COMMENT: Rising input costs for dairy farmers must be tackled
This decision needs to be considered in the light of ongoing input price inflation and the massive financial pressures on farmers over the last year.
If the IDB Index is adjusted upwards in the next announcement — as is widely expected — then the decision not to increase milk price will look even more questionable than it does now. People seem to have forgotten that only three months ago dairy farmers — like other farmers — were in the middle of an unprecedented fodder crisis.
Dairy farmers will know the best way of showing ‘farmer-solidarity’ is to pay the best milk price the market can bear. That is not happening, where Irish processors’ July price is a substantial 1.5c/litre to 2c/litre below where it should be during one of the key months of milk production and in light of the financial pressures on farms.
The critical point for farmer directors sitting on boards to grasp is that the IDB Index is not some kind of vague guideline to what processors and co-ops should be paying; it is a precise indication of the returns the IDB is receiving from the marketplace and should be viewed as the minimum basis for setting the milk price paid.
The prices that make up the index are not aspirations — they are what the board is receiving and what the processors and co-ops need to be passing back immediately to the milk suppliers The IDB Index is currently at a record high.
Our 16,500-strong association is widely considered the State’s specialist dairy organisation and we would point out to those commentators who constantly emphasise this year’s strong milk price and talk about coming ‘spikes’ in commodity prices that these observations consistently ignore the context and the background factors affecting dairy farming. Here are two that should be to the forefront of every discussion about milk price this year.
Massive costs were racked up by dairy farmers over the 12 months to May of this year. ICMSA estimates farmer debt to feed merchants rose by between 35%-40% on average.
The second ever-present factor that seems to go unnoticed is the undeniable fact that while milk price itself is very volatile — an example would be between 2009 and this year — farmers see input costs rising year-on-year and never reverting to their earlier lower prices. Since 2010, fertiliser and feedstuff prices have increased by 27% and 38% respectively compared to the 19% increase in milk price.
Milk price has been very volatile during this period and it must be noted that 2013 is a good year for milk price; the equivalent figures for 2012 shows a far more depressing view in that while milk prices rose a meager 4% on 2010 levels, fertilisers and feedstuffs increased by 26% and 23% respectively. Fertilisers and feedstuffs account for approximately 30% of production costs on a dairy farm each year and this figure will most definitely increase in 2013 due to the fodder crisis.
Milk prices have improved in 2013 but farmers are simply playing catch up with input costs. Input inflation now seems to be ‘built-in’ to our cycle: the price our milk fetches can go up or down, but our feed, fertiliser, diesel and electricity costs only ever go up. Our margins have become less and even now, when they’re lower than ever, they are being eaten into year-on-year by the seemingly fixed upward trend in inputs.
One answer may be greater EU regulation of retail multiples but we certainly are looking for reforms that will give milk suppliers some degree of stability and return. The question that must be asked on this: when are our politicians at national and EU level going to simply stop talking about this problem and actually take concrete measures to address it — which is the hard but necessary step that can no longer be ignored by politicians.
