Irish dairy farmers may face significant milk price reductions of between 10% and 20%, unless “vital” EU market measures are implemented, a major new report has revealed.

The report warns that this scenario would have devastating impacts on farmer profitability and the wider rural economy.

The report, ‘The Potential Impact of Covid-19 on the Irish Dairy Industry’ was commissioned by Dairy Industry Ireland (DII) and conducted by business advisory firm EY, has been submitted to government and the European Commission for their consideration.

Key report findings

Of the key findings the detailed report finds that, as a matter of urgency, measures to support the dairy market in the short and medium term are needed to protect farming, dairy processing and the overall rural economy.

Currently the sector supports approximately 46,000 people in direct and indirect employment across Ireland.

The spread of Covid-19 has had a dramatic impact on international dairy markets, the report notes.

In particular, the food-service sector has been adversely affected with restaurants, airlines and hotels shut across Europe.

Milk destined for food-service customers is now switching into other production areas such as powders and butter.

This has created a significant oversupply with a severely reduced market demand which, in turn, has depressed the price paid to farmers, the document says.

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.”

Irish dairy ‘engine’

Continuing, the director acknowledged: “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 and 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.”

The report also recommended that the Government / EU could help limit the exposures of the companies by underwriting extensions to existing export credit insurance. This is now allowed under EU competition law.

Significant exposure

Irish dairy processors export 92% of all products produced with the EY report finding that Irish dairy has a significant exposure to global markets worst affected by Covid-19.

Separately, the report highlights the need for an additional €550 million in working capital to assist processors deal with increases in stock and associated storage costs as a result of less product being exported.