Fixed-price milk suppliers of Kerry Co-op have been offered a forward price of 45.5c/L (March to October) in 2023, in order to avail of a 5c/L subvention payment in 2022.
Last week, Kerry Group issued letters to its fixed-price farmer suppliers offering the subvention payment this year, based on a 2023 fixed-price scheme.
To avail of this subvention, suppliers must commit a certain volume of milk in 2023 – from March to October – which will be locked into the 45.5c/L contract. The 5c/L subvention payment this year, is then based on this volume.
Suppliers received details of the forward price scheme last week: 45.c/L (March to October 2023) at 3.3% protein, and 3.6% butterfat, inclusive of VAT.
How does it work?
A farmer has 100,000L locked into a fixed-price milk contract, or contracts, in 2022. If the farmer agrees to supply the same volume in 2023, they will receive a subvention payment of 5c/L on 100,000L in 2022.
The maximum volume that can be committed in 2023 at 45.5c/L is the amount currently in contract. In the case of the farmer above, they could not lock in 120,000L at 45.c/L, for example. But they can supply fewer litres, if desired.
So, if they commit to 50,000L in 2023, they will receive a subvention payment of 5c/L on 50,000L in 2022.
The processor gave farmers until 2:00p.m today (Monday, May 23 ) to sign up to this one-year fixed-price contract.
Confusion
However, one farmer supplier who contacted Agriland, said there was confusion about where the 5c/L subvention payment is coming from, and claimed that there is a belief out there that it is being taken from 2023’s fixed-price offering.
This farmer said that, at a meeting of the Irish Creamery Milk Suppliers’ Association (ICMSA) last week, this issue was raised, and the meeting reportedly was told that the actual fixed milk price on offer for 2023 by Kerry Group is 50.5c/L.
“It looked like Kerry was putting a little bit of money towards us, and then giving us the option of locking in our milk for next year. What we were told was it was 50.5c/L, but we are getting an advance of 5c on next year’s money,” the farmer said.
But a number of other sources have told Agriland that the subvention price is a standalone offering from Kerry Group for 2022 to free up cashflow for farmers who may need it this year. The 5c/L is not, they said, connected to a forward-price scheme.
While it requires farmers to lock in a certain volume of milk in 2023 – just like any fixed-price scheme – suppliers are not required to pay back the subvention payment.
Agriland contacted Kerry for clarification and but has not received a response.
Kerry could do more
Irish Farmers Association (IFA) Limerick chair, Sean Lavery, told Agriland that any farmer considering this option – or, indeed, any milk contract – should always obtain financial, independent advice given the implications for their business.
He added that he felt Kerry Group could do more for its farmers than this 5c/L subvention, and said that what Kerry has offered makes little financial sense.
While it is not a loan, it could be seen as an expensive way to access money now, if the upward milk price trend continues into 2023, and, surpasses the 45.5c/L offered by Kerry Group.
He provided the following example:
A farmer commits to supply 250,000L in 2023; based on the offer on the table from Kerry Group, this will see them receive a €12,500 subvention payment in 2022;
And in 2023, those 250,000L will yield a payment of €113,750 (at 45.5c/L). But, if the farmer does not sign up to this contract, and the milk price is 46.5c/L in 2023, that would yield a payment of €116,250.
If the price per litre was 47.5c/L, that would yield a payment of €118,750, and so on.
“Therefore it makes little financial sense to accept this offer, especially if price remains higher than 45.5c/L in 2023,” he said.
“It would make much more sense to borrow the €12,500 even at 8% from the credit union.
“However, everyone’s circumstances are unique. In addition, we cannot forecast what milk prices will be in 2023, all we can do is provide information to inform your choice of decision,” he said.
National dairy chair with the ICMSA, Noel Murphy said that while he believed that Kerry could do better for farmers – perhaps by raising that 45.4c/L to within 2c/L of the current base price of 49c/L – he acknowledged that the processor is making an effort.
“We acknowledge that the processor is trying to do what they can, but they could do a bit more, and they could do a bit more on the feed side too.
“Some farmers are locked in at 31c/L, Kerry might not have a large number of farmers in contracts, but that may be all the more reason why they could do more for the farmers that are,” he said.