While prices paid to dairy farmers remain very strong at present, one area of concern is over how consumers and customers will behave when faced with higher milk prices on the shelves.
That’s according to Seán Molloy, chief ingredients and agri officer for Glanbia, who highlighted that high dairy commodity prices “ultimately have to be absorbed by the consumers and customers in the market”.
Speaking to Agriland recently, Molloy noted that the transfer of high prices into the cost of product that the consumer is buying can now be seen, something he highlighted as concerning.
“When we went through this before back a number of years ago, when we didn’t reach the highs of today but we got very close to 40c/L, there was significant resistance from consumers at that juncture which did result – combined with other factors – in a significant fall-off in demand and a reflective fall in pricing.”
The Glanbia officer stressed the need to remain conscious that there “comes a point where a shift in value may take place in the market”.
“The other observation – and you can see this in the Irish economy – is very high general inflation right across Europe. Food is at the lower end of that at the moment, but at the end of the day the customer or consumer is buying a basket of goods and they make choices,” he said.
Molloy noted that there is already evidence of this taking place in the local market and internationally.
He said that a growth of own-label product as opposed to branded product was beginning to take place in the domestic market and in Europe. There is also the possibility of consumers moving to dairy substitutes, though this is offset by the fact the prices for these substitutes are also quite high.
Molloy also noted that some economies which processors are selling product into “are at the much poorer end of income, where food accounts for a huge percentage of [the consumer] budget and in those countries, once you get to certain prices, you do start to impact demand”.
Molloy also highlighted that much of the positivity in terms of dairy prices at present related to constrained supply rather than particularly high demand.
“We’re seeing, right across the major production regions for dairy in the world, supply challenged and therefore concerns from buyers to ensure that they secure supplies,” he explained.
Despite the concerns, Molloy said that the short-term and medium-term future for dairy prices remains positive.
However, high input prices are likely to persist for some time yet.
As well as that, Molloy underlined that dairy prices to farmers and their input costs “don’t necessarily have to move in tandem”.
“Just because inputs are high doesn’t mean that the value of the output is going to be high. There may not be a correlation,” he said.
He noted that there is unlikley to be a significant turnaround in the direction of fertiliser and feed prices this year, which are being exacerbated by the Russian invasion of Ukraine, due to the importance of those two countries as cereal exporters (impacting feed production) and of Russia being a major energy exporter (impacting the supply of energy for fertiliser production).
“One would have to be positive on the milk price in the short term and medium term. My concerns are, when we go into next year, that’s probably where I would have more concern than in the months ahead of us,” Molloy remarked.