Rocky times ahead
A pandemic, by definition, affects the entire world. COVID19 has affected us all in our personal, family, working and farming lives. While farming and food production have been declared essential sectors from the word go, and have been protected from much of the lockdown provisions in recognition of the importance to populations of a solid food supply chain, the closing of the restaurant trade has been hugely disruptive for markets, product prices, and even milk production.
The short-term bout of “panic buying” has eased in most markets, and has only partially offset the losses from food services. That said, new trends for home cooking and home baking in particular while lock downs are imposed and schools are off, are having interesting impacts on the sales of flour, eggs, buttermilk, butter, among other products.
Irish dairy farmers have been rattled by social media videos of farmers spilling milk in the US, Canada, and very close to home in the UK.
The Irish dairy sector is generally less exposed to the food services sector than the dairy industry in many larger countries like the US, the UK, France or Germany – though some of our milk purchasers have developed good businesses in those areas, too.
However, the Irish sector is not insulated from those international trends either. Milk and dairy products that would have normally been utilised by restaurants, cafes and school/college canteens are now floating about without a home and creating price pressure. A good example of that is the pressure on butter prices from surplus cream which would normally have gone to restaurants and cafes, and which, within two week, took €700/t off spot butter prices (to a current, just above intervention level of €2500/t).
There is very real, and legitimate concern that the pandemic could stress critical human resources in Irish plants and a vivid awareness of just how much contingency planning and hard work is going into ensuring every litre of milk is collected and processed over the nervous peak milk weeks of May.
However, Irish co-ops trade prudently, and it is clear they have undoubtedly sold at least some of the spring milk forward at a time before COVID19 when the outlook was for a very good year for dairy. Yet, far too early some co-ops have started cutting milk prices by far too much – up to 2c/l.
No doubt, there are difficult times in the months ahead as it will take time for sufficient “normality” to creep back in as lockdowns are eased in Asia, Europe, the US and beyond, economic activity returns, and restaurants and cafes are reopened.
There are also concerns that there will be longer-term economic damage done to the purchasing power of consumers who may have lost their job, temporarily or permanently.
Clearly, there are rocky times ahead for the dairy sector, with concerns over milk prices well placed, at least for the medium term.
But people need to eat, and the fundamentals which govern demographics and food demand trends remain before and after the pandemic.