Mr. Bernard Condon:

The reduction in energy costs is quite a complex question because it has three different impacts. The first is that it reduces the cost of production so it reduces the cost of producing milk for the farmer. It is a major input into what we call "the three F's" - feed, fertiliser and fuel. The negative element associated with that is the fact that it has much more of an impact in production systems with a high variable cost base. For example, a US factory farmer will benefit far more from a low fuel price than an Irish farmer who is producing off grass.

The second impact is on demand in developing countries. If one looks at some of these big dairy importing countries such as Venezuela, Algeria or indeed Russia, one can see that they are very heavily dependent on oil dollars. Generally speaking, a low oil price is demand-negative in developing markets. However, in developed markets where a lot of energy is imported, a low oil price generally gives a boost to domestic demand and is demand-positive. When one graphs energy prices and dairy prices, they are very closely positively correlated so in general, lower energy prices lead to lower dairy prices.