ICOS says farmers will see far greater value from investing €400m to fund processing equipment for creameries than the €825m they spent on EU quota from 1990 to 2011, effectively paying for the right to produce milk. The quota era ends in March, 2015, meaning the €825m will effectively be dead money.
ICOS chief executive Tom O’Callaghan said: “Farmers have always invested in their own industry. They now also realise they will get better value from investing in dairy than from buying apartments in Bulgaria.
“Investing at farm level will certainly be better than investing in quotas, which will be valueless from 2015 onwards. The industry is now discussing how it will fund itself, and ICOS is encouraging that discussion because April 1, 2015, will come along very quickly.”
The co-op umbrella body’s €825m cumulative quota estimate is adjusted to reflect the Consumer Price Index changes and inflation since 1990. However, it does not include the amount of money spent on quota purchased with land.
Feedback suggests a huge willingness from dairy farmers to invest in the processing equipment required for creameries to expand. Glanbia, Dairygold, Kerry and the West Cork co-ops are all discussing milk supply agreements with farmers, but this will only marginally reduce the need to invest in new milk plants, driers and other processing equipment.
Kerry Co-op has suggested a 2.5c per litre investment from its suppliers to cover future processing equipment needs. Dairygold has signalled a similar figure. By comparison, farmers in New Zealand pay 30c per litre, Germany 4c, and Finland 15c.
The agreements under discussion will map the volume of milk a farmer can produce to his/her historic milk supply under the quota regime. They will also insist the farmer holds an adequate number of co-op shares.
The agreements could be renewed annually and would be transferable to a family member, on retirement, but would remain the property of the co-op and its members. They would not be a saleable commodity.
ICOS is adamant that the lesson of the quota regime, whereby hundreds of millions were paid for quota, should never be repeated. When farmers retire from dairying without transferring their supply agreement to a successor, then it should revert to the co-op, and the farmer’s co-op shares should be redeemed.
ICOS dairy policy executive TJ Flanagan said: “After two good years of milk price, farmers can see that they will get a good bang for their buck by investing in the expansion of their co-ops.”