Who would have believed just 520 days after the removal of milk quotas the EU would introduce a scheme to pay dairy farmers to reduce their milk supply? Farmers have until Thursday, September 15 to decide if they wish to enter the new scheme.
Over 90pc of Irish dairy farmers have spring calving herds that will be drying off in the coming months. The big question is, is it worth drying cows off early and applying for the 14.4c/l?
To qualify for payment in this tranche of the scheme one must sell less milk in the three months from October to December 2016 compared with the same reference period in 2015. However, payment is only available for reducing 2015’s milk production by up to 50pc – nothing more.
I’ve done the sums on a 100 cow compact calving spring dairy herd, selling 500,000 litres of milk annually or 5,000 litres per cow. This herd would sell approximately 70,000 litres from October to December.
The EU scheme will only compensate 35,000 litres (half of the milk produced in the period). The following are the main options for the dairy farmer to consider:
(1) Milk the 100 cows and ignore the scheme.
(2) Milk 100 cows for October and part of November until 50pc is supplied, then dry off.
(3) Dry 50 cows now and milk the other 50 for their full lactation.
(4) Dry everything off on October 1.
The sums are calculated as a partial budget in the table by comparing extra net profit or cash entering the dairy farmers bank account from each of the four options.
Option 1, to ignore the scheme and milk on the 100 cows, has the best net profit of €12,448 entering the farmer’s bank account. However, it is only €854 better than availing of the EU Scheme in option 2 and 1,184 better than option 3 where only 50pc of 2015’s October, Noveber and December milk supply is sold.
In option 4 where the dairy farmer dries off all the cows on October 1 and takes a holiday, there is a significant €7,408 fall in net profit.
It is important to highlight this example assumes the dairy farmer milked 100 cows in 2015 and is still milking 100 cows in 2016. If the dairy farmer increased to 120 cows in 2016 I calculate he would be better off by over €3,000 by not entering the scheme. Therefore, in general the EU Scheme is not suitable for expanding dairy farmers. So, back to the stable 100 cow dairy farmer in the example: should he dry off or not in early November?
The return for his labour is small to say the least. This is all calculated at a net milk price of 28c/l (1c/l less in option 2 for drying off in October due to lower milk solids than in November and December).
The loss on entering the scheme would be greater with a higher milk price, since every cent is worth an additional €350 to the bottom line in the period.
These figures assume there is no labour saving. In reality larger farmers will not let staff go. Even owner-operators will not realise cash by drying off early since they will just have more time on their hands and are unlikely to earn cash off-farm.
The example assumes 2kg of concentrate is fed per head per day. Feeding less would also leave the farmer better off by not entering the scheme. The biggest negative of the scheme in my opinion is the proposal to make payments next March or April. It usually takes the Department of Agriculture more time than planned to get new schemes up and running. Dairy farmers who do not enter the scheme will have a milk cheque in December and January, and a bird in the hand is worth two in the bush.
Of course there will always be exceptions to the rule where the scheme may suit some dairy farmers: farmers who are exiting production; switching from autumn to spring calving; restricted by disease or SCC. These farmers may enter the scheme for a one-off bonus payment.
This scheme was lobbied for by the low margin dairy farmers from northern Europe who are hurting a lot more than their Irish counterparts in the current low milk price environment.
So despite every euro being like gold dust to dairy farmers this EU scheme makes little sense for most Irish dairy farmers – it is only a distraction to well thought-out expansion plans.
However, do contact the office today to check your eligibility for the scheme. The application forms are available on the Department of Agriculture website