ICMSA call out 'utterly destructive' milk price drops as Lakeland cut theirs by 4cpl

Lakeland Dairies began reducing milk prices in July

This drop comes after Tirlán and Dairygold dropped last month's milk price for their suppliers by 4cpl and 3.75cpl, respectively. File photo

The agreed October milk price from Lakeland Dairies is 40.25cpl for suppliers, a drop of 4cpl.

Lakeland Dairies began dropping milk prices to suppliers in July by 0.95cpl, followed by a drop of 1cpl in August and has now been compounded by the drops in September (2.85cpl) and the 4cpl drop in the October milk supplies.

The October milk price paid to farmers will be 40.25cpl with 3.6% butterfat and 3.3% protein. This price is inclusive of the 0.5cpl Sustainability Incentive Payment.

This drop comes after Tirlán and Dairygold dropped last month's milk price for their suppliers by 4cpl and 3.75cpl, respectively. Tirlán paid suppliers a total of 42.08cpl, including Vat, and Dairygold paid 41.25cpl based on standard constituents of 3.3% protein and 3.6% butterfat, inclusive of Sustainability and Quality payments and Vat.

At the time of publication, neither co-op has announced its October milk price.

On its price reduction, a spokesperson for Lakeland Dairies said: “Significant market pressure persists as global milk supplies continue to grow from an already strong base. Demand is struggling to keep up, which is impacting butter, cheese and powder returns, adding continued pressure on farm gate prices.” 

Chairperson of the Irish Creamery Milk Suppliers Association (ICMSA) Dairy Committee, Noel Murphy, described the latest milk price reductions as “horrendous”.

He called out the co-operatives that have been attributing the precipitous fall in milk price to a ‘simple’ oversupply relative to demand, was ignoring what he actually said was a much more fundamental problem with the existing dairy pricing system.

Mr Murphy said that the recent history of milk price ‘boom and busts’ demonstrated a ‘primitive’ market that protected every other component in the market through the expedient of loading all the risk onto the farmer-producers.

He said that effectively all the links further up the supply chain are using farmer price and farm income as a ‘market correction device’ and a risk management tool.

“It’s hugely important that we all see clearly what’s happening here. This isn’t any kind of ‘invisible hand of the market’ at work; what’s happened here is that the other components of the dairy markets knowingly use the farmer milk price as a ‘reset button’ for dairy product price movements. 

"They do that in the full knowledge that reducing milk price leaves them untouched.” Mr Murphy explained.

It’s really important to emphasise that ‘farmer’ aspect there: no one else’s margins or incomes fall are affected when we get the kind of price collapse we are seeing now. They all protect their own position in the knowledge that our reduced milk price and wiped income is effectively the ‘reset’ button for the whole cycle to start again.

Mr Murphy says that farmers understand that dairy markets have weakened, but questions where all the processors’ ‘forward sold’ contracts at defined prices have gone.

“These are always cited when prices are rising, but are nowhere to be seen when the markets fall. The markets suddenly weaken, and ‘Bang!’, the farmer takes the hit straight away. This is an absolutely primitive way of managing a sector, it’s utterly destructive and it’s simply unsustainable for the family dairy farm to be the only ones left ‘holding the baby’ when the markets fall”, he said.

Mr Murphy said that the farmer milk price reductions over the last two months would represent a loss of €32,000 if applied to a full year for a 400,000-litre milk supplier. “Who else is expected to just take an income ‘hit’ like that? Is there any other sector where people are just expected to do the same work and actually lose money, as will be the case for thousands of Irish farmers if prices fall below the cost of production?” 

Mr Murphy continued noting that the Ornua Producer Price Index (PPI) for October stands at 41 cents per litre, which is below the cost of production, with an additional value-added payment of €6.3m. Mr Murphy said that farmers are very legitimately asking how any processor can justify setting a milk price below this level.

“The so-called strategy of simply passing back the reductions to farmers needs to stop and needs to stop now,” concluded Mr Murphy.