Dr. Tom O'Dwyer:

The first of the dairy questions asked by Deputy Éamon Ó Cuív was related to the size of farms and efficiency. Let us take the same rankings as on the chart - the top 10% and the bottom 10%. The average herd size was 101 dairy cows. Those in the top 10% in terms of efficiency had 103 cows, while those in the bottom 10% tended to have a smaller herd size of 81 cows. These figures suggest that those in the more efficient cohort do not have herd sizes any bigger than the overall average, while those who are less efficient tend to have a slightly smaller herd size.

In response to the Deputy's question on gearing, the figures I have with me are for interest payments and depreciation. If one takes the level of interest as being reflective of the level of borrowing and the level of depreciation as being reflective of the level of on-farm investment, the average interest figure is 0.7 cent per litre. The figure for those in the top 10% is 0.4 cent, while the figure for those in the bottom 10% is 1.1 cent. The farmers in the highest cost category, namely, those in the bottom 10%, tend to have higher interest costs, which suggests they have higher borrowings. They also tend to have higher depreciation costs, which suggests they have higher on-farm investments. Perhaps this is the reason they are in the higher cost category.

Without looking at the figures, we know from dealing with farmers that the cycle on farms tends to be rather clunky. One can have a large on-farm investment of perhaps €200,000 and then very little of a sizeable nature in the next ten to 15 years. In that period the costs of production will be diluted as cow numbers and production are ramped up and the farmer literally sweats the assets. Those in the lower cost category tend to have lower borrowings and lower depreciation costs.

I do not have any information in response to the Deputy’s question on younger versus older farmers. In terms of cost efficiency and the output of new entrants, it is a recognised fact that new or start-up dairy farms on greenfield sites are less efficient in the initial two to three years, or even four years, of production. This is the case for a number of reasons. One has a younger herd. One could have all heifers in the herd and they produce less than a mature herd. One could have brought together animals from different sources which could give rise to animal health issues. Another issue is the management experience of the farmer concerned; experience is built over a number of years.

To counterbalance this, what we are finding in engaging with some of the newer entrants and through research conducted by colleagues is that new entrant dairy farmers bring no baggage to the table. They are like a blank canvas. They come to Teagasc or talk to other consultants to get the best advice available. They talk to our advisers and researchers to get the latest research and best advice available and implement it. It is like teaching an old dog new tricks. Many of the new entrants want to learn and do it right. They avail of the latest technologies in breeding, grassland management and cost control. In time they will be very efficient, but the initial two to three years can be very daunting and challenging.

In response to the question on treadmill farming, as the director mentioned on the summary slide, we absolutely recommend "better before bigger" and "skill before scale". Despite what might be said to the contrary, we are not promoting having more cows at all costs.

A large cohort of farmers have no place thinking about increased cow numbers. They can produce more milk from existing resources, in other words, the same number of cows and the same level of investment by being more efficient. This is a message that is hard to sell at times, but that is our position.

The director commented on having simpler accounts. I will add that every farmer must complete financial accounts for taxation purposes. In our toolbox of financial supports for dairy and other farms we have a very simple one-page manually completed work sheet for the analysis of farm accounts, with as simple a measure as the percentage contribution of premia to net profit. In addition, there is a profit per hectare measure and a calculation of cashflow. We encourage our advisers to use this in a situation where a profit monitor is not being completed.

To move on to the questions asked Deputy Thomas Pringle, I have addressed the question on the top and bottom 10%. On whether smaller farmers will be squeezed out owing to rationalisation, we will see a reduction in dairy farmer numbers, from the current level of 18,000 to approximately 16,000 in the next five years or so. Interestingly, the number exiting dairying has been matched by the number of new entrants in recent years, with the result that the overall number of dairy farmers each year has, on average, largely remained unchanged in the past three to four years. What might happen is that we might redefine what a smaller farmer is. He or she may be someone with 30 to 40 cows, whereas in the past he or she had ten to 20 cows. That is one thing I could see happen because average herd size is going to increase, from approximately 65 to approximately 85 cows.

The other thing that will happen is that smaller farmers will not be able to generate an adequate income from dairy farming alone. Therefore, they may have to look at supplementing their income to a greater extent through off-farm employment. They can still remain dairy farmers, something we should not forget.

I am not clear on the Deputy’s question on the figure of 27.4 cent a litre. Perhaps he might provide clarification for me. His question on grass rich versus grass-poor dairying ties in with the questions on New Zealand asked by Deputy Pat Deering on whether we are referencing New Zealand in informing and advising. The research conducted by a colleague on grass-rich versus grass-poor systems was certainly informed by experience in New Zealand. What has happened there in the past five to seven years is that there has been a loss of focus; certainly there has been a drift from a situation where farmers were very much focused on grass-rich systems towards grass-poor systems. An increasing percentage of dairy farmers are now involved in grass-rich milk productions systems. When we engaged in that piece of analysis in Ireland, we were able to show that there was a greater likelihood that farmers who were following a grass-rich milk production system with a greater reliance on grass for a greater proportion of a cow’s diet would have a margin of €2,000 per hectare or more. There is absolutely more scope for increasing the amount of grass in a cow’s diet. One starts by growing more grass and the key to increased growth is improved soil fertility. Approximately 12% of soils farmed by dairy farmers is at optimum soil fertility levels. That will present a real challenge for the advisory service, advisers and farmers in the coming years.

I will move on to questions asked by Deputy Pat Deering on the spread of additional revenue in the local economy. To add to what the director said, that money is spent on additional services to support dairy farmers.

There are contractors, input suppliers, AI services, accountants and all the support services that are needed to service a functioning dairy farm. Obviously there will be increased employment, both on-farm and off-farm, as milk production increases. On-farm there will be additional milkers, additional farm managers and so on, and off-farm there will be the likes of farm relief services, milk transport, and other examples such as that.

On how we go about educating farmers about the perils of dairy expansion, one could say it is interwoven through all our advisory activities, starting from our media and open days, which are aimed at the large mass audience, down to our group activities - as the director said, we have approximately 6,000 dairy farmers in our dairy discussion groups - and then down to one-to-one activities with farmers such as planning and cost analysis.