Lakeland and Aurivo are the latest big dairy players here to report a downturn in earnings on the back of falling global prices last year.
Cavan-based Lakeland generated a loss €8 million as weaker market returns combined with a once-off restructuring charge, while Sligo-based Aurivo, producer of the popular Connacht Gold brand, saw it operating profits plummet 72 per cent. The results echoed Dairygold’s results from last week.
The lifting of EU milk quotas in 2015 has been a boon for the industry here, with milk output in the Republic doubling from 5 billion litres to over 10 billion litres. But global dairy markets are a rollercoaster with prices rocketing up and down on back of everything from weather and energy prices to changing consumer tastes and difficult-to-predict demand from China. Being outside the protectionist arm of Brussels comes with a price, a highly volatile price as it turns out.
But it’s not the inherent market volatility that is exercising practitioners here, it’s what Lakeland chief executive Colin Kelly referred to as the “new environmental reality”, shorthand in the industry for lower nitrate (fertiliser) levels being forced on dairy to combat declining water quality.
Ireland is one of three EU member states that has a nitrates derogation (at 220kg organic nitrogen per hectare as opposed to the standard 170kg) to enable some farmers to work with higher nitrate levels. The European Commission cut the limit here from 250kg to 220kg this year in response to a major deterioration in water quality linked to increased dairy production since 2015.
Dairygold and Lakeland bosses both warned that if the 220kg limit goes as part of a EU-wide review process next year (presumably back to 170kg), the impact on output volumes, farmer and processor viability and on the rural economy itself could be calamitous.
Nitrate use is now the key flashpoint between industry and regulators.
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