Farming

Wednesday 30 July 2014

Glanbia cut of 2c/l sparks fears of further milk price reductions

Declan O’Brien

Published 10/06/2014|02:30

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The Glanbia plant in Ballyragget, Co. Kilkenny.
The Glanbia plant in Ballyragget, Co. Kilkenny.

Glanbia's decision to cut its May milk price by 2c/l to a base of 37c/l (including VAT) could herald the start of a general slide in milk prices this summer.

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With a number of processors due to meet this week to set milk prices, the belief in the industry is that by moving on price Glanbia Ingredients Ireland Limited (GIIL) has opened the door for other processors to follow suit.

"Everybody was hoping that either Glanbia or Kerry would kick the price cuts off. Nobody wanted to be the first to move for the peak supply months of May and June," one processor source admitted.

If the Glanbia move is followed by other processors the price drop will cost dairy farmers €75m to the end of the year, as almost three-quarters of the country's 5.5bn-litre quota is delivered between May and December.

The ICMSA has estimated that the drop in price will cost a farmer with an 80-cow herd and a 350,000-litre milk supply close to €1,000 for May and the same for June, and up to €5,000 to the end of the year.

However, there are fears in the industry that this could be the first in a two- or three-stage cut which will see milk prices fall by up to 5c/l this summer.

Processors argue that the price reductions introduced by the Irish Dairy Board for commodities since December equate to a 5c/l discount.

Dairies have also defended the price cuts on the grounds of weaker international markets since late last year and historically high milk prices.

But Glanbia's move has been criticised by both the ICMSA and the IFA. The deputy president of the ICMSA, Pat McCormack, said the decision was "particularly reprehensible" since markets had "levelled-out" and a "rebound was under way".

Rebound

"The latest Dutch Dairy Quotations showed improvement this week across all categories and we also saw a rebound for cheddar and skim milk powder in the latest Global Dairy Trade auction," Mr McCormack said.

Pointing out that Dutch processor FrieslandCampina recently increased its milk price, Mr McCormack said this was a time for stability in the Irish dairy market and not one for adding volatility.

"The 12-month rolling average milk price paid across Europe in April was €39.73 per 100kg but the Irish processors paid out €38.77 per 100kg," Mr McCormack said.

He also noted that Irish prices had now dropped below those being paid in New Zealand and the US.

"We needed the State's biggest processor of milk to stand up for their suppliers and hold the May milk price. Instead we got a decision that unjustifiably, in our opinion, takes very sizable sums out of suppliers cheques," said Mr McCormack.

IFA national dairy committee chairman Sean O'Leary described GIIL's decision as disappointing.

Mr O'Leary said GIIL, as the largest milk processor in the country, with strong efficiencies and a varied product and market mix, had missed an opportunity to allow their suppliers to optimise their income at the peak – something Irish dairy farmers have not been able to do in recent upturns.

While accepting that market prices had declined, Mr O'Leary reminded other co-ops that they had benefited from strong accumulated profits for 2013.

"They have also received €13m worth of dividends and bonuses from the IDB in respect of 2013 trading.

"EU average dairy returns throughout May exceeded 42c/l, which would have allowed co-ops to cover processing costs while holding current milk prices," Mr O'Leary said.

He urged all board members to bear in mind their fellow farmers' cashflow requirements and the need to preserve both their goodwill and their confidence, by holding the May milk price.

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