In this article, our Director & Co-founder Cian White dive into what he learned from on-the-ground discussions and explore how economic models, co-op programmes, and technology can pave the way for a more sustainable dairy industry from Ireland.
Last week, I drove around beautiful west Cork, the most south westerly part of Ireland, jutting out into the Atlantic, interviewing dairy farmers about the future of sustainable dairy. Cups of tea, an assortment of biscuits, cosy kitchens, honest to god young kittens drinking cows milk, winding roads – it’s both naturally beautiful but we’re also deep in dairying country. I wanted to take the temperature of the dairy farmers, on things farming, politics and the markets – so getting out on the ground was critical. Irish dairy farms are typically family run affairs, and the one’s I visited are what we would call ‘progressive’ – guys (and they are all guys) who are on top of the new technologies and management strategies, implementing things on their farms that to them ‘make sense’. By which they mean does it pay – do I save costs or increase production. In tech jargon, these are early adopters and so I wanted to speak to them about whether they would adopt emission reducing technologies – and the ‘does it make sense’ question is top of mind. Are these technologies economical for farmers?
Some are – using clover in swards reduces costs by reducing fertiliser use, protected urea is cheaper than other fertilisers, high genetic quality cows produce milk more efficiently – but many of the big-ticket emission reduction strategies are quite costly. The big one in the news recently is Bovaer, the brand name for 3-NOP (Nitro OxyPropenol). This is a feed additive that reduces the methane burped by cows by anywhere between 8% and 30% depending on the system. These are significant reductions given that methane burped by cows typically accounts for >60% emissions on a dairy farm. But to feed Bovear year-round would cost ~€5000 for the average sized Irish dairy farm, with 95 cows. And there’s no payback, other than emission reductions. None of the farmers I interviewed would take a 5k cost hit for no economic upside. Coupled with the recent panic on X about Bovaer, very similar to the anti-GMO, and anti-vax panics, the farmers I interviewed are not interested in using Bovaer. Likewise, slurry accounts for ~8% of emissions on a dairy farm – and a slurry chemical amendment from GlasPort Bio reduces emissions by up to 80%, potentially reducing emissions by ~6% on a dairy farm. This is a technology we need to get farmers using if we want to reduce emissions significantly by 2030 – but it costs the farmer in this case ~8k in year one, the capital costs are ~7k, and a recurring 1k afterwards. They’re simply not going to use these technologies. They don’t ‘make sense’.
So how do we get these technologies on farm? Well, that is the question that the research project I lead, FarmCredit, funded by the Irish Department of Agriculture Food and the Marine (DAFM), is setting out to answer – how do we create a business model for technologies that don’t make sense for farmers.
The farms I visited would have anywhere between 50 to 250 dairy cows – producing somewhere between 200k to 2 million litres of milk a year, with an average dairy farmer in Ireland producing 500k litres per year. These numbers are important as farmers are paid for the amount of milk they produce. The current milk price these farmers receive is ~50c a litre – so a typical dairy farm’s gross income for the year is €250k. Subtracting costs, debt and taxes, the net take home of a typical farm is ~€90k in 2024. Dairying is quite profitable! The technologies I mentioned above would add another €6000 cost to a farm, for no payback, so a 7% cut in net take home pay. The bigger the farm, the higher the cost, so a 7% cut can be thought of as typical cost incurred.
