Fresh milk shortages far likelier than most believe
With the severe erosion of winter premiums traditionally paid to liquid milk producers for supplying fresh milk from autumn calved cows for the fresh milk market, and potential difficulties Brexit may cause for the 26% of milk sales imported from Northern Ireland, we have the recipe for fresh milk shortages.
Sounds crazy to you? It shouldn’t.
Specialist liquid milk producers number 1,800 — 10% of all Irish dairy farmers— and the fresh milk they supply is 8% of national supplies, and shrinking. They have historically specialised by calving part of their herd in autumn, and part in spring, a more complex production system costlier on feed, energy and labour.
In recent years, working with Teagasc and Fresh Milk Producers, IFA has established that covering costs and paying the farmer a modest wage requires 40c/l for liquid milk. In the last five years, the price paid has neared that level in 2013 and 2014, but was 8c/l and 10c/l below it in 2015 and 2016. While the prospects for prices are better for 2017 as base creamery milk prices have lifted 35% since last June, liquid milk producers are unlikely to break even this year.
Retail returns are stable — the consumer price in the large retailers is unchanged — but the competition between retailers and between dairies for a finite market has eroded the margins available in the chain to pay the necessary premiums to farmers. The ‘differentials’ paid for fresh milk to producers over and above creamery milk prices have fallen from an average of 4.6c/l for the 20 years ago to 2.2c/l in the last five years.
Farmers are responding; they have reduced the amount of fresh milk they supply over the winter by tightening their calving patterns, or they have moved away from autumn calving altogether. This is showing in a shrinking surplus of available contracted milk over actual sales from 11% in 2013 to 5% in 2014, and in a further reduction in the number of cows calved in autumn (down 15% in 2015, and 11% in 2016).
This is in the context of a continued expansion trend in dairying, with 8.5% more dairy calves born in 2015, and 5.5% more in 2016 — but the pattern of our fresh milk supply is changing, leaving potential bare patches in winter. This is why IFA has come forward with our Milk Wise 2025 Strategy.
The National Milk Agency has accepted our request for a survey of all 1,800 suppliers to establish age profile, succession plans and intentions. Producer contracts must be reformed to allow for multi-annual arrangements and transparent and fair pricing.
One-year retail tenders must be prohibited by retail legislation. These do not match the 2-3 years timeframe of the breeding season, and are very disruptive to the entire sector; farmers most of all.
Retailers and dairies must foster more constructive commercial relationships — maybe through offering multi annual fixed liquid milk price contracts?
We want to see a return to the retail ban on below-cost selling, as well as provisions for a fully independent and well-resourced Ombudsman to stamp out unfair trading practices and to oversee the sustainable remuneration of primary producers.
The National Milk Agency must now be empowered to collate and disseminate data on the liquid milk market, including imported supplies. Along with Teagasc, they must establish an Observatory of input costs for liquid milk production. This could inform a more robust economic analysis of whether the contracted prices offered to farmers by dairies actually provide “adequate compensation” for their additional costs, as the Milk Supply Act 1994 stipulates the National Milk Agency must ensure.
Brexit is an additional challenge. Any disruption to existing dairy and milk trade flows between both parts of the island after Brexit would have very negative implications for all dairy farmers, including liquid milk producers. Whatever trade relationship prevails after Brexit, it is essential that the standards to which Republic of Ireland milk producers and processors are held on quality, environment, animal health and welfare would continue to apply equally for all imported milk.
The suite of measures we are proposing ultimately aims to help farmers secure a fair share of retail returns as this is the only way that we can guarantee consistent supply of fresh, high quality, locally produced milk for consumers all year round.
