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Processors to shake things up

There are major changes afoot in the Irish dairy sector if the rumours doing the rounds in the southeast are anything to go by.

Reports that agents acting for British processors are looking to sign up milk suppliers in the southeast has the potential to really shake things up.

While the volumes being talked of are small at the moment, such a move would set a very interesting precedent.

The latest figures from Britain show milk production so far this year is back by close to 10pc. With milk supplies on our neighbouring island not expected to keep pace with demand, the likelihood is that Ireland could well be seen as a ready source of raw material.

Such a development would have to be viewed as good news for dairy farmers. Every time another buyer comes into the market has to be a plus for the primary producer.

However, farmers would also be wise to be cautious. The devil you know is usually better than the one you don't, and it's hardly the case that dairy farmers in Britain were enriched by their processors over the last 10 years.

In fact, the opposite was the case, with thousands of farmers forced to the wall as farm-gate prices were squeezed by retailers and processors.

This latest development is another sign of how tight milk supplies have gotten and the actions of the British processors are simply a reaction to this fact.

The extent to which the supplies have dried up on world markets was illustrated by reports New Zealand giant Fonterra is expected to buy milk powders this year to fulfil forward contracts.

When that is happening you know things are tight.

"The best indicator of global prices right now is Fonterra's GDT which jumped by 27pc off a high base. And all the signs are that it will grow again," said Irish Dairy Board chief executive Kevin Lane.

"All the people I talk to say that this milk price spike is now even more severe than 2008, so we're in real unchartered territory. And the danger of farmer euphoria, demand burn-off and a subsequent collapse in prices is very real right now," Mr Lane warned.

"I just hope that processors are putting something aside to protect farmers when the trough comes, because that's simply inevitable at this stage."

Unfortunately, very few farmers will be in a position to do the same. As the fodder story on the previous page highlights, the benefits of high milk prices this spring and summer will be handed straight to feed companies to cover the costs of what has been one long and expensive winter.

Irish Independent