At conservative estimates of around 55c/litre for wholesale liquid milk prices – the average price at which dairies sell milk to retailers – there is at least 20c/l more of a gross margin for dairies from liquid milk than manufacturing milk at current international commodity returns.
This fact was highlighted this week by IFA Liquid Milk Committee Chairman Teddy Cashman, who warned that massive feed cost increases, linked to higher ingredient prices and the low quantities of poor quality silage harvested in this summer’s appalling weather, would eat into liquid milk producer margins to the point of leaving them at a loss. “There is no need for this to happen if a fair share of the significantly higher retail market return is paid to farmers, in the form of increased payments over the winter months,” he said.
“Most liquid milk payment systems are now based on the manufacturing milk price, with a premium paid for a number of winter months. This means that, as the base price paid to producers has fallen by up to 6c/l fall in response to lower international market prices, winter premiums will need a massive uplift to help liquid milk producers to cover their costs in 2012. Alternatively, where premiums are part of a pre-agreed formula, dairies will have to deliver exceptional payments in recognition of the huge feed cost increases incurred by farmers,” he said.
“Teagasc have revised their 2012 farm income forecasts in July, showing that a combination of greater feed usage linked to the effect on fodder supplies of the wet summer and higher input prices, would lift feed costs by 25%, while fixed costs would rise by 10%. This would increase average liquid milk producer production costs by 13%, or 3.7 c/l,” he said.
“This year, dairies will have to realise that farmers will need around 32c/l just to cover fixed and variable costs, and another 7c/l to pay themselves the equivalent of the average industrial wage. This will require a significant increase in the amounts paid to farmers over the winter months, and I urge dairies to start engaging in earnest negotiations with retailers to secure the required increased margin,” he said.
“Paying farmers a fair price for their fresh, high quality milk over the winter months need not cost hard pressed consumers a single extra cent, in light of the gross margins of at least 20c/l retailers are currently taking on liquid milk,” he concluded.