Hedging tools to be developed to counter dairy volatility

The dairy sector will develop hedging tools, designed to reduce the impact of volatility within the entire length of the production, processing and retail chain, according to Glanbia UK director Paul Vernon.

Speaking at the recent Northern Ireland Institute of Agricultural Science Annual Winter Fair Seminar in Belfast, he said that the pressure to reduce the impact of volatility will come from retailers and those companies manufacturing high-value, branded food products.

“The last 12 months have been marked by a complete reversal in dairy commodity market trends,” Vernon said.

“This time last year processors and consumers were losing out due to the extremely strong commodity prices of the time. Now we have a scenario unfolding, which will see farmers lose out, due to the current depressed state of the world’s dairy markets.”

The Glanbia representative went on to confirm that the introduction of a hedging mechanism, which would include a strong element of future contract pricing, is the most obvious response from the dairy sector to the unfolding challenge of volatility.

“The retail and further processing sectors will drive this,” he said.

“And the development of these new measures may well include a strong recognition of the input costs incurred by farmers. The reality is that volatility serves no sector within the dairy industry. And the sooner the issue is actively addressed the better for everyone involved.”

Glanbia UK is the largest manufacturer of mozzarella cheese in Europe, processing 1.8 million litres per day of milk at sites in Wales and Northern Ireland.

“As a business we are committed to improving the efficiency of our processing systems on an ongoing basis,” Vernon explained.

“And farmers must take a similar approach. But, fundamentally, there must be a degree of price stability along the compete length of the production, processing and marketing chain. And it is within this context that the required hedging options will be developed.”

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