Battlelines for Kerry milk supplies will be drawn in the coming weeks

Speaking to the Irish Farmers Journal at the official opening of the expansion of Kerry’s Cheestrings production facility in Charleville, Co Cork, CEO of Kerry Dairy Ireland Pat Murphy said that a fresh supply contract for farmers has been drawn up.

“We will share it first with the board of Kerry Co-op, and then we will share it with our farmers.”

The current supply deal for farmers expires in April 2026, beyond which, if there is no fresh contract in place with Kerry Dairy Ireland, those farmers will be free to supply milk to any processors they can make an agreement with.

For those farmers, the next few weeks will be important as the Munster Dairy Producer Organisation (MDPO) is holding a series of meetings to encourage milk suppliers in the region to join the group.

The meetings, in the Woodlands House Hotel in Adare on 27 June, the Rose Hotel in Tralee on 2 July and the Woodstock Hotel, Ennis, on 3 July will be the first time the organisation, which gained approval as a producer organisation from the Department of Agriculture in April, is open for membership.

While the formation of the MDPO has been driven by Kerry suppliers, membership is open to all dairy farmers in the region, and the Irish Farmers Journal understands that it has already received enquiries from Munster-based farmers supplying other processors.

For Kerry, the easiest solution to any threat to its business model from the MDPO is to sign up as many of its current suppliers to a new contract before the MDPO is fully up and running.

The first thing that will have to happen there is that a fresh supply contract offer will have to be made.

Murphy said that it is already drawn up, which would imply it is ready to go fairly soon.

Any farmer who signs that supply contract will no longer be able to engage with the MDPO as they will have committed to a supplier and therefore will not be able to offer their milk to any other interested processor.

Also, they would not be party to any agreement made between the MDPO and Kerry, should one emerge.

Murphy said that Kerry is unconcerned about the MDPO: “We’re not worried about that at all. We have a milk pool of 1.15bn litres in place and our aim is to add value to that milk pool.”

He added that he hadn’t spoken to the producer organisation.

Kerry’s pitch for its – as yet unseen – supply agreement seems to be about continuity of collection, rather than any promise about milk prices.

Stay farming

“What we’ve heard over the last couple of years is ‘if I’m in Valentia Island, will you pick up my milk in two years’ time after the contract is finished?’ and we tell everyone that we’re picking up milk from today and we will always pick up the milk. We will pick up your milk forever. It doesn’t matter how many cows you have or where you are, if you want to stay farming, we’ll do that.”

Murphy suggests that farmers should be content with the money they are making from supplying milk at the moment.

“The base price of 41c meant we paid out 43.5c/l [in May], with the cost of production today at around 35c/l. That gives a reasonable margin. I know the cost of production has gone up massively over the last two to three years, but we’re doing continuous improvement inside our factories to reduce our costs. Farmers must do the same thing in their farmyard. They must be ruthless around costs.

“The latest Rabobank report said that Germany and northwestern Europe is going to cut back on milk supply by 10% to 15% over the next 10 years.

“Milk price will have to increase over the next couple of years to match the growing demand. There won’t be enough milk to meet that demand so prices will have to go up.

“It’s only right that prices go up as farmers have to make a living too.”

Murphy said that milk supply to Kerry was back around 8% year to date and down over 5% through the key peak weeks, which have just passed.

He said he hoped for a pickup in the second half of the year as the bad weather in 2023 saw a lot of farmers finish milking early.

He doesn’t see farmers in Kerry’s catchment switching to a more European model of year-round milk supply.

“They’re very much into the spring-season calving, optimising grass growth and take a rest for December and January,” he said.

The interim chair of the Munster Dairy Producer Organisation (MDPO), James Doyle from Beaufort, Co Kerry, told the Irish Farmers Journal: “For years, dairy farmers have been price-takers for their milk. I’d be hopeful that over the next few years that would change.”

He said that the organisation, which holds its first meetings in the coming weeks, will negotiate on behalf of members for contracts with milk processors that are “fair” and “honest”.

He said that the organisation will be happy to talk to any processor who wants to engage in negotiations with them.

Producer organisations such as the MDPO are formed under EU legislation, which was introduced to strengthen farmer negotiating power in the marketplace. This means that any contract entered into by a producer organisation on behalf of its members with a processor – or several processors – is fully enforceable under EU law.

“No longer are dairy farmers on their own where milk purchasers can offer milk supply contracts to individual farmers without any real negotiations and on ‘a take it or leave it’ basis,” the MDPO says on its website.

The first test for the organisation will be the number of dairy farmers it can sign up as members – and, crucially, the litres of milk it can then negotiate for.

The next few weeks have the potential to be huge for Kerry dairy suppliers.

The success of the meetings of the MDPO – which will be measured in the millions of litres it can sign up, rather than by attendance at events – has the potential to become a decisive factor for those farmers.

Obviously, Kerry will encourage all of its farmers to sign new supply agreements as soon as they are put in front of them, but if enough of those farmers instead allow the MDPO to negotiate on their behalf, then there may be a better deal to be had.

It is still unclear how other processors will react to the emergence of a producer organisation on the Irish dairy landscape.

However, pragmatism is likely to rule the day for those companies. This is especially true in the current environment of falling milk supplies, and the risk to a further blow to the amount of milk being delivered for processing from a change in the derogation.

Talking to farmers as a group

If there is a significant pool of milk to be negotiated for, then their ability to continue to maximise productive efficiency would be best served by getting as much of that milk as possible, even if that does mean talking to farmers as a group, and not in isolation.