Report: Derogation decision will ‘directly impact milk production' in Ireland
Milk production in the European Union (EU) is 'increasingly shaped by regulatory decision', especially the Water Quality Directive, according to a new Rabobank research report published today (Wednesday, June 11).
The report highlights that in 2027 the European Commission will review the 'effectiveness of existing environmental measures' to determine if if additional action is needed to improve surface water and groundwater nitrate levels.
'To date progress has been limited making it likely that stricter policies will be introduced,' the latest Rabobank report warns.
It details that previous measures included abolishing or reducing the nitrate derogation in Ireland, Denmark, Flanders and the Netherlands.
'If targets remain unmet, the livestock sector, especially dairy, could face tighter restrictions in the coming years, 'Raboback has forecast.
Milk production
The bank's latest research shows that in quarter one of this year EU milk production declined – despite the fact that dairy farmers saw 'strong profit margins'.
According to Rabobank this decrease was chiefly driven by fewer dairy cows in northwestern Europe and a 'particularly strong start to 2024' which set a high benchmark for comparison with this year.
But the report also outlines that some countries out-performed last year's figures and one of these was Ireland which exceeded its previous year's output by 5.2%.
Although Rabobank also clarifies that this gain 'was against a low 2024 comparable of-7.7%'.
Poland and the UK also outperformed their last year's figures while Sweden and Denmark also saw slight milk production increases.
But overall there was a shortfall in EU milk production in quarter one.
Animal diseases
According to Rabobank leaving aside economic and environmental factors the biggest concern for the EU dairy industry currently is in relation to animal diseases.
Recent foot and mouth (FMD) disease outbreaks in Germany, Slovakia, Hungary and Austria severely disrupted these countries' milk production and exports.
Separately the Bluetongue virus last summer 'significantly impacted' EU milk supply.
According to Rabobank if the disease returns it could further restrict output across key dairy producing regions.
Although there are challenges facing EU dairy farmers, one key trend detailed in the report is that demand for dairy products remains strong across Europe.
Nitrates derogation
However, Rabobank has also cautioned that there are two major policy decisions on the horizon which could significantly impact the short-term outlook for the EU's dairy market – tariffs and Ireland's nitrates derogation status.
Latest export figures show that there was 'elevated trade' to the US ahead of the potential new tariffs and any new tariffs could, according to Rabobank, significantly impact the EU dairy market.
The United States is the largest export destination for EU cheese but butter prices could see a 'less severe impact' the report also details.
According to Rabobank the status of Ireland's request to the European Commission to retain the nitrates derogation will 'directly impact milk production in the southern part of the country which is home to 60% of the dairy herd'.
'If rejected dairy farmers could be forced to reduce their herds by up to 18% equivalent to 1.6bn kg of milk.
'The EU is expected to decide before the end of 2025,' the report outlined.
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