There seems to be a significant disconnect within the dairy industry at the moment, as two of Ireland’s largest dairy processors post large profits while dairy farmers languish amid falling prices and no immediate positivity on the horizon.
This week Kerry Group posted profits of €700m, yet it’s dairy farmers are coping with a base milk price of 25c/L.
Glanbia announced figures that showed that its suppliers increased production by 18% last year – well above the national average of 13%. Glanbia says it delivered a strong performance in 2015 and its earnings (before interest, taxes etc) were €270m. Glanbia co-op milk suppliers were paid 25c/L for January milk.
The results from Kerry and Glanbia would suggest the markets are there – with both having diversified into food ingredients and performance nutrition respectively – to pay farmers more than they are currently doing.
Kerry is one of the leading food ingredients companies in the world, producing around 15,000 food ingredients.
Glanbia too has made great inroads in the performance nutrition sector, from whey-based products. It’s managed go become a world leader through its Optimum Nutrition brand in a sector that has moved from the bodybuilding world to a product that’s now on supermarket shelves. And selling for considerably more than milk.
World dairy markets are going through a tough time, there’s no doubt about that, but the diversification of dairy processors should help reduce the impact of poor dairy prices. But returns from these strong market sectors, at best, trickle down to the dairy farmer.
In the case of co-ops, the onus still lies firmly to do what is best for the shareholders. A good co-op is about its history, people and loyalty. Serving the loyalty of its members with a good return is critical to its success and some have managed this better than others in Ireland.
However, a Plc is forced to try answer to more than one master and when times get tough it inevitably puts its shareholders first.
While the Plcs have created a distance between them and the farmers, they are still hugely reliant on the farmer for their basic ingredient – milk. This tie-in however, does not supersede the drive to maximise benefits for shareholders. And in a Plc the link to a greater social good is limited.
So, farmers continue to be the last people paid in the food chain, once the retailer and the processor get their share. And often the share farmers receive doesn’t cover their costs of production.
If this continues, the picture is bleak for Irish dairy farmers. The world dairy market looks increasingly unlikely to pick up in 2016, so it will probably be 2017 before Irish dairy farmers can expect base milk prices to go much beyond 24c/L.
Milking cows to make no money isn’t a winning business plan and, unless farmers start to receive a better return from the processors, it will only lead to the more dairy farmers exiting production.
Some of the best run co-ops in Ireland return the best milk price to their farmers and it’s this ethos of co-ops that farmers need right now – serving loyal members.