Lease, contract rear or buy your way out of banding trouble

A number of changes are coming soon, which are creating significant demand for land rental and, as a secondary option, contract-reading services.

The changes to nitrates regulations will see around 15% of dairy farmers having to significantly reduce stock numbers or acquire additional land to absorb the extra nitrates loading these higher-yielding cows are deemed to be producing.

In some respects, the new rules are a nonsense as the nitrates loading takes no account of the fact that:

  • The deemed nitrates level produced for 2023 will be based on the historical three-year average of the yield of the herd without taking cognizance of the changes in breeding or management or the trending lower yield;
  • The rules distinguish based effectively on liters, or more correctly kilos, supplied without taking into account the fat and protein percentage content;
  • The rules don’t account for the home consumption of milk versus those supplying a higher level and using milk powder for later-stage calf rearing; give
  • The rules discriminate against those farmers who are perhaps the most technically proficient in optimizing yields through breeding and management; give
  • There seems to be a pretty weak correlation, if any, between those farmers who may actually be causing nitrates pollution and the banding class they fit into.

Subhead

The stocking rate on the grazing platform, the soil type and gradient, the type and quantity of fertilizer used and the state of the farmer’s yard and slurry storage capacity, and management practices to prevent leeching are together much more likely to correlate to their own specific environmental impacts.

As such, the nitrates banding is not just a blunt tool, but also not the right one, to fix Ireland’s nitrates issues.

In some respects, the outcome is a fait accompli given that the new rules were submitted to the European Union as Ireland’s proposal for dealing within an extension of the nitrates derogation. As such, Ireland doesn’t really have the capacity to correct itself without a lot of egg on its face.

The reality is that the new rules on banding might only affect some 3-4,000 dairy farmers, and those farmers in themselves are hardly a big enough lobby group to change the course of fate. Yet we can see how a relatively small cohort of determined poultry farmers represented by the IFA’s poultry committee has been punching at a heavyweight level in fighting for the sector.

The ramifications for the land rental market are already being felt: Land rental agreements typically last for years and years and are built on relationships and trust as much if not more than they may be built on the underlying contracts.

Anyone with an understanding of the land market in Ireland will tell you that the amount of “new land” coming to the market for rent each year is minuscule, as conacre agreements and leases are typically rolled over when contracts end.

Throw in the fact that the amount of land tied up in long-term leases has increased by nearly 30% since 2016 (2016 lease in land per BPS returns 532,121 hectares versus 2020 689,437 hectares). This means the quantity of available land to rent at the whim of a badly stuck farmer is getting progressively lower.

This combination of factors is leaving dairy farmers who are caught by the new rules which have only come to light this year facing a choice between a rock and a hard place. Some of the choices up for consideration include:

  • Renting extra ground in order to retain cow numbers;
  • Adjust management skills and cow type to get yourself into the lower nitrates emitting brackets but acknowledging that it’ll be three years before this translates into the capacity to carry the quantity of stock you are used to;
  • Buy your way out of trouble (if financially able) by acquiring extra acres; or
  • Offload all non-critical stock such as heifer calves, and maiden heifers, but surprisingly, hold on to your empty dry cows in order to dilute your milk yield per cow to fit into the appropriate lower band.

Subhead

All of these strategies are going to add significant cost with effectively no gain other than having the capacity to carry on your existing business.

While milk prices are at a record high, the maths seem pretty rosy when considering either contraction of your enterprise or forking out in order to keep the status quo, but the reality is that volatility of weather, prices, and disease can quickly change this.

In planning the route forward, consideration should be given to the plethora of other rules and regulations which we already know are coming down the track and the unknowns.

What we do know is that the regulations are set to get even tighter as we move past 2030 on the assumption that the Government intends to follow through on the ambitions to be carbon neutral by 2050.

The default position should also be considered: What is the likely profit from milking a reduced number of cows and what less infrastructure will need to be put in place if cow numbers contract rather than stay static or expand?

Next week we will look at the contract hearing as a win-win for dairy farmers and beef farmers.

.

Leave a Reply

Your email address will not be published. Required fields are marked *