Irish farmers are facing their biggest ever penalty for supplying too much milk as they ramp up production in preparation for the abolition of milk quotas on March 31st.

One Department of Agriculture official said farmers were heading for a penalty of up to €90 million for supplying more milk than allowed under the milk quota regulations.

The quota year ends on March 31st. But up to January 31st last, Ireland was 5.47 per cent over quota, compared with 1.52 per cent over quota in January 2014.

Farmers will be free to produce as much milk as they wish after March 31st. So they have been building up their herds to prepare for the increased production.

EU member states have now approved a European Commission proposal to allow the penalty to be collected over a three- year period, in three interest-free instalments.

Farmer flexibility This was a significant move, according to EU commissioner for agriculture Phil Hogan.

The proposal would “provide considerable flexibility to farmers as well as significant cash-flow benefit to those farmers who might otherwise face a substantial bill in 2015, at a time when they may be investing to take advantage of the post-quota environment,” he said.

IFA dairy chairman Sean O'Leary welcomed the agreement and said Minister for Agriculture Simon Coveney must urgently set out the detailed arrangements so dairy farmers and co-ops could avail of the scheme without delay.

IFA analysis shows that over the 30 years of the milk quota regime, Irish farmers have paid more than €144 million in penalties.

The dairy sector incurred a super levy of more than €10 million in the 2013-2014 quota year, and a €16 million bill in the the 2011-2012 quota year.