With winter liquid milk price negotiations only a few weeks away for producer groups, unviable base milk prices mean producers would need to secure 55c/l for their liquid milk next winter just to break even.
Last year, IFA started a campaign to outline the challenges which specialised liquid-milk producers would face with the end of quotas.
The ability to expand creamery milk production for a growing export market combined with the inability to increase liquid milk production for a static domestic market fundamentally challenges the economic viability of many producers’ liquid milk contracts.
This is especially the case when liquid milk payments are all now based on extremely low creamery milk prices, with either higher payments for the winter months having to be hard fought to offset the higher costs of supplying fresh drinking milk year-round.
In theory, it should not be difficult to remunerate the specialised producer fairly over the winter months: unlike the very volatile export market for dairy commodities, returns from the retail trade are both higher and stable, with little or no changes in retail pricing over the last few years.
In practice, retailers fight for market share with a lucrative product which drives consumers into their stores, while dairies also fight with each other for their share of a static market.
Dairies have conceded margins under pressure from retailers which use international market trends to leverage lower wholesale prices, but they have also done so to improve their sales volumes.
My concern now is that this cannot be done at the expense of remunerating specialist liquid milk producers adequately, because failure to do so will result in shortages of quality, locally produced fresh milk for Irish consumers.
IFA has done a great deal of work to measure and prove that fresh milk producers’ breakeven point when it comes to production costs, including a modest remuneration for the farmer’s own labour, is around 40c/l.
Most recently in 2014 and 2015/16 this has been confirmed by two research projects carried out by Teagasc for IFA and FDC Accountants for Fresh Milk Producers.
For 2016/17, this means farmers would need to be paid at least 55c/l over the winter just to allow specialist liquid milk producers to break even across the year.
This may sound like an unreasonably high figure, but the truth is that any less and farmers are losing money, and having to make hard economic decisions.
For 2015/16, the annualised average prices received by liquid milk producers were 8c/l below breakeven, and they voted with their feet. In the autumn and winter of 2015, the number of dairy calves born fell by 16%, while the overall number of dairy calves born in 2015 was up 8.5%.
Liquid milk producers are tightening their supply closer to their contracts, or indeed voting with their feet and moving away from their high-cost, high-commitment production system.
Either way, this tightens up winter supplies, and dairies, retailers and consumers cannot take for granted that fresh, locally produced quality milk will continue to be found on the supermarket shelf year-round. The national fresh milk market is worth €530m which is 16% of the overall value of Irish dairy exports (€3.24bn for 2015).
Consumers value the product, and the success of the NDC mark campaign has shown they and retailers also value choosing locally produced milk.
The fresh milk market which we supply domestically is crucially important to the overall dairy sector.
With dairy commodity prices historically low, co-ops involved in liquid milk are benefiting significantly from the higher and more stable returns they get from the domestic milk market.
Retailers’ margins on fresh milk have also risen. Some of these improved margins will have to be redistributed to farmers in much higher winter payments if they are to have any hope of covering their costs, and paying themselves a modest wage.
We are not exaggerating when we say this will need around 55c/l over the four to six winter months operated by different dairies.
John Finn is the newly elected chairman of the IFA national liquid milk committee. Mr Finn is also a milk producer whose farm is located in Oranmore, Co Galway.
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