Co-ops will have to “navigate” their way through current conditions and “maximise returns in the context of weaker markets”, the president of the Irish Co-operative Organisation Society (ICOS) has warned.
James O’Donnell said economic conditions are “volatile” while consumer and buyer sentiment “is compromised” – both circumstances which are challenging for co-ops at this time.
“Everyone is very conscious of the inflationary environment we’re operating in and this also relates to the cost of farm inputs,” the ICOS president said.
There have been warnings in recent days that any further cuts in milk prices will heighten input-cost pressures on dairy farmers.
Kerry Group, Lakeland Dairies and Dairygold have all blamed weaker dairy market conditions and increased global milk supplies for their decision to reduce milk prices for February supplies.
Farm organisations, like the Irish Farmers’ Association (IFA) and the Irish Creamery Milk Suppliers’ Association (ICMSA) have warned that any further milk-price cuts would be “unsustainable” – particularly as input costs have not fallen.
Latest research from Rabobank also suggests that milk prices in the European Union are currently in the middle of a “large price correction” which will result in “tighter on-farm margins from quarter two onward”.
It is a trend that ICSO is only too aware of, according to O’Donnell.
“Last year was a record year for dairy prices, which had increased steadily since mid-2020, due to a then shortfall in global dairy supplies and overall strong market demand throughout that period.
“This yielded record milk prices which was a very welcome development.
“However, the markets started turning towards the end of last year and have fallen back even more considerably over the past number of months, with global milk supplies now growing,” the ICOS president added.
O’Donnell said this is strong in influencing the overall balance of “supply demand” and he expects that this will continue to have an “effect on market returns”.
“We must also acknowledge that farmers have faced historically high input costs during this time,” he said.
“Inflation has been big a concern for farmers since the start of the Ukrainian war, particularly the price of energy and the price of fertilisers.
“But we are lucky that we are in a world where food security is very important and the markets have reflected that.”
According to O’Donnell, there has also been a “huge effort” made by co-ops in relation to some farmers who have come under pressure because they signed fixed milk-price contracts.
“Co-ops process 97-98% of the milk in Ireland and it is a model that supports farmers,” he said.
While he stressed the fact that a “legal agreement is a legal agreement” he believes the co-ops have made a significant effort to alleviate the problems that some farmers have had with fixed milk-price contracts.
O’Donnell said it remains a challenging time for co-ops at the moment but he has stressed that it is important to remember the role they play in the Irish economy.
According to ICOS, every €1 of exports of dairy goods contributes to a 90c spend within the Irish economy.
“Challenges always come and have always been dealt with and throughout this the co-op movement has made a huge contribution to rural and agri-communities.
“The co-ops in rural Ireland are vital to maintaining the rural areas and villages – there is no village in Ireland that is not affected by the co-ops and the employment that it creates,” O’Donnell said.