Driving demand
Appraising recent milk price increases, David explained that some of the impetus is driven by scarcity, with a big reduction, for instance, in Irish supplies in the early months of 2024. He continued: “International dairy market prices have also improved off a low base. It's encouraging to see the co-ops making price-increase announcements early in the production season. It’s important to have prices up before peak production. What's driving it is that global supply is back. There was a very weak end to 2023 and this year hasn't started strongly in terms of global milk production either. Essentially, there’s not as much milk or stockpiles around and buyers are replenishing stocks. That drives prices a little bit up, so it's certainly encouraging.”
Price volatility
But the huge milk-price volatility since 2021 is certainly not a good way to run a business, he said: “It doesn't suit anyone. Even the high prices of 2022 don't work long term, because when you've got very high prices, you pay for it eventually and we did because the resultant high prices on shelves across the world meant that consumers left the dairy categories. You saw people trading out of butter into margarines or trading out of branded cheese into private label cheese or people not eating out because they couldn't afford to buy the pizza. What we really want to see in global markets is solid, robust demand, that delivers prices with a margin for everyone including producers and processors, and a price that consumers can afford. We're getting back to a more solid position in terms of that affordability piece, which is critical for the industry.
“Globally, there are five big dairy exporters, with specific dynamics working in each of them. When prices are particularly high in New Zealand or Europe, it takes time to increase output because of our production systems. The US is a bit of an outlier. When there's a margin for milk producers, they can turn on the milk supply very quickly by feeding plenty of low-priced grain. Right now, however, the US herd is back significantly in numbers. Compared to January 2023, the American cow herd was back by 79,000 head this January. What we're going to start seeing in the States is a slow ramp up of supply, but it'll take a little bit longer than usual because the cows aren't there. The latest market reports suggest flat supply globally in the first half of the year, with a ramp-up in the second half coming off the back of rising US production and a little bit of an upside in Australia and New Zealand as their season starts.”
Weather woes
Adverse weather conditions have reduced Irish milk output this spring. The Bord Bia head of dairy looks at the implications: “The majority of our processors will have a certain amount of their output locked into contracts and a certain amount available for spot trading. What will probably be the impact is that contracts will get prioritised leaving less wriggle room to take advantage of higher priced spot-trading opportunities. We have had poor weather from last summer and autumn. Hopefully, better weather through the spring and summer months will drive grass growth which would help us catch up in output," he said.
Differentiating milk products
“The beauty of a brand like Kerrygold, for instance, is the taste, texture and colour that differentiates it. It is a premium product and a great ambassador for Irish dairy. We know that only 10 per cent of global milk supply comes from grass. Bord Bia has been highlighting Irish grass-fed dairy in general and providing solid proof points around what grass-fed dairy means. These are facts backed up by our Sustainable Dairy Assurance Scheme. That provides a bulletproof vest to protect and validate our dairy provenance.”
Environmental drivers
The strongest driver of environmental standards demands is the global customer buying product from all over the world. Bord Bia tracks this demand, explained David: “There are three aspects to this. There's the consumer and the business customer and there is the government commitment to achieving EU standards.
What we really want to see in global markets is solid, robust demand, that delivers prices with a margin for everyone
“From speaking to international buyers, 72 per cent said that sustainability is a critical part of their buying decision. A recent Rabobank survey showed that the top 20 dairy companies globally have made commitments that exceed national targets. The French company Lactalis, the biggest dairy company in the world, has committed to carbon reduction of 25 per cent by 2025 and 50 per cent by 2030. Dairy Farmers of America has a 30 per cent reduction target to be achieved by 2030, with Nestlé targeting a 50 per cent reduction by then. Danone wants a 47 per cent decrease by the end of the decade. These companies buy dairy from the four corners of the world, and they can't meet their reduction targets unless they deal with the most sustainable producers.
David added: “We believe Ireland is at the top of the queue. Our infrastructure, in terms of farm audits, the sustainability work being done by our producers and processors, by the Department of Agriculture, Food and the Marine, Teagasc, the Irish Cattle Breeding Federation (ICBF) and ourselves, provides the proof the dairy buyers require. It's unparalleled. It's not matched anywhere else. We can give them proof points that nobody else can provide. Our Sustainable Dairy Assurance Scheme is in place for the last 10 years. It's challenging for producers and processors, and nobody likes seeing the auditor at the gate. But we're hoping to see the tide turning so that Ireland starts to command a premium from the market for our ingredients, because we're helping those global companies meet the commitments that they have made publicly.”
Nitrates impact
Reflecting on the nitrates reductions, David said he fully empathises with impacted farmers. “There has been serious financial investment on farms to drive output and people have long-term loans based on expectations of having a certain herd size,” he says. “I must emphasise that we do, as a country, need to work on improving our water systems. It's not Bord Bia's position to dictate stocking rates or herd sizes or what Europe will do. It's our job to find the best markets for whatever we produce. The work that Teagasc, the co-ops and ourselves have been doing to try and improve water management and fertiliser management should deliver positive outcomes.”
Summary
“We recognise that 2023 was a very tough year for margins on Irish dairy farms and we're working hard to drive demand for Irish dairy across the world. We do that by promoting our sustainability credentials and by highlighting our grass-fed production model. We have buyers coming in from Japan, China, Southeast Asia, the US and Germany this year. We will promote Irish dairy at international trade shows across the globe. We're doing our best to drive things on, and I hope that 2024 turns out to be a more positive year for our Irish dairy farmers because they're doing a brilliant job and deserve to be rewarded for it.”