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The milk price mystery

on .

 

President of the Irish Creamery Milk Suppliers’ Association, Pat McCormack asks, why do co-ops pay farmers less than they get from Ornua?

At the time of writing nearly all of Ireland’s co-ops and processors had declared the prices that they were to pay their farmer-suppliers  (May). To describe that price as ‘important’ is to understate the matter considerably. The Rule of Thumb is that a quarter of a dairy farmer’s annual production will arise from the two months of April and May it is critical that these highest producing months get the highest possible price from the processing co-op.

That’s why we pay particular attention to the prices quoted around this time even above and beyond the intense focus we give to dairy markets and milk price at all times. For some time now – at least three to four months – we have been pointing out there were unmistakeable signs that upward price trends and trading activity in dairy markets signified a strength that should have been apparent in the milk price paid to our members but was not. On all the indices that we looked at: butter price, WMP and SMP prices and GDT activity we saw a noticeable ‘firming up’ of activity and prices that became even more marked as the production forecasts from different producer countries fed back and anxious buyers began to bid-up the forward pricing. The signs were there for all who knew where to look and when, just last month, the Commission proposed moving to a twice-monthly sale of its intervention stocks of SMP it was absolutely obvious that they now adjudged the market to be both robust enough to absorb that SMP easily and without forcing the price paid to farmers downwards. ICMSA described that decision then as “very significant” and waited to see how it would bump upwards the Ornua Index on which – we are constantly reminded – the milk price paid to our members is based.

The publication of the May Ornua Index at a fi gure that translated straight into a price of 31.4 c/L meant that the announcement of May price by the various co-ops became even more interesting than usual. The decision by the State’s biggest milk processor to announce a price that left its suppliers with three cents less per litre than the price being paid by even mid-table co-ops caused both confusion and anger right throughout that processor’s supplier base.

It is astonishing but no more than simple mathematics to note that a Glanbia supplier who sent in 100,000 litres for April and May got paid nearly €3,000 less than his Lakelands counterpart. I want to make this clear: ICMSA does not accept that there is any rational explanation for this divergence and we note that no such explanation – rational or otherwise - has been offered. We cannot accept a situation where a co-op can decide to pay its farmer-suppliers three cents per litre less than the co-op itself received for product supplied to Ornua.

That this policy of under-paying farmers in defiance of easily ascertainable market data was carried out at all is mystifying enough, but that it would be carried out after the winter and spring we ‘ve just come through is frankly astonishing. The gap between that Ornua 31.4 c/L and the prices paid by certain coops now represents a very large credibility gap that the co-ops themselves would do very well to address and close as quickly as they can.

We’re back here unfortunately to the discredited idea that has farmers as a kind of afterthought; the idea that when everyone else is paid and happy that whatever’s left can be released to the farmers. That idea was always obnoxious to us and whatever chance it had in days gone by when market movements and data were elusive and possibly out-of-date, it has no chance of getting past us now when we have access to the market data and can read trends as well as – if not better than – some of those charged with establishing market strength and fixing our milk price

On the subject of dispelling the idea that farmers are some kind of agri-sector afterthought, allow me to congratulate those who worked so hard and successfully to gain entry to the Chinese beef and pigmeat markets. This week saw another three beef factories and one pig-meat facility ‘passed’ for that market. Well done all round. But just one caveat: if all this doesn’t result in better prices for the farmers producing the beef then there’s really no point as far as we’re concerned. This isn’t a marketing exercise or trade-for-trade’s sake: if our beef exporters want the beef for their Chinese customers then the prices being paid to farmers had better reflect that desire.

 

Caption for Image:  Pat McCormack, President of ICMSA