The four west Cork co-ops top the league when it comes to milk price paid out in 2023.

The analysis in Table 1 is based on the monthly price set by the various co-ops, as per the Irish Farmers Journal monthly milk league, with subsequent top-ups to 2023 milk price taken into account.

The most recent processor to issue top-ups was Kerry Agribusiness, which gave out 0.90c/l including VAT to suppliers based on 2023 supply, as part of its commitment to a leading milk price.

Centenary Thurles dipped into its hardship fund and gave out 1c/l including VAT to suppliers for all of 2023 supply.

While it normally matches Tirlán for milk price, this additional support to the Centenary suppliers puts it ahead of Tirlán for the year as a whole.

The figures on milk price paid are put together based on a typical supplier delivering 500,000l of milk to the co-op using the 2023 actual milk supply profile.

This means that the price of milk paid during the peak months has a much greater impact on overall milk price received for the year compared to prices in January or February. The figures are based on national average solids in 2020, which are 3.55% protein and 4.2% fat.

Based on this, the total milk solids produced would be just over 39,912kg and this is what is used to calculate the average milk price in €/kg MS.

By doing it this way, we are levelling the playing field between different actual constituents between the co-ops. All milk prices exclude VAT.

For the majority of dairy farmers on the flat-rate VAT arrangement, there would be an additional 5% VAT on top of the milk prices quoted in Table 1. This has reduced to 4.8% VAT for 2024.

Bonus payments for milk quality below a cell count of 250,000 are excluded from the monthly league, but most of the sustainability action payments are included where the action is not conditional on doing business with the co-op. Conditional payments have always been excluded from the league.

Difference

The difference between a Drinagh supplier, who got €5.48/kg MS in 2023 versus a Lakeland supplier who got €5.03/kg MS, is just shy of €18,000 in milk payments per year or €180/cow.

It’s a significant sum of money any year, but in a low-margin year like 2023 it is even more significant.

The four west Cork co-ops are on top, but the best of the rest for 2023 is the north Tipperary-based co-op Arrabawn, paying out €209,637 based on the above criteria for 2023.

Looking further across the table, you can see the co-op made a substantial profit of €10.3m after tax, which as a percentage turnover is the highest in the table at 2.56%.

Arrabawn has a milk pool of 477m litres and specialises in butter and casein. To put it in context, Carbery with a milk pool of 585m litres made a profit after tax of €11.3m and Dairygold with a milk pool of 1.4bn litres made a profit after tax of €4m.

The other big players, Kerry and Tirlán, are mid-ranking in terms of milk price paid out.

The Kerry supplier would have received €207,831 for 2023, while the Tirlán supplier would be behind that at €204,322. Aurivo is second from the bottom of the table at €201,610 for a cumulative payment for 2023.

The cent-per-litre price quoted in the fourth column across is the average price paid per litre of milk in 2023, according to the processor’s annual report for 2023. This price includes VAT and is the average price with solids included, ie it is not base price. Not all processors have declared this price.

For those that have published annual reports for 2023, the profit after tax for the co-op is also outlined in Table 1.

There are multiple metrics that could be used here, including EBITDA, but essentially profit after tax is what is sent to the balance sheet at year end.

There is obviously a big variation in this figure and some of that comes down to the size of the co-op, revenue from other businesses and the core profitability of the dairy business.

Some co-ops have established stability funds from good years or windfalls, as in the case of Tirlán.

Some of these funds were used to support milk price in 2023 while other co-ops reduced profitability to support milk price.

Cost to the business

Raiding these funds to support milk price may keep the profit figures up, but it’s still a cost to the business, as the impact is in the balance sheet.

In the case of Dairygold, profit was sacrificed in 2023 in order to keep the milk price as high as possible.

In Dairygold’s case, the profit after tax as a percentage of turnover was just 0.25% for 2023, whereas it was 1.36% in 2022.

Retained profit

In the case of Arrabawn with a profit ratio of 2.56% in 2023, the argument could be made that it did not pay enough in milk price to their members.

However, the retained profit is now in the balance sheet and the board can decide how best to spend it.

In the case of Lakeland, the co-op made a loss of over €8m in 2023 but this is after exceptional items, mainly the restructuring of milk intakes and the subsequent redundancy programmes.

With less milk flowing through a plant, co-op managers and their board of directors will have to reduce costs in order to maintain profit

CEO Colin Kelly says Lakeland is right sizing the business and that the exceptional cost incurred this year is offset against €7.9m of annual savings.

Before the exceptional items, the business made an operating profit before exceptional items and tax of €14.8m from a turnover of €1.6bn.

The co-op paid the lowest milk price in 2023, according to the cumulative monthly milk league.

News that Dairygold Co-op is implementing plans to reduce its workforce in line with reducing milk volumes should come as no surprise.

The biggest costs for a dairy processor are the prices they pay for milk and the costs of processing that milk, so labour and energy.

As we see in Table 1, the profit margins in milk processing are very low. This is as it should be because these are farmer-owned businesses with the objective of maximising milk and grain price to farmers.

With less milk flowing through a plant, co-op managers and their board of directors will have to reduce costs in order to maintain profit.

It is not in their gift to sell dairy products at a higher price – the market sets the price but they can decide on what products they make. Therefore, they will either have to pay less for milk or reduce labour by running plants for shorter periods and with less staff. In practice, it will probably be a combination of both.

The poor weather in 2024 is an obvious factor in lower milk volumes but so too is Government policy.

Confidence among dairy farmers is shot after years of being vilified by media and NGOs, with little Government support.

Remember, dairy farmers are all but excluded from TAMS grants, were excluded from the 2022-23 fodder support payment, were told that 200,000 cows would be culled and had the nitrates derogation cut by 30kg N/ha in 2023 and still have no certainty over the future of the derogation past 2025.

Stance

Unless current and future Governments adopt a more pro-dairy and pro-rural economy stance, we can expect more and more job cuts and milk plant closures.

The difference in milk price and profitability between co-ops will be under more and more scrutiny in the coming years.

This exercise details end-of-year payments after certain bonuses are included that vary from co-op to co-op.

There are a number of other annual leagues published along the same lines. You could argue, depending on the criteria, we are all wrong or right.

One point of difference with this league table is that VAT is excluded in the total amount paid, the price per kilo of milk solids and the announced annual milk price by the co-ops.

The issue with each of the milk leagues published is that there is no one set structure, no one set definition or set of rules of what’s in and what’s not in and hence you get variation between leagues.

The beauty of the last independent exercise completed by KPMG and published in the Irish Farmers Journal for the industry was that it set a definition.

Yes, you could argue this way and that, but at least it was the one measure for all and fully transparent.

In this exercise, I explain milk price is only one part of the measure of a co-op and the bottom line profit of the business is another crucial component that we have gathered and published over the last two months and have included some in Table 1.

The current phase of lower-than-expected milk volumes is going to put financial pressure on dairy businesses and so management skill, product mix, sustainable profit levels and a strong balance sheet are going to be required.