‘Co-ops are going to have to up their game considerably’

Co-ops are going to have to up their game considerably if they want to be able to count on anticipated supplies of milk in the last quarter of 2016, ICMSA Dairy Spokesperson, Gerald Quain has said.

He said that co-ops are going to have to do two things immediately if they want to be able to count on anticipated supplies of milk in the last quarter.

“They’re going to have to get more hard-nosed in their deal-making and really get the best prices in a rising market.

“Secondly, they’re going to have to pay a price to their farmer-suppliers that makes it worthwhile to pass on the voluntary reduction production programme,” he said.

Quain said that the introduction of the voluntary production reduction scheme has given farmers options and if co-ops want milk supplied in the last three months of 2016 they are going to have to respond with higher prices.

“With the option now of a payment that might cover all overhead costs for those months, farmers will think long and hard about producing milk at a time when direct costs can be significantly higher than other months.”

Global Dairy Trade reaction

Reacting to this week’s positive Global Dairy Trade auction, Quain said that based on the latest increase in the auction and the milk prices being quoted on European spot markets, there is growing evidence to suggest that the lift currently underway in dairy markets will continue.

Quain said that these increases must be reflected “at the first opportunity” in the prices paid to farmers – most specifically by those co-ops currently paying less than 23c/L.

The ICMSA Committee Chairperson said that Dutch dairy quotations have rebounded in the last number of months with butter/SMP returns up 21% since their lowest point in March and WMP up 20% since its lowest point in mid-April.

While acknowledging that these percentage increases are from a low base, Quain said that they nevertheless represented an increase of 5c/L up to 25c/L at farm level inclusive of VAT.

He said that a number of factors were combining to indicate that better returns are already achievable: a tightening occurring in the global supply situation across Europe and New Zealand, lower milk production in Australia due to adverse weather, and a ‘pick-up’ in demand coming from markets.

The ICMSA Dairy Chairperson said that all this was moot, if farmer-suppliers were left wondering why the positive indicators are not feeding back into their milk price.

The low market returns were inflicted on all dairy farmers regardless of the increased quality base and the much hyped diversification of products sold by processors and co-ops.

“Farmers had hoped they would, to some degree, be insulated from rock bottom prices by that high-profile diversification program engaged in by our processors but prices received by Irish farmers are only one to two cents per litre higher than that of New Zealand who traditionally sell base commodity products and who are a great deal further geographically from major markets than we are.

“The latest LTO price comparison shows Fonterra paying €20.11/Kg while the Irish processor returns a mere €0.89/kg above them at €21/kg.”

Quain has said that this makes a mockery of the much touted move to value-added products when we see our farmer prices are on par with the main producer of commodity dairy products in the world and one, moreover, who must transport these product huge distances to reach market access.