Milk quotas end: The battle is won, but the war continues

Later this week milk quotas will be ancient history, whatever are we going to talk about?

It seems that some people have foreseen this dilemma. Consequently, we have seen the term ‘milk price volatility’, creep into the daily dairy vocabulary.

Yet, with all the talk about volatility and dairy industry expansion, why do we have a milk pricing policy in Ireland that is out of date and not fit for purpose?

Here are five milk pricing changes steps that should be enacted for the benefit of Irish dairy farmers.

1 – No More Monthly Milk Price Manifestations
Intervention prices were abolished over a decade ago, yet Irish farmers are still transfixed on monthly milk pricing tables, and in recent years bi-monthly GDT auction results.

Price stability means securing sales partnerships with major buyers, and not selling on a trading market. Consequently we should price milk on a quarterly basis. Even though people often refer to the GDT Auction as the Fonterra Auction, it is worth pointing out that Fonterra themselves only adjust their forecast milk price on a handful of occasions throughout the year.

2 – Focus on the Value of Milk
Ireland has a long way to go with regards educating its farmers on the value of milk constituents. The fact that some co-ops still print a price per gallon on their milk statements shows show out of date Irish milk pricing is.

Many Irish farmers still think about milk prices on a price per litre basis. With the notable exception of Kerry Group, most co-ops continue to print a price per litre based on 3.6% average butterfat, even though the industry sailed past this benchmark over 18 years ago.

Furthermore, all Irish co-ops, without exception, should migrate to the A + B – C pricing system before the end of 2015.

3 – Reward Efficiency
Co-ops should reward farmers whose supply profile helps improve processing efficiency. Farmers in Australia receive bonuses for off-peak milk supply. Moreover, farmers supplying larger annual volumes of milk should also be rewarded for helping reduce co-operative transport costs.

The Irish dairy industry should consider introducing staggered ‘minus C’ penalties according to either the volume supplied or the average milk solids. Similar pricing incentives already exist within Australian, New Zealand and Scandinavian dairy co-operatives.

tom milk price vol

4 – Sustainable Profit should be a Priority
Co-op profitability and progressive young farmers will help ensure the future success of the Irish dairy industry. To help secure the viability of both, Irish co-ops should consider migrating their payment systems to more of a European standard whereby farmers a paid a monthly ‘Farmgate’ price, which is then coupled with a year-end 13th payment or dividend.

Not only would this get farmers thinking about the overall financial performance of their co-operatives, it would also encourage younger farmers to become more actively engaged in the governance structure of their co-op.

5 – Less Talk, More Action
For the past two years, Irish dairy industry commentators and policy makers have been voicing concerns about the impact of milk price volatility in the post milk quotas world, and tossing around opinions about future’s contracts and fixed pricing.

Yet, not too many are stepping up to the plate with a constructive roadmap with respect to fixing this issue.

Hopefully, the abolition of milk quotas will see more farmers become more engaged in the governance of their co-ops. Progressive Irish farmers have worked hard in recent years to optimise every fraction of a cent on their farms.

I doubt they will sit idly-by and allow inadequate milk pricing policies to erode their hard-earned gains in the years to come.

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