Where are the profits supposed to come from now?
New stocking restrictions are pushing dairy farmers into a tight corner with high costs on one side and potentially reduced output on the other.
The last Teagasc Outlook Report paints a rosy picture of projected net margins of up to €1,580 per hectare in 2024. This would represent a significant 71% increase compared to 2023. But when we get the shovel out and dig down into those numbers, the reality is a bit more complex and sobering.
The story first appeared in our 2025 Irish Farm Report.
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Philip O'Connor, Head of Farm Support
The cost-price squeeze is tightening
Going only on price, the data from 2021 to 2024 suggests gross output has increased. But production costs have remained stubbornly high throughout that same period, with concentrate feed costs hovering between eight and 10 cents per litre, on average, with pasture and forage costs floating just above 6 cents per litre. Combine these with other direct costs and we’re looking at a total cents-per-litre cost in the high thirties.
Looking back, output dropped from 2023 into 2024, with increased feed inputs due to weather depressing the price of milk. So, unless weather patterns improve in 2025, no significant cost decrease is forecast next year, and farmers are likely to feel the pressure on their operating expenses further.
This presents a challenging reality
Despite advances in technology and efficiency, the cost of producing milk hasn’t come down in any meaningful way since the hyperinflationary days of 2022. To try and stay profitable, farmers are increasing their output and producing more milk per hectare, rather than improving margins per unit of production.
So now we’re playing the volume game
The 13% growth in gross output the Teagasc data forecasts is being driven by milk price, not improved efficiency. This was the case in 2015. Many dairy farms increased profits by expanding their herds while not necessarily finding better ways to produce milk. This strategy solves one set of problems and creates another. Larger herds require more staff and management, increased infrastructure investment, and often lead to higher environmental compliance costs. These factors can offset some of the benefits of scale, creating a never-ending treadmill of expansion in which farmers must continuously grow to maintain their income levels.
The Inflation Factor
What’s particularly concerning is how these figures look when adjusted for inflation. According to the Central Statistics Office (CSO), Ireland’s consumer price inflation reached 7.8% in 2023, following a dramatic spike of 8.1% in 2022 - the highest level in decades. Agricultural input costs have risen even more sharply, with feed, fertiliser, and energy costs experiencing double-digit increases, meaning rising costs have significantly eroded the purchasing power brought by any increase in nominal profits.
What appears, on the face of it, to be current stability in total costs per hectare masks the fact that farmers are having to work harder and manage larger operations just to preserve their standard of living.
Environmental & Sustainability Implications
This trend towards larger operations and higher output is going to have an effect on sustainability, with farms facing increasing scrutiny over their environmental impact. This prospect is now hitting home with the recent reduction in nitrates derogation limits from 250kg organic N/ha to 220kg organic N/ha. This change will force many intensive dairy farms to either reduce their stocking rates or acquire additional land, directly impacting their production capacity and business models.
This regulatory shift, along with tightening environmental regulations and increasing consumer demands for sustainable production methods, signals a challenging period ahead for volume-driven expansion approaches. The model post quota of more cows equals more litres equals more profits is not compatible with the current potential nitrates’ restrictions.
A balanced approach is needed
Grass Utilisation
Growing more grass and utilising land more effectively will remain the number one key driver of profitability.
Cost Management
Finding ways to reduce input costs without compromising production quality.
Efficiency Improvements
Investing in technologies and practices that improve output per unit of input.
Sustainable Growth
Balancing expansion with environmental sustainability and labour efficiency.
The Bottom Line
The strong projected net margins for 2024 and 2025 mask underlying challenges in the dairy sector. Many farms are running faster just to stand still, and expansion is going to be much more challenging under proposed nitrates restrictions.
The focus for individual farmers should shift from simply expanding and producing more to producing smarter: finding ways to improve margins through efficiency and value addition (fat and protein, for instance) rather than relying on the more-cows-more-litres strategy.
With the sector under the environmental microscope and potential regulatory changes in the pipeline, farms that can break free from the expansion-driven model may be better positioned for long-term success. The challenge in the coming years will be finding this balance between scale, efficiency, and sustainability.