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Milk prices could fall by 10%-20% due to Covid-19

A new report commissioned by Dairy Industry Ireland (DII) has revealed that Irish dairy farmers may face significant milk price reductions in the future.

The findings are expected to have a devastating impact on the rural economy and farm profitability.

COVID-19 impact

The report, titled ‘The Potential Impact of COVID-19 on the Irish Dairy Industry’, was commissioned by DII and conducted by business advisory firm, Ernst and Young (EY).

One of the key findings in this report was the need for market supports in both the short and medium-term. The report has been submitted to the Government and the EU Commission for their consideration.

Some report findings include; 

  • The dairy sector is one of the largest indigenous contributors to the Irish economy, and was anticipated, pre-Covid-19, to be worth €11.3bn in 2020;
  • Output from the industry could fall by as much as €2.3bn in value as a result of falling demand and potential losses in processing capacity due to Covid-19;
  • A 10% to 20% fall in milk price due to a fall in demand and market pressures would result in a reduction in annual payments to farmers of up to €840mn;
  • Additional working capital of up to €550mn could be required by the industry to cater for increased stockholding and other requirements;
  • The overall economic impact of a 20% fall in revenue would be a €2.3bn output reduction and a loss of more than 10,700 full-time equivalent jobs. 

‘An engine of the rural and national economy’

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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.”

DII report that the impact of COVID-19 on the international dairy markets has been dramatic, as an oversupply of milk has been created due to closures in the foodservice industry and other possible destinations.

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

Global markets

The EY report found that Irish dairy is extremely vulnerable to the global markets worst affected by COVID-19. With 92% of dairy products exported, the report found 76% of those exports are destined for countries in the top 15 most impacted economies by the virus.

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

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