Co-ops Can Afford Commitment to Hold Prices Until Spring at Least

Even allowing for some supporting of milk prices in early 2016, co-ops should be in a comfortable position to hold prices at least until spring, and should even examine their overall 2017 financial situation to consider the payment of end-year bonuses.

IFA National Dairy Chairman Sean O’Leary has said an examination by IFA of the difference between the EU returns for an Irish product mix, as reported by the EU Milk Market Observatory, minus a 5c/l processing cost, and the average of the Farmers’ Journal Monthly Milk Price League suggests that co-ops, while increasing milk prices significantly, have been able since mid-2016 to retain significant value from the market and rebuild their balance sheets.

“Between July 2016 and October 2017, the average gap between the price paid by co-ops (average of the FJ League) and the returns from the EU market (based on EU MMO returns after 5c/l processing costs) was around 2c/l, varying between 0.2c/l in October 2017 and over 4c/l in September and October 2016. We estimate this retained value would have been worth over €190m to co-ops, bearing in mind the volume growth over the period,” Mr O’Leary said.

“It was obviously vital for farmers to benefit from the significant market improvements over that period, after a couple of very difficult years. Co-ops clearly supported milk prices in January to May 2016, by an average of just over 1c/l according to our study, and also needed to rebuild their balance sheets,” he said.

“However, we believe they have been well able to do this, bearing in mind the major volume increases over the period, and are now in a comfortable position to commit to holding their current milk prices at least until spring, with the option of end of year bonus needing very serious consideration also,” he added.

“Co-op boards are meeting this week to consider the November milk price, and look forward to what challenges 2018 might bring. National Dairy Committee members have been lobbying them in this context, and we look forward to fair commitments being made by co-ops to their suppliers over the coming days,” he concluded.