Responding to the results of yesterdays’ Global Dairy Trade (Fonterra) auction, which saw an average fall in prices of 2.4%, IFA National Dairy Chairman Kevin Kiersey said it was important to remember that Irish co-ops do not trade on that auction.
While there is no denying the current pressure on dairy market returns, Mr Kiersey urged co-ops to adopt a measured response on milk prices over the peak period, to avoid denting farmers’ profitability and their confidence, thereby undermining farmers’ ability to invest for the post 2015 era.
“I have met with the main co-ops in the last few months, and all have made it clear to me that they were now far less dependent on basic commodities than they once were. Many have developed, through the IDB or alone, strong contracts with regular customers for high value products, and these clearly provide more stable returns. Of course, even those contracts will not be totally immune from spot market pressures, but when you depend much less on spot or opportunistic trade for basic, undifferentiated commodities, such as those traded through the Fonterra auction, returns ought to be higher and less volatile,” Mr Kiersey said.
“There is little doubt that strong supplies are outpacing demand, and international commodity prices have weakened. However, global demand remains robust, especially in high growth emerging countries, and the longer term outlook remains extremely buoyant for dairying. It is vital to sustain farmer confidence and avoid a boom/bust rhetoric which militates against sensible business planning at farm level,” he said.
“Our industry clearly is no longer totally dependent on basic commodities. This time last year, when I was asking co-ops to pass back to farmers the improvements in rapidly rising commodity returns, I was told that they were tied to regular contracts for high spec products which could not by definition reflect the volatility of commodities on the way up. Indeed, farmers did not receive the peak basic commodity returns. Surely, this logic also applies on the way down, otherwise, what is the point of developing higher value, contract based markets?” he added.
“Farmers’ confidence is tightly linked with their profitability, especially over peak months. Co-ops have had an opportunity over the last two years to rebuild their balance sheets. They have also made tremendous efforts to develop higher value products and stronger customer relationships, and this must be reflected in a very careful milk price policy over peak months,” he concluded.