Now to me, a 7% cut in net income for significant emission reductions isn’t too bad a trade. Still, I’m not faced with this decision and as I don’t offset my flight emissions by revealed preference I likely wouldn’t take this hit if I were a farmer – it’s obviously bad for business. Simply put, the farmers are not going to voluntarily take this 7% cut. In Ireland, there’s no strong enough reason for a farmer adopt these technologies. However, in Denmark, there is. Or there will be – from 2030 Denmark will tax emissions from farms at ~€20 per tonne of CO2e emitted, increasing to ~€45 per tonne by 2035. Taking our average farm producing 500k litres – with an emissions intensity of ~0.9kg CO2 per litre of milk, an average for Ireland, means our farmer would be on the hook for €9000 in 2030, increasing to just over €20,000 in 2035. Here’s the stick to drive adoption of emission reducing technologies. Yet, this tax may not even be enough to drive adoption – the cost of feed additives currently is higher than €40 per tonne tax, at ~€65 per tonne of CO2 mitigated, likewise for slurry chemical amendments. So even if the farmer reducing their tax by using feed additives, they’re still paying out more money on the feed additive than they’d reduce their tax liability. So the Danish government is going to have to subsidise the technologies to drive the price per tonne below the tax to get farmers to adopt these technologies. And indeed that’s their plan. They’ll reduce the cost of additives and create a tax to incentivise uptake. This is not unreasonable and is certainly an example of effective policy making.
An alternative to Danish tax and subsidise model, is to work through the milk price – the number one driver of farmer behaviour. This price signal is the north star farmers operate around. Carbery, the coop the farmers I visited belong to, have a programme called FutureProof which encourages good farming practices and sustainability. For adopting a few measures – milk recording their herd, using protected urea, doing a water quality assessment of the farm, and increasing their herds genetic quality, farmers can a bonus 1c extra on their milk price. Taking the 500k litre production farm, that’s an extra €5000 a year – not insubstantial. For 1c bonus in the milk price, a farmer would break even if they adopted feed additives – for a 1.2c bonus, they’d make €1000. By strategically targeting the 1c FutureProof bonus, Carbery could effectively incentivise uptake of technologies among their farmers.
Indeed this is what Arla and Friesland Campina are doing – large northern European dairy coops with ~8000 and ~14000 dairy farmers respectively. These co-ops are betting big on sustainability – they’ve both built out ambitious results-based bonus programmes where a farmer can earn up to 4c extra per litre of milk for various sustainability improvements. What’s on offer is an extra ~€25k bonus through the milk price for sustainability.
Mention this to farmers, and they begin to take sustainability a lot more seriously. Indeed, many of the farmers I interviewed mentioned the cell count bonus – cell count being measure of the amount of somatic cells in milk. The higher the number of cells, the poorer the milk quality – so over 400k cells a farmer is penalised, while under 200k cells a farmer receives a bonus on the milk price. This incentive is very effective for the farmers I interviewed – and by analogy they would like to see a system where good performance on sustainability is rewarded, while poor performance is penalised. Effectively a redistribution of part of the milk price from farmers performing poorly on sustainability to farmers who are performing well.
This is apparently how Friesland Campina are part funding their €245 million sustainability programme – redistribution of milk price among farm suppliers. Other funding sources are from the premium that Friesland can charge for produce given their commitment to sustainability – they have a clear decarbonisation path, and in a world where most large agri-food companies have signed up to emission reduction targets under Science-based Targets, paying a premium for sustainability is becoming part of doing business.
Most of the farmers I spoke to saw the continuing expansion of sustainability bonuses as the general direction of travel, these programmes would become the new normal. All the Irish co-ops have created some version of a sustainability programme, likewise in Finland with Valio, and the Dairy Farmers of America. Sustainability programmes look like they are here to stay, and will be a key strategic focus for the processors. Taking the Friesland Campina example, with €245 million dispersed through the bonus last year, this represents a significant opportunity for MRV platforms like ODOS – these sustainability schemes will need to be administered, there will need to be some level of on-farm visits to check whether bonuses are being legitimately earned. What tools will the farm checkers use? There’s likely a roll for advisors, to help farmers plan out how they can make best use of the offered bonus. What tools will the advisors use? How will the processor monitor the programme, know what farms need to be paid what amount? With the amounts of money being dispersed – trust in the data (how easily can the data be verified?), trust in the calculations (are the models verified?) and the fairness of the scheme (can the system be gamed?) are key features to successfully decarbonising.
This is what we’re building at ODOS.