Farm Ireland

Wednesday 23 May 2018

Dairy co-ops urged to pay 2011 bonus to suppliers

Caitriona Murphy

Caitriona Murphy

Dairy co-ops have been urged to pass back some of their improved 2010/2011 profits to milk suppliers in the form of an end of year bonus.

As co-op boards gather across the country this week to decide on September milk price, the IFA has called for the bonus on all 2011 supplies.

Despite a weakening of the global dairy markets in recent weeks, European markets have remained stable at relatively strong price levels, IFA dairy chairman Kevin Kiersey maintained.

He added that it was crucial that the increased profits be used to invest in greater co-operation between co-ops for the future of the sector, but farmers should also benefit from the improved situation.

Meanwhile, ICOS, in its October newsletter, has suggested that Irish co-ops should look closely at the transparent milk pricing mechanism used by Fonterra. The New Zealand milk giant recently outlined that suppliers will be paid based on the revenue that their co-op would generate if all its milk was converted into commodity whole milk powder (WMP), skim milk powder (SMP) and their by-products, known as reference commodity products.

The calculation includes the cost of raw milk transport to Fonterra's factories, efficient manufacture of the reference commodity products and transport to the point of export.

However reference commodity products only comprise around 70pc of Fonterra's total production and the farm-gate milk price does not include any returns from value-added products such as infant formula, specialised protein products and branded consumer dairy products.

The Fonterra milk pricing mechanism is aimed at ensuring that the milk price paid to farmers is calculated in a consistent, transparent way that can be independently verified.

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A milk price panel, set up by the Fonterra Board, to calculate milk price, consists of three Fonterra directors (two appointed and one farmer), and two appropriately-qualified nominees of the shareholders' council, at least one of whom must not be a farmer shareholder.

This year's milk solids payment to farmers of $7.60/kg (¤6/kg) milk solids equates to around 37.64c/l at typical New Zealand constituents of about 4.9pc fat and 3.7pc protein.

Over the past two seasons, net revenues have increased $2.96 (¤2.17/kg), or 45pc, while in the same period costs have increased by eight cents or 4pc.

The co-op recently announced a record turnover of €11.6bn in 2010/11.

Post-tax profits increased by 13pc to €448m, while farmers were paid 29pc more for their milk than the previous year.

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