The economics of Irish milk production

To illustrate this, I use the following anecdote: Two economists, out for a stroll, come across a €500 note on the ground. The older, senior economist says: “This cannot be a €500 note. If it were, somebody would have picked it up by now.” So, they walk on, not recognising the reality in front of them.

This failure of orthodox economics to recognise real economic value – something that is endemic in Irish agriculture – is a constant challenge. It is amplified by unrealistic statistics relating to multinational profits and intercompany transfers, with a deaf ear turned to the €12bn value of agricultural output. The latter figure includes more than €3.3bn paid to farmers for milk deliveries, annually.

Chronic undervaluation

The concern here is that this chronic undervaluing of the true economic impact of Irish dairy and Irish agriculture, in general, leads to poor policy prioritisation, as was seen in 2004 when Ahead of the Curve – Ireland’s Place in the Global Economy was published. In it, agriculture was dismissed as a ‘sunset industry’. This was a historic economic assessment error in relation to the future importance of Irish food production. And it has been further reinforced by an ongoing dismissive public narrative that not only talks down the real economic value of the Irish agriculture sector but proselytises the notion that Irish agriculture is solely supported because of local political considerations and pork-barrel politics.

International importance 

In that context, and in the response to all the current palaver about Ireland-US trade flows, it has been interesting to see the economic fraternity in Ireland, point to the balancing factor represented by the magnitude of Irish company investments in the US, led by ‘Irish dairy giants’ Kerry, Glanbia and Ornua. The long-term challenge, of course, will be to ensure that this US investment reality, alongside the true Irish economic impact reality, informs broad, national economic policy when the hysteria around Trump tariffs dissipates.

The core fact here is that the Irish dairy sector is a huge driver of economic activity across the rural and regional Irish economy supporting over 60,000 jobs, from milk production (18,000 producers plus staff), to milk processing, distribution, export, marketing and research, all of which add many thousands more well-paid, permanent jobs to the economic equation.

Vital statistics

Ireland exports almost 90 per cent of its dairy output to 120 countries across the world. The value of those exports has trebled in line with a 50 per cent increase in milk production since EU quotas were removed in 2015. In financial terms, those statistics represent an increase in output value from €2bn in 2015 to €6bn in 2024. This growth in export values reflects increased global demand for dairy products and, in particular, increased demand for grass based sustainable dairy production. Ireland’s status as the lowest carbon emitting dairy sector in the Northern Hemisphere is recognised across a growing global customer base.

Irish economy multiplier impact

Detailed analysis from the Central Statistics Office, and the Department of Enterprise, Trade and Employment’s Annual Business Survey of Economic Impact (ABSEI) shows that the increase in the value of dairy output has seen Irish economy spend/Irish economy multipliers also increase substantially, with annual dairy-sector expenditure in the Irish economy of €5bn, with a 2.05 multiplier underpinning the equivalent of in excess of €10bn of rural and regional economic impact.

Constraints and competitiveness 

In addition to the challenge of general ignorance/orthodox economic undervaluation, the Irish dairy sector is currently becalmed. This is due to a combination of sectoral carbon emissions concerns and the challenges from the Nitrates Directive. Progress made, to date, under the adoption of Teagasc’s Marginal Abatement Cost Curve and as confirmed in the latest Environmental Protection Agency report, the improvement in water quality and, in particular, reduced nitrates levels in water catchment areas, should mean that compliance is achievable regarding nitrates regulations. This outcome should be further advanced by the additional momentum to be delivered by various technological advances in feed additives and slurry treatment systems, currently being developed for adoption on Irish livestock farms.

However, the Irish dairy sector faces a major competitiveness challenge, namely the huge cost of decarbonisation of dairy processing plants, estimated at more than €1bn, compounded by the reality of constrained production of dairy output under nitrates and emissions compliance requirements. To some extent, through the imposition of milk quotas in 1984, we have been here before. Indeed, a major driver of the foreign investment by Irish dairy organisations in the late 1880s and 1990s in the US was the reality that Irish milk output was constrained by EU quotas and business growth was really only viable through investment outside Ireland. Notwithstanding the trade balance issues highlighted previously, it would not be good for the Irish economy to see this happen again. The optimum economic outcomes for Irish dairy in the coming years would be for increased output and added value to be developed domestically, further increasing the financial returns and employment opportunities of Irish dairy within the Irish economy, with the sector enhancing its existing role as a key driver of Irish exports around the world.

Addressing the competitiveness challenge

The real competitiveness challenge, whereby current constraints on dairy output and the huge cost of decarbonisation could becalm or even reduce Irish dairy’s unique contribution to the Irish economy, will only be properly addressed by a response at Government level that is fully informed as to the true economic value of the Irish dairy/agriculture sector. The stated aspiration in 2025 is to invest in added value (and decarbonisation) with the major growth phase presumed to be largely in the past. In the real world this will need significant Government support, comparable with the levels of support that Germany and other EU countries are providing for automobiles and armaments.