Connacht predicts 25% cut in farm income if milk prices fall below 30c

Connacht Gold’s year-end milk price projections in the “mid-to-high twenties” could lead to some dairy farmers taking a hit of more than 25% in their present incomes.

Connacht Gold chief executive Aaron Forde’s cautious projection is in line with statements last week made at the unveiling of Arrabawn’s annual report, which suggested a possible milk price cut from the present 34c per litre (cpl) supplied by the farmer down to 28cpl by the end of 2012.

Huge milk price cuts in Dutch and New Zealand auctions have been cited as strong indicators towards trends for the remainder of this year.

The Connacht members will discuss these trends at the co-op’s annual meeting in a few weeks from now.

Yesterday’s Connacht briefings were primarily focused on unveiling a 16% increase in turnover for 2011 — of €345m, up from €296 in 2010.

The co-op’s pre-tax profits stood at almost €8.6m, and €6.65m after tax. Turnover for dairy ingredients rose almost 40%, from €60m in 2010 to €83.5m, while sales at the co-op’s four livestock marts increased by 30% to €90m. Turnover was driven by soaring dairy ingredients sales and a record year for sales in its livestock marts business.

Mr Forde said: “We launched a forward pricing scheme in February as a means of taking volatility out of the market. We need to take more actions of this kind to protect customers, suppliers and ourselves.

“That scheme was pitched where the market is at present, at around 30cpl, to allow suppliers to protect around 10% of their product. Globally, milk supply is up 4%, while demand is only up around 2%.

“The surplus of milk supply from New Zealand and the US is leading to a softness in the market. We would see the milk price ending up in the mid-to-high twenties [cents per litre] by the end of the year. Our AGM is in another few weeks, so we will discuss it with our members then.”

This note of caution contrasts markedly with Connacht’s 16% jump in turnover during 2011. Agribusiness sales were maintained at €88m, in spite of a national drop in feed and fertiliser sales.

The investment in stores continued during the year with a new multi-purpose store opening in Swinford, Co Mayo. Major investment was also undertaken in a new store in Westport and in relocating the Longford store to cope with increased sales.

The acquisition of the Donegal Creameries businesses has increased the number of Connacht Gold stores from 30 to 41 in the five counties of Connacht, as well as in Longford, Westmeath, Donegal, Fermanagh, and Tyrone.

Connacht has ambitious expansion plans for the post-quota era in 2015. In the last three years, it has invested up to €30m in stores, €5m in the marts, and also invested considerably in the management skills of its senior executives.

It has experienced encouraging growth in new markets. Fat-filled milk powder is now being exported to the Middle and Far East, Africa, and Pakistan, with growth opportunities in Central America.

Consumer food sales climbed almost 10% to €45.7m in 2011, with increased volumes being recorded, particularly in the butter and yellow fats area. The launch of Connacht Gold Spreadable and Connacht Gold Spreadable Light also added to the co-op’s healthy balance sheet, set against a value-driven market backdrop. The acquisition of Donegal Creameries also creates a strong market position for the future.

“We are looking at markets which have a growing population and growing income profile,” said Mr Forde.

“This is with one eye on the post-quota era from 2015 onwards. We have also invested a lot of work into our people and their management skills in line with the expansion ambitions of our suppliers.”

Meanwhile, the Connacht Gold joint venture timber processing company, ECC Timber, reported a strong export performance in 2011 which helped to counteract continuing poor domestic demand. The raw material price did not reflect market reality for much of 2011.

Based in Corr na Móna, Co Galway, ECC Timber accounts for almost 20% of timber processing in Ireland. Investment in a finishing line was completed during 2011.

Connacht Gold chairman Padraig Gibbons said; “Connacht Gold is entering a pivotal period and the increased scale of the business will be vital to ensuring efficiencies and customer relevance as we seek to strengthen our brands and play a vital role during a positive outlook for agriculture in Ireland.

“With the ending of quotas in 2015 now only three years away the co-op is engaged in planning for the changes that will bring. As the planning phase progresses, we will maintain communications with the shareholder base.”

Connacht Gold employs 726 people in 52 locations across the west and northwest. The co-op has 1,000 milk suppliers in 10 counties and an annual milk pool of 370 million litres. It exports dairy products to 20 countries.