Co-ops must hold May milk price to keep farmers afloat

With global dairy markets strengthening, co-ops must hold their May milk price, especially those who are at the bottom of the league.

Co-ops must hold May milk price to keep farmers afloat

The IFA dairy committee will this month ramp up pressure on co-ops to hold their milk price, particularly in light of clear evidence that international dairy markets are strengthening from their unsustainably low levels.

Co-ops have recognised on the record that they will continue to need to support milk prices, and in the short term, this has to mean holding for May milk.

With April milk prices at a historical low of anywhere between 21.31c/l + VAT (Dairygold) and 24.00c/l + VAT (Boherbue) according to the Farmers’ Journal Milk League, input bills, superlevy and loan repayments all have to be found from what are now negative margins on the majority of dairy farms.

In the red

An IFA case study has shown that, even with no further milk price cut, a producer who started out with 400,000l output in 2013 and increased his production in line with national output growth to date would lose €7,181 from his May milk margin compared with May two years ago.

This means the producer would be in the red by €744 in May 2016 because his milk price falls 1.13c/l below his production costs for this month. This calculation is for a farmer who grew relatively organically, on par with national growth of 4.5% in 2014, 13.09% in 2015, and we have assumed growth of 7% for 2016.

However, any farmer who made a significant investment will be faced with much higher costs, and their losses will be proportionally higher.

Also, it’s important to remember that the remuneration of the farmers’ own labour is not included as a cost by Teagasc in the National Farm Survey.

Signs of market recovery

There are positive signs that global milk supply and demand have slowly started to rebalance. We are witnessing slowing growth in many of the EU’s main milk producing countries, and other milk production regions around the world.

Spot milk and dairy prices, EU average quotes and international futures have all been firming up — albeit from low levels.

Challenging markets

Accepting that markets remain challenging, the reality is that farmers have reached the point where they cannot take any further pain. Every cut now sinks them further into the red, damaging their families’ livelihoods and the potential of the entire dairy sector.

The National Dairy Committee heard last week that farmers are getting angrier at being expected to take most of the market pain.

This is why this month, every member of the IFA Dairy Committee has been, or will be, in contact with their local co-op board members and the management of their co-op to impress upon them the vital importance of holding the price and supporting farmers.

And in this regard, the Glanbia Co-op cashflow scheme — Glanbia Advance Payment — is a very welcome form of support.

Not all co-ops are able to set up a scheme similar to the Glanbia Advance Payment, but all must ensure they do not make a difficult situation worse by further cutting milk prices.

Political pressure

The IFA dairy committee has also lobbied TDs and other politicians to help secure the state aid-based emergency finance scheme IFA has been advocating.

We have made specific proposals that Minister for Agriculture Michael Creed must deliver on immediately, utilising state aid concessions up to €15,000 per farmer per year to provide emergency finance to relieve all farmers from mounting superlevy and merchant credit pressures.

The exceptional state aid measures allowing for the provision of those short-term loans to cater for ‘liquidity gaps’, i.e. cashflow shortages were voted on by the EU Council of Agriculture Ministers, on proposal by the EU Commission, over two months ago on March 14, 2016.

Real urgency

There is now real urgency and the minister, who has acknowledged the severe income difficulties faced by dairy farmers, must fast- track the development of the loan scheme required to give effect for Irish farmers to the exceptional state aid measures which were voted on last March.

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