Nitrates derogation cut

Speaking at the Agricultural Science Association (ASA) conference last week, Tirlán CEO Jim Bergin said that 30% of the co-op’s suppliers are operating between the 250kg of nitrogen per hectare (N/ha) and 220kg N/ha level.

He warned that the change to the derogation is the most complex transition farmers have – possibly ever – been faced with.

Taking a step back to look at the data for the country as a whole, a couple of things become clear.

As outlined above, there has been a drop in milk supply this year to the end of July of just under 1%, according to CSO data.

Secondly, as can be seen in Figure 1, average production per cow was actually higher in 2021 than in 2022.

If derogation leads to a reduction in herd size, and cows in the herd are less productive, then there will obviously follow a drop in overall production.

There are two obvious fallouts from this – processors will have less milk in the coming years, and a smaller milk pool will lead to winners and losers among that group.

Analysis for 2023

So far this year, Irish Farmers Journal analysis has shown that only Arrabawn and Aurivo – both approximately 500 million litre operations – have increased milk intake, with both gaining about 1% for the year to date.

Tirlán and Carbery are basically in line with their 2022 levels, while Lakeland, Dairygold and Kerry are all showing losses, with Kerry particularly hard hit with supplies down a huge 5% this year to date.

It is difficult to say how much of the drop in supply to Kerry is due to anger among farmers, but it seems it certainly could be a factor.

There have been several protests over the summer, with suppliers particularly unhappy about the prices the Plc is paying compared to the co-op sector in Ireland.

The Kerry drop

With the next biggest loser in supply compared to 2022 being Lakeland, at minus 1.6%, there has to be a unique set of circumstances driving the Kerry drop.

Interestingly, the Kerry drop may be shielding some of the other suppliers from the worst of the fallout from the slip in overall milk production so far this year. Kerry suppliers who are under contract have a couple of years yet to run on their “leading milk price” agreements.

Interestingly, the current agreements run out around the same time as the next nitrates derogation deadline, which comes around in 2026.

If Kerry has not sorted out its issues with suppliers by then, it may find itself struggling to get another long-term agreement in place.

If the derogation is lost and Ireland’s dairy sector becomes maxed out at 170 kg N/ha, then Kerry may find themselves in particularly big trouble.

With so much processor capacity already in the country, every co-operative will have to work hard to maintain supplies while continuing to be economically viable in the face of what will be a rapidly shrinking milk pool.

That viability will only be achieved with the cooperation of farm suppliers, and for that, the processors will need the goodwill of those farmers.

Obviously, a complete end to the derogation would lead to seismic shifts in the farming landscape from which there would be no winners, either among farmers or producers. However, it is clear that under those circumstances, there will be competition among processors to get whatever supply is available.

Those processors that have done the best job of communicating and working with their farm suppliers will have the advantage in any such competition.