PPI margins row central to co-ops' and farmers' futures

I understand the Ornua board will meet next week to consider the proposed changes to the Product Price Index (PPI). Some say the co-op representatives who sit around the table have the deal done with Ornua before the meeting has even started. Remember this is the same board which co-op management sit around which is planned to be radically overhauled in coming months.

Anyway, Ornua generates the PPI to show the value of milk based on the price per tonne received for dairy commodities internationally. In short, they put these prices in a basket, take off an assumed cost of processing and end up with a milk price equivalent that reflects what markets are returning. Farmers can then use this to gauge how close their farmgate co-op price is to the PPI.

Under the spotlight right now is the cost of processing. Depending on who you talked to over the last 10 years, the assumed processing cost used by Ornua has increased from 4 c/l to 6.5c/l. Now I hear the plan is to increase this to 7c/l. This makes it easier for the co-ops to match the PPI.

Farmers will argue it shouldn’t be possible to just pull numbers out of the air on processing costs. The IFA came out late last week suggesting it valued the transparency the PPI brought but it has sought a “top-level” meeting with Ornua.

If true and approved next week, the processing cost will have moved from 4c/l to 7c/l in less than 10 years.

Everybody knows we’re facing into an uncertain time. Brexit could destroy our nearest and largest market. Countries like the US are pushing aggressive and regressive trade policies that are bad news for an exporting nation like ourselves.

However, with all those icebergs in the ocean, it looks awfully like the co-op management are checking that the lifeboats are seaworthy, and are writing their own names on the sides of them. The farmers are going to have to stay on the ship they are not steering, and hope it doesn’t hit anything big. It’s appalling.

Dairy expansion has undoubtedly increased some costs but our big players have significantly increased volumes and the quality of output. This essentially dilutes the cost per litre. Should the processing cost be going down? Whether up or down, a constant, transparent and index linked review of the cost structure must be agreed.

Dairy farmers costs have increased. Fixed costs alone rose 25% in the last five years, according to the CSO. The margin must be shared. So must the pain.