National Milk Agency warns of precarious outlook for dairy sector interests

THE short-term outlook for all interested parties in the Irish dairy sector is precarious, according to the National Milk Agency, which regulates the supply of milk for liquid consumption in the State.

Chief executive Denis Murphy stated in the agency’s annual report for 2008 that the industry is in crisis. Processors are confronted by falling market prices and margins and dairy farmers are facing substantial income reductions in the current year.

Mr Murphy stated that in the first quarter of 2009, the decline in international dairy product prices has continued and, despite increased market supports, EU producer milk prices have fallen sharply.

In Ireland, the monthly producer price for manufacturing milk paid in March 2009 has fallen since year end by over 20% to about 21 c/litre with 20 c/litre being paid in some instances, a monthly milk price last seen in 1983. Monthly producer prices for supplies of milk for processing for liquid consumption have also fallen on average by over 8 c/litre since the commencement of the 2008/09 milk year.

Mr Murphy stated that, in these turbulent and extraordinary times, it is incumbent on milk processors to use their best endeavours to ensure that all producers continue to have confidence in milk production.

He said export markets are expected gradually to come back into balance, with lower dairy product prices stimulating demand and lower milk prices contracting milk supplies in countries with high production costs.

On the domestic market, the outbreak of a retail price war has resulted in falling retail prices for fresh milk and a negative impact on the revenues and confidence of liquid milk producers.

For the Irish dairy sector, which exports 80% of its output, falling demand, rising supplies, increased price volatility and declining currencies of major export customers resulted in lower export prices for dairy products and, consequently, lower monthly prices for manufacturing milk to producers.

While the average annual producer price for manufacturing milk of 32.24 c/litre, excluding VAT, was about the same as in 2007, monthly producer prices fell by 27% between March and December.

Mr Murphy said consumption of fresh milk on the domestic market increased slightly to 578 million litres. The market share of domestic milk supplies in the fresh milk market, however, fell to 79% as imported supplies, both bulk and packaged, increased their share to 21%.

Fresh milk continued as an excellent, value for money, healthy, nutritious, food product. While the average annual retail price for fresh, whole milk on the domestic market increased by 22% over 2007, the retail price of milk still lagged behind the increase in the consumer price index since 1995. In real terms the retail price of milk was 6% less in 2008 than it was in 1995.

The annual average producer price for milk for processing for liquid consumption reached a record 37.58 c/litre, excluding VAT, in 2008, an increase of 2.3 c/litre or 7% over the price in 2007. The producers’ share of the average annual retail milk price, however, fell to 34% compared with 39% in 2007.