is “struggling with things like butter.
“We’re seeing a quite significant increase, so we’ve now had to look at whether we continue to stock it when the margins on it are very, very small.
“Obviously it’s a product that most people expect to see in a farm shop, so we are keen to keep stocking it, but we are now looking at using a range of suppliers,” she added.
Ms Noone said the dairy price jump is “also impacting on products that we stock like cakes that use dairy. Do we now look at those recipes and see can we change those to use less to still keep the affordability there?”
Another factor to consider in the cost of production is supply, and globally for milk, it is falling.
Professor of Agriculture and Food Economics at University College Dublin Michael Wallace said “we operate in globalised markets” for dairy.
“Producers of dairy products in this country have a choice of a variety of markets that they can supply those products to. The domestic market is actually a very small part of the overall demand.
“For Irish dairy products, 90% is exported, so prices are very much driven by global factors and we experience that at a local level,” he added.
Mr Wallace said that supply of dairy is likely to remain suppressed globally for the foreseeable future, largely due to increased environmental regulations that farmers have to abide by.
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