Farm Ireland

Sunday 23 October 2016

Billion euro cost of milk price crash

Published 12/08/2015 | 02:30

Stan McCarthy
Stan McCarthy

The massive fall in milk prices looks set to remove €1bn from the rural economy this year.

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The ICMSA has calculated a 17pc fall of 6.4c/l will reduce milk cheques to dairy farmers by €586m alone in 2015. However, an even more drastic picture of the impact of the dairy price crash emerges when the impact on the wider rural economy is considered.

It comes as Kerry Group chief executive Stan McCarthy admitted the year-long bear market for dairy commodities had become "extremely dangerous" and it was becoming uneconomical for suppliers to maintain production.

"If markets were to stay at this level long term - by that I mean to the end of 2016 - then that would be very problematic," he said. "The question is how long will this cycle last."

Using an average milk price of 38.4c/l in 2014, the ICMSA estimate the average milk price in the first third of this year to be just under 30c/l, and the May-June price to be 27.9c/l. A figure of 26c/l was assumed for July, with an average price of 24c/l for the last five months of 2015. When monthly milk deliveries are factored in, the average milk price for 2015 works out at 28c/l.

On the back of a drop in milk receipts, if an economic multiplier of 1.7 is applied to take into account the wider impact, it would mean €1bn is removed from the rural economy.

The ICMSA's deputy president, Pat McCormack warned that the losses would be even greater next year if dairy policy 'complacency' continued and if prices fell as far as 24c/l.

"The Government and EU are duty-bound to prevent prices falling as far as 24c/l," he said.

"Whatever happened to the value-added strategy being pursued by all our processors and co-ops where we were going to see a move away from a basic commodity basis and onto a level that was far closer to the final retail price?" he asked.

The ICMSA have been lobbying for an income-smoothing policy modelled on the successful Australian Government's income averaging tool.

Meanwhile, the IFA has demanded more cooperation and consolidation between co-ops to help ensure that farmers get the best possible milk price following Teagasc's prediction that one third of dairy farmers could end up making a loss in 2015.

The IFA is lobbying for a higher intervention price and for the ring-fencing of superlevy funds to support farmers. Agriculture Minister Simon Coveney said the country has experienced both the upsides and downside of price volatility in the dairy market.

"Maybe one in every five years you'll see the downside of price volatility," he said, adding tools needed to be put in place to stop swings in prices.

In the last week Russian authorities stepped up their clamp-down on EU food imports, with Irish meat being recovered from Moscow food outlets during a series of nighttime swoops.

Russian President, Vladimir Putin recently ordered the destruction of tonnes of smuggled EU foods.


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