The competitiveness of the Irish dairy industry in the global market: farm to trade
Cele, Lungelo Prince
University College Cork
The removal of the EU milk quota in 2015 has increased the exposure of the Irish dairy industry to international competitors and has raised the question of how competitive is the Irish dairy industry in the global market. The purpose of this thesis was to measure Irish dairy sector –competitiveness by examining the interaction between the farming system and the trading system of processed dairy products in the global market. In the context of the removal of the EU milk quota in 2015, it examined the competitiveness trends and rankings of the Irish dairy sector at the farm and trade levels, relative to selected European Union (EU) Member States. In 2019, Ireland was the third-largest exporter of butter in the world butter market and Irish butter prices were more volatile than other Irish dairy products. Despite the significance of butter in the dairy industry, empirical research that examines the market price dynamics and international competitor behaviour in the butter market has remained scarce. The thesis contributed to the objectives of the Food Wise 2025 and the Food Vision 2030 policies by examining the dynamics between farm milk and butter prices (linking farm and trade levels) to ensure that there is a transfer of benefits from trade to farmers through price transparency. Competitiveness indicators including partial productivity measures and accountancy-based indicators were used for farm competitiveness, and net export market share and normalised revealed comparative advantage were used for export competitiveness. A stochastic meta-frontier approach was adopted for comparing Irish regional farm technical efficiencies (proxy for farm competitiveness). The vector error correction model was applied to test the extent to which changes in competitor prices and farm milk prices had an impact on Irish butter prices. It was also used to measure the competitiveness integration relationship between global butter competitors. Amongst the countries examined, Ireland had the highest growth in partial productivity indicators and was ranked first with the lowest total costs and cash costs per kg of milk solids post-quota amongst the main European competitor countries examined. The potential challenge for Irish dairy farmers is how to lessen the relatively high land and labour costs to come in line with the main European competitor countries, which can limit farm competitiveness in the long-run. Based on the Irish regional farm technical efficiencies, the findings suggested that policies aiming to promote labor use and soil quality improvement in the East region would be useful for improving efficiency in that region post-quota. The findings also suggested that policies that related to discussion groups and management of herd size in the South region would also be useful for improving efficiency in that region post-quota. Some farms expanded beyond their optimal scale leading to a reduction in efficiency levels, especially in a region like the South West. That pointed to the need to tailor farm advice and promote caution in relation to farm expansion decisions. The regional growth patterns and insights may be used for adapting the national policy frameworks to regions in policy dialogues, i.e. to achieve the Food Vision 2030 with ambitious targets set for expansion. While Irish dairy products, such as butter and powders, have demonstrated growth potential in competitiveness post-quota, other products, i.e. cheese and liquid milk have declined. Despite the growing competition in the global butter market, Ireland became the second most competitive country in the world and was advancing rapidly at the time of analysis. Irish butter was the only Irish dairy product that had maintained a comparative advantage. Irish butter prices were more responsive to shocks in New Zealand butter prices and Irish farm milk prices in the long-run with positive bidirectional causality effects. Based on the findings, Irish dairy farmers and processors were more susceptible to pricing decisions made by international butter processors. Irish butter exports were found to be less susceptible to competitiveness changes in Belgian butter exports and more sensitive to competitiveness changes in NZ butter exports. Consequently, the key players in the Irish dairy industry can now better position themselves in the global dairy market, recognising the competitiveness dynamics of the different dairy products and their competitors. The thesis policy recommendations and areas for future research were presented in the conclusion section.
Accountancy-based indicators , Partial productivity , Stochastic meta-frontier , Country/competitiveness rankings , Normalised revealed competitive advantage , Price transmission , Vector error correction model , Farm and export competitiveness assessment , Irish butter competitiveness
Cele, L. P. 2023. The competitiveness of the Irish dairy industry in the global market: farm to trade. PhD Thesis, University College Cork.