Ornua May Ppi Increase Shows Dairy Market Recovery Can and Must Be Passed Back to Farmers – O’leary

IFA National Dairy Chairman Sean O’Leary has said the 1.8 point increase in the May Ornua PPI to 106.8, equivalent to a milk price of 32c/l including VAT, after deduction of a 6.5c/l processing cost, vindicates IFA’s view that more of the dairy market recovery can, and must, be passed back to farmers in a May milk price uplift of up to 2c/l.

“The National Farm Survey shows farmers took the brunt of the dairy downturn, with a 17% fall in 2016 incomes. While co-ops clearly supported milk prices in 2016, which reduced but did not eliminate profits, Irish dairy and ingredients exports increased 2% to €3.38b, and the dairy recovery is continuing in earnest into 2017 – but farmers have not seen the full benefit of it,” Mr O’Leary said.

“Farmers’ incomes fell despite a 4.4% increase in production. Milk prices increased around 7.5c/l between July 2016 and February 2017, but have stagnated ever since. While co-ops may be tempted to further rebuild their balance sheets, milk prices must now be further increased,” he said.

Farmers recognise the effort made by co-ops to support milk prices in 2016, and while this softened the blow, it did not protect farmers from significant income reductions and cash flow stresses in 2016, as highlighted by the NFS results published last week.

“Both global and EU dairy prices have been rising strongly in recent weeks, as confirmed in yesterday’s GDT auction, the 6th bullish one in a row. EU butter prices as quoted by the EU Milk Market Observatory for 28th May 2017 have increased by over 18% since this year’s trough in early March. SMP prices have lifted over 7% since late April, while WMP is up 6.5% over the same period. Cheddar prices are up 5.5% and whey powder prices over 7%. An Irish product mix based on the quotes from the EUMMO would yield a current farm gate equivalent price, after deduction of 5c/l processing costs, of 33.52c/l + VAT (35.33c/l incl. VAT),” he said.

“We are very clear that, as co-ops have increased sales significantly in recent months, and as dairy prices are recovering to, in the case of butterfat especially, historical levels, there is real scope for further milk price increases to be passed back to Irish dairy farmers,” Sean O’Leary concluded.