Current challenging market conditions are proving to be a lesson for both dairy processors and farmers in relation to forward price contracts, according to Dairy Industry Ireland (DII) director Conor Mulvihill.

Speaking on the Agricultural Science Association’s (ASA’s) webinar on “Agri Supply Chain amidst Covid-19”, Mulvihill outlined that such fixed price contracts are needed to buffer the sector from shocks such as Covid-19, which has rocked markets severely in recent months.

When asked about farmers with forward contracts for certain amounts of milk at a fixed price, the director explained:

“I think it’s a huge lesson already for both processors and farmers that we really need to rethink our attitude around forward price contract for milk and for mutual funds.

We would estimate at the moment that about 30-35% of Irish milk is now locked in forward contracts, mostly back-to-backs, so I would think this one of the big lessons.

“We would have been a huge advocate as an association in the last number of years in that we really need to rethink our relationship with mutual forward contracts to buffer from shocks like this,” Mulvihill added.

Commenting on the immediate outlook, the DII director said:

“It’s going to be a hugely delicate balancing act over the next couple of months and we are very cognisant that this is farmers’ peak as well; peak cheque months where they are paying for their feed bills and fertiliser bills and veterinary bills.

You can be damn sure every business is aware of that and a lot have farmer board members running it and looking at milk prices.

“We don’t want to talk down the milk price; we’re very conscious of it,” he added, but warned that scenario plans of 22c/L had been done by EY in the event of no measures being taken by authorities.

Mulvihill stressed that this is why DII has been lobbying intensively to both the Government and the European Commission for market supports such as Aids to Private Storage (APS), in a bid to avoid intervention-level prices.