Representatives of the Irish Co-operative Organisation Society (ICOS) have said that banks should also be held accountable for the fixed-price milk contract crisis that some farmers now find themselves in.
CEO of ICOS, TJ Flanagan, and ICOS Dairy Committee chair, John O’Gorman, appeared before the Joint Oireachtas Committee on Agriculture, Food and the Marine to discuss the serious challenges that some farmers who are tied into such contracts are currently facing amid rising inputs costs.
Both ICOS representatives stated that certain financial institutions should be called before the Oireachtas committee also, as they were partly accountable for encouraging certain milk suppliers to sign up to fixed-price milk contracts.
During the discussion, the ICOS CEO estimated that between 400,000-700,000 million litres of milk, in total, are contracted to fixed prices.
He said the vast majority of farmers who are involved in a fixed-price contract are not experiencing issues currently, but some farmers, he admitted, are over exposed.
The ICOS representatives were unable to provide exact figures for the volumes of milk tied into fixed-price milk contracts, nor were they able to clarify the numbers of contracts within the sector, only to say:
“There are individuals and individual co-ops that are heavily exposed – 30% and more of milk in a fixed-price contract – the vast majority of fixed-price contracts are at the lower end, and 80% are on the variable scheme,” according to ICOS Dairy Committee chair, John O’Gorman.
When pushed on the exact numbers by Senator Tim Lombard, he was told by the ICOS CEO that there is a a difference between farmers who have fixed-price contracts and those who have problems with those contracts.
TJ Flanagan maintained that the latter involved fewer than 1,000.
ICOS unaware of over exposure
But the over-exposure of some farmers to these contracts was not something that ICOS had been aware of prior to this point.
On this, O’Gorman told the committee:
“Prior to this, it wasn’t our [ICOS] understanding that milk suppliers would have had significantly more than 20-30% of their milk supply tied into contracts,” he said.
He acknowledged that they are now aware that in some instances, farmers may have up to 90% of their milk tied into a contract, or contracts.
“Not many, but some,” he said.
Encouraged by banks
“In this regard, the banks must bear significant responsibility as they are, in part, accountable for encouraging certain suppliers to go down this route of tying in large volumes of milk into contracts, to minimise or de-risk farm investment,” he said.
“On the basis of what we know now, it was unwise to be so heavily exposed by fixing a milk price while not having some security around inputs,” he said.
The options to remedy the situation are limited, he told the committee, and said they involved appealing to the buyers – their customers – to provide a solution.
Fixed-price milk contracts are part of a back-to-back contract arrangement where a a volume of milk is matched to a volume of product.
“We understand that these conversations have taken place with only very limited success.
“From our position, the integrity of the contract is a very important in principle, and we do have to protect our reputation as a reputable trading partner.
“The only other option is for the wider milk pool to carry the cost,” he said.