ICOS Senior Dairy Analyst T J Flanagan has told Agriland that the principle underlying the proposed introduction of a European Milk Market Observatory is sound, provided it is run on a purely independent basis.

“The EU is crying out for the establishment of an accurate and independently-managed market analysis tool that will give accurate insights into milk prices, projected stocks and trading activity,” he said.

“If managed on that basis the Observatory would act as an EU futures markets for dairy produce, which would encourage the active participation of processors, buyers and sellers. This, in turn, would allow processors to ‘hedge’ their options and, in so doing, bring a degree of stability to the potential for extreme volatility that might otherwise exist when it comes to determining farmgate milk prices.”

The ICOS representative went on to say that the establishment of an efficient futures market would allow Irish processors to offer those fast expanding milk producers fixed price contracts for a significant proportion of the milk they produce.

“And this, I feel, would prove attractive to many dairy farmers who will want to secure as much business stability as possible, given the scale of the repayments they will be confronting post expansion.”

But, according to T J Flanagan, the one downside to the proposed Observatory is its possible use as apolitical tool by those EU Member States that are opposed to the abolition of milk quotas.

“ICOS is very much opposed to such a development. There are rumours circulating around Europe that the introduction of the Observatory may be part of a bigger plan, relating to the control of EU dairy markets. Again, ICOS would be opposed to any developments of this nature.”

Commenting on the need to balance a futures market for dairy products with a similar initiative targeting inputs, T J Flanagan said.

“I know that a number of agri commentators are keen to promote this concept. However, in my own view I believe that an effectively managed futures markets for milk should provide Irish dairy farmers with all the re-assurance they need.”

But when pressed about the possible impact of a prolonged conflict, involving Russia and the Ukraine, he did admit that the option of farmers being to hedge their options regarding feed and fertiliser procurement could be worth looking at.