Dairygold has told its farmer suppliers that it “continues to explore other support options” to assist those who may be under financial strain due to being tied into fixed milk-price contracts.
In a letter sent to suppliers this week, and seen by Agriland, the co-op clarified the situation regarding provision of assistance to farmers who are supplying milk under contract.
It re-confirmed that it would not be taking Ornua up on an offer of fixed-price support.
It also said that it is required to have regard to Dairygold milk suppliers who are not in fixed-price schemes, adding that it “cannot be seen to favour milk suppliers in fixed-price schemes to the detriment of non-fixed-price milk suppliers”.
It added, however, that it is ready to assist any member, especially those in a fixed-price contract, who may need assistance.
“We are obliged to abide by the terms of our contracts but we will continue to actively review all options to assist affected fixed-milk price suppliers.”
And it stated that it estimates a higher return in 2022 for all of its milk suppliers, including those on fixed-milk contracts.
Ornua offer
Ornua recently offered a support package to its co-op members, including Dairygold, that works out at less than 1c/L on 2022 milk volumes included in fixed milk-price schemes.
And the support is conditional on those co-ops committing to additional fixed milk-price volumes in 2023 at 42c/L.
But this 2023 price of 42c/L offered by Ornua is “significantly lower than the current market expectations”, Dairygold said, and a milk price greater than 42c/L next year would see Ornua recoup all or a significant portion of the support offered this year.
In its letter to suppliers, Dairygold said:
“As Ornua is only prepared to offer this minimal cashflow support, Dairygold has notified Ornua that it will not be accepting this offer.”
However, it stated that it continues to explore other potential support options “including with Ornua, which could be offered equitably to all Ornua member processors and distributed to Dairygold’s fixed-price scheme suppliers to address the current unprecedented circumstances”.
Dairygold’s fixed-price situation
Around 4.5% of Dairygold’s annual milk supply is linked to fixed-price schemes, which have been offered to its farmer suppliers since 2016.
The co-op’s FM5 scheme covers 2020-2022, while its FM6 scheme covers 2021-2023. The former is priced at 31.75c/L and the latter is priced at 32.25c/L.
Under each scheme, a farmer could commit up to a maximum of 10% of their annual milk supply, and a maximum of 20% under both schemes.
This results in “at least 80% of all milk suppliers’ annual milk volume being purchased at the monthly milk price”, the letter said.
These contracts and the financial issues that some farmers may be experiencing as a result of the above milk prices – which are around 20c/L below the current monthly price – have been discussed in detail at a number of recent board meetings, and most recently at a combined committee meeting of the regions, the letter detailed.
“A number of fixed-price milk suppliers have requested additional support, especially as they see the large and increasing differential between the quoted monthly price and the FM5 and [FM]6 prices,” the letter said.
It said that despite the unprecedented inflation that has driven up inputs costs, the dairy market returns are proving resilient and are returning “a very strong farm gate milk price”.
It said it estimates that the 2022 milk price will provide a higher marginal return than in 2021, for all milk suppliers including fixed milk-price suppliers.
It said it is also required to have regard to Dairygold milk suppliers that are not in fixed-price schemes, and “cannot be seen to favour milk suppliers in fixed-price schemes to the detriment of non-fixed-price schemes”.