Milk price increases must reflect market reality

Two extremely strong Global Dairy Trade auctions this month and corresponding increases in EU dairy prices are clear indications that dairy market recovery has taken hold.

The turnaround has been reflected in some very welcome price increases for July milk, but all co-ops must now plan for significant further price increases for August and beyond.

The IFA will not tolerate any stalling on milk price increases while dairy farmers remain under extreme cashflow pressures after the prolonged market downturn.

In particular, we have called on Kerry to do the right thing and reconsider urgently their wrong decision to hold July prices when other co-ops increased by 1c to 1.5c/l.

Genuine signs of recovery

Last week’s 12.7% jump in the weighted average Global Dairy Trade auction price was the second significant uplift this month. It is an undoubted fact that these results have reinforced positively buyers’ and market sentiment all over the world.

EU price increases we have seen for the last three months have yielded a gross return for a representative Irish product equivalent to an early August farm gate milk price of 26.7c/l including Vat — not the 22c to 23c/l most co-ops are paying for July.

Bearing in mind that most co-ops have paid a little more than the market returns for the last number of months, this augurs well for further milk price increases.

The market upturn reflect the lower global availability of milk, increased cow slaughters in many regions, the utilisation of stocks, and the relatively good demand growth. They are genuine signs that the dairy recovery, long overdue after a record two-year slump, has now taken hold.

Increased prices both justified and necessary

Dairy co-ops must now take some encouragement from these growing positive market signals and ensure farmers get every cent the improving market returns allow to help them face the mounting merchant credit, utility, superlevy and other bills falling due this autumn.

Increased milk prices are absolutely necessary to help farmers cope with the huge demands on their cashflow.

Co-ops should also be mindful that farmers are gauging whether or not to apply for the EU production reduction scheme, and clarity on the milk price outlook will be a decisive factor, bearing in mind that present prices, even those increased for July milk, still fall well below production costs.

Our message to co-ops when IFA meets them over the coming weeks will be clear: farmers need every last cent improving markets allow to boost their badly shaken confidence and improve their dire cashflow situation.

Cashflow difficulties must be addressed

Rising milk prices from July and over coming months alone will not suffice to solve farmers’ 2016 cashflow difficulties. The Minister for Agriculture Michael Creed must show much greater urgency and introduce the IFA proposed low-cost, flexible cashflow loans with built-in repayment breaks.

Earlier this summer, IFA made detailed proposals for the minister to make use of the recent EU concession on state aid as well as the existing state aid provisions to offer farmers in all sectors low-cost, cashflow loans.

For dairy farmers, those must include an upfront moratorium on repayments until milk prices and incomes improve sufficiently to begin repayments.

This type of loan would allow farmers to convert their accumulated merchant credit, utility, superlevy, tax and other bills into short-term finance, giving them badly needed liquidity relief until their incomes recover.

While the minister and his officials responded very positively to our proposal, they must now bring forward the type of financial package we have proposed with the very same urgency as if the outlook for milk prices were less positive.

It will take months before milk price increases alone allow farmers to make a sufficient margin above costs to allow them deal with their family needs, pay their business bills, and ultimately also their own labour.


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