EU announces private storage aid is on the way as Carbery bucks the milk price trend

The Carbery group’s annual report reveals milk volume growth by 42% since EU milk quotas were scrapped in 2015
EU announces private storage aid is on the way as Carbery bucks the milk price trend

Dairy farmers in West Cork have welcomed Carbery’s decision to offset a 1.5 cent per litre March milk price cut with 1.5cpl from the Carbery stability fund.

In contrast, there were price cuts of between 1.5 and 2cpl from co-ops including Dairygold, Glanbia, Kerry, Lakeland and Aurivo.

A Carbery spokesperson confirmed the base milk price reduction was due to Covid-19 weakness and volatility in dairy markets, but the price is supported by increasing the contribution from the Carbery Stability Fund to 2c, including a 0.5c support already in place.

This results in a VAT- inclusive Carbery price of 32.4cpl.

A spokesperson said “We are planning for the potential medium to long term impacts of global dairy market uncertainty, and taking decisions that will safeguard the long-term future of Carbery Group and our farmer suppliers.”

The Carbery support for its member co-ops’ suppliers came as the group today announced a strong 2019 performance in line with targets.

The group’s annual report also reveals milk volume growth by 42% since EU milk quotas were scrapped in 2015, to 567 million litres in 2019, all processed at the Carbery site in Ballineen.

The 2019 operating profit (EBIT) was €24.3m.

Carbery chairman TJ Sullivan assured milk suppliers the group are doing all they can to protect their growth throughout 2020 and the Covid19 crisis.

He confirmed their €78m cheese diversification project is on course for completion later in 2020.

Group turnover increased 3% in 2019, with growth across all business segments.

Production increased 20% since 2017, but carbon emissions were reduced 11.7% by the group, which aims to be carbon neutral by 2035 across all its locations.

March milk price cuts were made before yesterday’s EU Commission announcement of private storage aid, temporarily withdrawing skim milk powder, butter, and cheese from the market for two to six months, in a bid to rebalance the EU market.

Also announced was flexibility in market support for the EU’s milk, fruits and vegetables school scheme, and further exceptional derogations from EU competition rules in the milk and other sectors.

The commission aims to have these measures adopted by the end of April.

The initial Irish farmer reaction was disappointment, with IFA saying the measures are “underwhelming”, and ICMSA president Pat McCormack saying the funding to address the seismic shock experienced by EU farmers was so inadequate it bordered on an insult.

It amounted to €8 per EU farmer, he said.

But Dairy Industry Ireland director Conor Mulvihill said: “We look forward to working with Minister Creed and his team in DAFM on implementing the package to help protect businesses and their suppliers.”

Earlier this week, DII (representing dairy manufacturers, including the specialised nutrition sector) had repeated industry calls for private storage aid, saying it was urgently needed to address market imbalance.

DII warned Irish dairy industry output could fall as much as €2.3bn due to Covid-19, and a 20% milk price fall could reduce annual payments to farmers as much as €840m.

DII also called for the Government/EU to underwrite extensions to existing export credit insurance, noting that 70% of Irish dairy production is exported to countries in the top 15 most-affected Covid-19 countries.

DII also called for €550m in working capital to assist processors.

Yesterday’s EU Commission announcement of exceptional measures to support the agri-food sector followed mounting pressure from agriculture ministers led by Ireland’s Michael Creed (see report on page 8), from MEPs, and from the EU agri-food industry.

“While the full details of the package are still pending, it is certainly a welcome step forward for the EU to make support available to the sector, following weeks of disruption, falling market prices and rising costs,” said ICOS President Jerry Long.

He said, “However, knowing the details of the scheme, which are still under discussion, is essential to determine just how meaningful this support will be.”

He urged Agriculture Commissioner Janusz Wojciechowski to ensure a sufficient storage aid budget for adequate volumes of product until at least October, including cheese.

Tuesday’s Global Dairy Trade auction did nothing to ease dairy industry worries, with the average price index falling 4.2%, including 3.6% and 4.9% falls respectively for butter and skim milk powder, the products of most interest to the EU (but the cheddar price rose by 1.9%).

The plunge in oil prices was thought to be a big factor in the price falls, due to reduced purchasing power in oil producing nations.

The US market collapse is also unsettling, although Washington has announced a scheme to buy up and distribute up to $3 billion of agricultural products.

This could help the US dairy market, where the milk supply is estimated to exceed demand by 10%.

This has resulted in extensive dumping of milk.

Meanwhile, in the UK, some market recovery has ended milk dumping, with spot milk prices rising from 5p or less per litre to 15/16p.

But volatility remains, with retail liquid milk demand varying from one week to the next by as much as 24m litres.

IFA has said many expect intervention price levels to be reached soon, at least for skim.

IFA noted that the Irish dairy sector is generally less exposed to food services than in countries like the US, the UK, France or Germany, but some Irish processors had developed good food service businesses, now lost due to Covid-19. Dairy product normally used by restaurants, cafes, and canteens is now creating price pressure. Surplus EU cream normally sold to restaurants is blamed for taking €700/t off EU spot butter prices in two weeks.

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