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The announcement of a second €500 million support package in under a year by the European Commission is both welcome and necessary. The prolonged slump in global dairy markets has resulted in growing cash flow difficulties at farm level. However, the lack of a strategic and long term approach to volatility needs to be addressed at EU and National Level as a matter of urgency.

Temporary measures such as the supply reduction scheme, as announced by the European Commission can only be a stop gap solution, at best.

The answer to volatility, which ultimately must mean, an environment that provides a dairy farmer with a stable income to raise his family can only be solved by the adoption of long term policy measures.

Past experience has shown that dairy markets will recover and ultimately dairy farming remains a viable sector with a strong future in Ireland. However, experience has also thought us that once markets recover, attention and focus on protecting farmers against volatility can fade from the priority list at EU and National level. This cannot be allowed to happen again, as the scope of volatility has worsened in recent years. Prior to 2006, the extremes of volatility stood at plus/minus 10cpl. A decade later, the extremes of volatility is now plus/minus 24cpl.

The Minister of Agriculture has a real opportunity in the context of the forthcoming budget to introduce an innovative taxation measure based on the ICOS “555” proposal.  The fundamental advantage that the ICOS proposal offers is income stability, and our proposal can operate alongside the current tax averaging system, which also needs to be improved to deal with years when cash flow is impaired.

Fixed price schemes have been developed over recent years, and are being more widely offered. All parties should continue to encourage farmers to consider them seriously and use them to de-risk their positions.

In cases where processors are not in a position to physically lock in a back to back contract for a portion of their production, tools should be available to allow them to enter into a financial hedge. However, the current European futures market lacks liquidity, and because the Eurex index isn’t based on prices achieved for Irish product, it doesn’t provide complete risk cover here. All parties need to work to establish a fully liquid, functioning European futures market, reflective of the nature of the Irish dairy industry.

Finally, the cost of credit available to farmers remains significantly above the EU average. ICOS welcomes recent announcements by Glanbia and Dairygold to assist their suppliers in this area. However, the slow progress by Government in terms of drawing down EIB funding as proposed by Commissioner Hogan is extremely disappointing.

There is no silver bullet available to deal with volatility. Fundamentally, a suite of measures are needed to insulate dairy farmers from volatility and to maintain the sole trader, family farm model which characterises the Irish dairy sector.

By Eamonn Farrell

Agri-Food Policy Executive

Tags: 555, Commission, Dairy, Volatility