Farm Ireland

Friday 17 November 2017

Liquid milk breakeven is 40c/l

Tough negotiations: liquid milk producers are bracing themselves.
Tough negotiations: liquid milk producers are bracing themselves.

Darragh MccCullough

Liquid milk producers are bracing themselves for tough negotiations with their biggest customer following the revelation that they need 40c/l to breakeven.

Hundreds of Glanbia suppliers with year-round supply contracts gathered in Kildare last week to hear the analysis by FDC accountant, Barry Murphy, which showed that liquid milk suppliers' costs are much higher than the figures published by Teagasc's E-profit monitor surveys.

The current agreement with the country's biggest fresh milk supplier runs out this summer, but Glanbia is already suggesting that it wants to reduce the volume of milk it contracts following the loss of over nine million litres to competitors for its supermarket contracts.

Liquid milk producers have already secured a change to their price band mechanism that is designed to minimise the effects of volatility.

Previously, when manufacturing prices fell outside a band of 27-32c/l, the producer received half of the price increase or cut.

The band has been altered to 28-32c/l, and farmers will not lose more than 1.5c/l when the price drops below 28c/l, leaving the farmer facing a minimum price of 26.5c/l.

However, the flip-side is that when the manufacturing base price goes over 32c/l, farmers will only receive 50pc of the increase up to a maximum of 33.5c/l.

The next part of negotiations will focus on the winter bonus scheme, which is due to expire this summer. It is currently set at 3.83c/l, but the FDC analysis shows that a minimum bonus of 6c/l will be required to deliver farmers a breakeven price of 40c/l.

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This figure includes an annual labour cost of €45,000 to manage 120 cows, along with depreciation and interest payments. However, it does not include the value of any farm subsidies.

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