The capacity to expand milk production in Ireland following the removal of milk quotas

Abstract

Given the imminent removal of milk quota in 2015, EU dairy farmers will be able to expand production without purchasing milk quota rights for the first time in 30 years. This paper uses Irish National Farm Survey data to simulate the expansion capacity of Irish dairy farms. Specifically, the likelihood of achieving the 50% increase in production target published in the Irish Government’s Food Harvest 2020 Report is explored. Potential milk output is estimated accounting for structural change and the economic viability of production under three price scenarios for 2020. In addition, the number of new entrants that would be required to meet the 50% target is calculated. The results indicate that the 50% output volume growth target set in the Food Harvest report will be difficult to achieve and that future potential milk output depends importantly on the rate of structural change and productivity growth as well as on real milk prices in 2020. A regional analysis reveals that relative to other regions, the south has the greatest expansion capacity. This suggests that quota removal could cause significant regional restructuring of milk production, which is likely to present some challenges to the dairy processing sector.