‘Only farmers’ margins are wiped out in a price downturn’

Only farmers’ margins are wiped out in a price downturn, according to the Chairperson of the Irish Creamery and Milk Supplier Association’s Dairy Committee, Gerald Quain.

Quain was speaking following the release of Ornua’s review of its 2016 operational and financial performance last week.

There was no denying the underlying commercial performance indicated by the increase in Ornua’s turnover and profits last year, he said.

However, dairy farmers would have carefully noted that, in common with some other processors, Ornua’s margins increased throughout the 2015/2016 price collapse, Quain added.

This is despite the fact that the margins and milk income of dairy farmers – who are the basis of the sector – were wiped out during the same price collapse, he said.

Farmers always knew that the other links in the supply chain guarded their own margins and simply pushed any losses back towards the farmers, according to Quain.

Last year, Ornua recorded an 18% increase in EBITDA; its operating profits also climbed by 46%, compared to the previous year.

This occurred in a year when dairy farmers only broke the 28c/L mark in the fourth quarter, having received a price well below the costs of production for over a year at that stage, Quain said.

Farmers accept the need for profitability in the processing and marketing sectors, the ICMSA’s Dairy Committee Chairperson said.

Increasing profits in a year when farmers’ margins were slashed highlighted the divergence between, what Quain called, the ‘hard pressed foundation level’ of the Irish dairy sector and the ‘processor – marketeer level’.

It is important going forward that that co-op ethos is maintained and that the pain is shared during periods of market downturn, he added.

Increasing profits in a year when farmers’ incomes were at rock bottom only confirms what we already knew; every link in the supply-chain might benefit when prices are rising but only farmers’ margins are wiped out in a price downturn.

“This runs counter to the co-op ethos and we need to see greater support for farmers during periods of market downturn going forward,” he said.

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