What will the next 10 years bring for the dairy sector?

The Irish dairy sector has changed enormously since quotas were lifted 10 years ago. Many of the changes were expected and indeed planned for, such as the increase in milk supply and the surge of new entrants to dairying.

What has been somewhat unexpected is that the threat of stricter environmental compliance has become a reality. The European Green Deal, the Irish Government’s Climate Action Plan and the cuts to the nitrates derogation have been body blows to the dairy sector.

In 2025, it feels like the sector is standing on a precipice as it awaits the outcome of the next nitrates derogation review. One wrong decision and the industry will falter.

The right decision will mean the sector can continue on its sustainability journey, which, as the latest water quality stats from the Environmental Protection Agency (EPA) show, is on the right path. Let’s presume the right decision is made.

Milk supply

There was 8.43bn litres of milk produced in 2024, down from the peak of just over 8.8bn litres produced in 2022. Are we now past peak milk?

Dairying remains the most profitable farming sector in Ireland and that is set to continue. Renewables such as solar and anaerobic digestion will compete with dairy for land, up to a point.

At the end of the day, people will have to decide if they want their farming assets to be used for food production and to create local employment or to support off-shore hedge funds and multinational energy companies.

Money talks, and if you’re a young person looking to make a good living while being a full-time farmer, dairying offers the best opportunity to do that. I remember driving through Kildare and Roscommon after quotas went and looking at all the great land growing crops and rearing cattle and sheep and wondering to myself if in 10 years’ time there would be dairy cows grazing there instead.

That hasn’t happened to any great extent, for a variety of reasons. Negative Government policy towards dairying and missteps by some processors around supply constraints all contributed to a slow-down in dairy conversions since 2020.

Another big reason for this has been high construction costs since the COVID-19 pandemic and Ukraine war. When building costs do eventually normalise, I think the economics of dairying will entice a new wave of new entrants.

There is no getting away from the fact that dairy farmer numbers are going to reduce. I can see smaller scale dairy farms being subsumed by their larger neighbours upon retirement, particularly where there is no farming successor.

A lot of young farmers coming back to farm now are highly educated with degrees in agriculture and other disciplines and have life experience

This won’t necessarily mean a change in cow numbers, but it might make remaining dairy farms more sustainable in terms of scale and stocking rate.

Based on an increase in new entrants, expansion of existing farmers and improved technical performance Ireland should expect to produce somewhere between 8.5bn and 9bn litres of milk in 2035.

Dairy co-ops

For the first time since the 1980s, almost all of Ireland’s milk is now processed by farmer owned co-ops, with Strathroy the only exception. Based on terrain and farm size, a rebalancing of the milk pool is likely over the next decade, with supply shifting from the southwest to larger land blocks in the midlands.

With their recent investments, Dairygold and Arrabawn Tipperary are exposed with excess capacity and a potentially shrinking milk pool.

A recent survey of Dairygold suppliers found that cow numbers are expected to fall by 5% over the next six years and while milk yield per cow is expected to increase, the co-op will still be running at approximately 9% under-utilisation of capacity.

Meanwhile, Kerry Dairy Ireland’s Listowel plant has been under the spotlight as debate raged over the level of investment required in the facility to keep it functional into the future.

With excess capacity in Mallow, Mitchelstown and Tipperary Town, it would make sense that the three co-ops will, over the next decade work closer together on the processing side.

Whether this will be in the form of a full merger, or a processing and marketing agreement like the Carbery model remains to be seen.

As has happened for the last 100 years, smaller co-ops are going to have to merge to form larger businesses if they are to remain competitive. With the departure of Lacpatrick and Tipperary over the last decade, the spotlight will be on Boherbue and North Cork Creameries.

The mantra from all co-ops is about adding value, but that’s a much bigger challenge for smaller players.

People

For some farmers that expanded post quota abolition, finding and then managing people became an unexpectedly large challenge. My sense is that the situation has improved over the last few years.

The increased availability of non-EU migrants with skills, has been a positive addition to the sector. Experience has taught farmers new people management skills and this will stand to them over the next decade. If there is one thing, we will probably need to see more of on Irish dairy farms over the next decade is dedicated, high-quality employee accommodation. This is likely to be a good long-term investment.

The labour challenges are often greater on smaller farms, where there is insufficient scale for two people to work, whether that be husband and wife, parent and child or farmer and employee. I think we are going to see an increase in automation, particularly in robotics for milking. The technology is improving the whole time and while the costs remain high, it is something that is likely to grow in popularity over the next decade.

The increasing ‘professionalisation’ of farming can only be a good thing for the sector. A lot of young farmers coming back to farm now are highly educated with degrees in agriculture and other disciplines and have life experience. Younger people are tuned in, work smart and adaptive to challenges.

Bright future ahead for the dairy sector

Is the sector in a better place now than it was at the end of March 2015? I will argue that there was a lot more uncertainty then than there is now, leaving aside the derogation issue.

Back in 2015 the sector needed to find the processing capacity and it needed to find the market to take the milk. Expanding farmers needed to find the capital to invest in stock, land and facilities. There was no certainty that milk price was going to hold up. Base milk price in April 2015, the first month without quotas was about 28c/l excluding VAT.

By the same token there is no certainty that the current milk price of 50c/l excluding VAT is going to last, but the long-term prospects are good.

Global supply growth has slowed and all the indicators are that milk production in western Europe is retreating. Rabobank is predicting a 6.7% decline in European milk production over the next decade. New Zealand is at full capacity. Chinese growth in milk supply has stopped.

Yet, global demand for food is increasing and dairy, particularly grass-fed dairy is an excellent source of high-quality fat and protein. In my view there has been too much negativity when in reality is the outlook has never been so good. Bring on the next decade

of quota-free farming.