Examining the Relative Competitiveness of Milk Production: An Irish Case Study (1996 – 2004)

This paper examines the competitiveness of Irish milk production compared to that of other EU and non-EU countries. The analysis was based on two main data sources – the Farm Accountancy Data Network (FADN) for years 1996-2003 and the International Farm Comparisons Network (IFCN) for 2004. Results showed that the Irish competitive position for milk production compared to other EU and non-EU countries was very positive when total cash costs were considered indicating a positive outlook for Irish milk production in the short to medium term. However, as the opportunity costs of owned resources are not included in ‘cash cost’ calculations, total economic costs which include imputed charges for owned resources were considered to examine the longer term outlook for the competitiveness of the sector. Using this measure, the competitive ranking for the Irish dairy sector slipped relative to the other countries. It was found that the main reason for the relatively high economic costs on Irish dairy farms was due to the high imputed land and labour costs. These findings could be considered as a warning signal for the future competitive performance for the average sized Irish dairy farm. However, based on FADN data the competitive position of ‘larger’ Irish dairy farms (in the 50-99 dairy cow size category) did manage to maintain their competitive position within Europe even when total economic costs were considered. Hence, it could be concluded that part of the explanation of the deterioration of competitive ranking for the average Irish dairy farm when total economic costs are considered relates to the relatively low scale of primary agricultural activity in Ireland. This result is indicative of the small scale farming that is predominant in the Irish dairy industry relative to competing industries. But, it could be concluded that as Irish dairy farming transforms to larger scale production, the competitive position will be strengthened and better able to cope with a cost/price squeeze, given current projections for a decline in farm milk prices.