The simplest definition of the KPMG/IFJ Milk price review is the total amount of money paid out to manufacturing suppliers (not liquid) in a calendar year divided by the total volume (litres) of milk delivered which allows us calculate a cent/litre price. However, the majority of milk for those processors involved in the milk price review is purchased on a milk solids basis.
The simplest definition of the KPMG/IFJ Milk price review is the total amount of money paid out to manufacturing suppliers (not liquid) in a calendar year divided by the total volume (litres) of milk delivered which allows us calculate a cent/litre price.
However, the majority of milk for those processors involved in the milk price review is purchased on a milk solids basis.
Paying for milk solids rather than volume essentially means that the processors are sending a signal to the supplier that they want higher milk solids (more fat and protein) and the higher the price they can pay for solids, then the stronger the signal is that they want more milk solids.
Higher milk solids allows the processor make more cheese or powder etc, so hence they can afford to pay farmers more for higher milk solids.
Issues
Processors that don't get good milk solids from suppliers simply can't pay out a high price because they don't get the high-quality milk solids. Poor milk solids can be delivered for a variety of reasons - but the main reasons for poor fat and protein production is farmers are using low milk solids genetics, don't have good grassland paddocks, or maybe because herds have to be indoors more due to heavy ground conditions or higher annual rainfall.
To investigate this and in effect to neutralise this as one of the issues for differences between processors, we divided the total pot of money paid out for milk and divided it by the total amount of milk solids purchased.
To calculate the total milk solids collected, we totalled the monthly volume of milk solids and subsequently totalled the annual volume of milk solids purchased. When we divide the total money paid out by the total milk solids we are able to calculate a price per kilo milk solids. We are using the average fat and protein percentages for the month to calculate the monthly milk solids production.
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Results
When we compare the ranking of processors in cent/litre with ?/kg milk solids, we can see in the majority of milk processors paid the best price irrespective of payment system. The price ranges from Barryroe paying €4.05 per kilo milk solids down to Aurivo paying €3.63 per kilo milk solids.
Two processors that traditionally have poor milk solids moved upwards in the milk solids league.
LacPatrick moved up six positions. It ranked 11th when compared on cent/litre, but when compared on milk solids, it ranks in position number five. Lakeland also moves up slightly - from 12 up to 10.
A number of processors shifted down a position or two, namely Glanbia, Tipperary, Dairygold, Arrabawn and Aurivo.
This may simply be because they are very close on a cent per litre basis and ranking changes slightly when completed on milk solids basis.
Read more
Milk price review: what it means
Milk price review: the share-ups
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