In 2025, a number of dairy processors will introduce changes to how they pay for milk in NI.

The simplest change comes from Dale Farm and takes effect from 1 April, with the value of butterfat and protein rising from 0.031p/l and 0.048p/l to 0.038p/l and 0.062p/l respectively for each 0.01% change above or below base solids.

Tirlán and Lakeland Dairies both offer a solids-based payment system under the A+B-C model, where A is the value of 1kg of protein, B is the value of 1kg of butterfat and C is the processing cost per litre of milk.

In the case of Tirlán, all suppliers switch to A+B-C in January 2025 after a three year transitional period towards this model.

Lakeland will offer A+B-C as an option in January 2025, with all suppliers paid under this model from January 2026.

Strathroy has made the A+B-C model available to its suppliers this autumn and will offer it as a voluntary option over the next few years, rather than a compulsory switch.

Understanding

While the move to a solids-based payment is not to be feared by farmers, it will take time for suppliers to build an understanding of how their milk price is calculated.

In recent months, the Irish Farmers Journal has fielded many questions about the proposed changes and what they mean for dairy farmers going forward.

To provide some clarity around the subject, outlined are examples of the more common questions raised by farmers.

Will I be financially penalised for focusing on volume?

Provided you produce solids above your processor’s base for butterfat and protein, you will not be financially worse off under an A+B-C system, regardless of whether you are focusing on yield or not.

At the same time, there is no financial gain to be had unless fat and protein increase, or if the farm is close to triggering a threshold for a volume bonus, when there is a clear incentive to send more litres down the lane. The fact NI processors are retaining volume bonuses, is a signal of their eagerness to maintain and grow milk pools going forward.

In our example, we have assumed a hypothetical herd of 100 cows produces 1.2m litres annually at 4.05% butterfat and 3.26% protein.

Under a traditional increment model valuing fat at 0.035p/l, protein at 0.06p/l and an annual base price of 40p/l, milk sales for the year come to £484,920 or 40.41p/l.

Under an A+B-C model at the same base price, fat is valued at £4.31/kg with protein at £7.76/kg. Milk sales for the year come to £486,440 or 40.54p/l.

Will I have to move to spring calving?

No, there is no need to change to spring calving. In fact, processors have openly stated they do not want such a shift.

This is reflected in the latest moves to incentivise autumn calving with all processors opting to increase winter bonus/support payments.

My processor doesn’t charge for milk collection, but under the A+B-C model am I going to have such a deduction?

There is some misunderstanding around milk collection in NI. Currently, Dale Farm is the only processor to officially charge for milk transport.

But there is no such thing as free milk collection. While some processors do not charge farmers directly, their milk collection has to be paid for.

Ultimately, these processors factor collection charges into their overall processing costs. Once operating costs are covered, processors set a base price from the remaining income.

So while a processor does not charge directly for milk collection, it is usually reflected in a lower base price.

Under the A+B-C model, the C element is a deduction for processing milk and will be reflected in the monthly milk statement. It is there to incentivise farmers to produce higher solids milk. It is not a direct deduction on base price as some farmers have queried.

Will my price per kg of fat and protein be the same as my co-op pays in the Republic of Ireland (ROI)?

No, the prices per kg of fat and protein paid by processors buying milk on either side of the Irish border will not be the same.

In ROI, processors set their prices for milk at a base of 3.6% butterfat and 3.3% protein. In NI, fat and protein will have a base of 3.95% butterfat and 3.25% protein.

In addition, processors in ROI do not pay volume bonuses. Such premiums have to be covered by the incomes generated by milk sales, which ultimately means a different base price and solids pricing.

How do I calculate my kg of fat and protein?

One litre of milk is basically 1.03kg. For a herd producing 1m litres annually, that is 1,030,000kg of milk.

If the herd is averaging 4.25% butterfat and 3.35% protein, then annual yield equates to 43,775kg of butterfat (1,030,000 at 4.25%) and 34,505kg of protein (1,030,000 at 3.35%).

Each co-op will continue to set a base price monthly, which will reflect the market value of 1kg of protein and butterfat.

Who benefits from changing to a solids payment?

Processing milk to extract protein and fat costs money. This cost has to be deducted from income generated on milk sales.

The higher the cost of processing milk, the less money remains in the overall pot to pay farmers, which means a lower base price.

Incentivising solids creates efficiencies at processing level, which can eventually support higher milk prices down the line.

For farmers, the A+B-C model basically ensures a fair reward for the butterfat and protein produced in milk.

The higher the solids a farmer produces, the more income they generate. If solids remain static, most farmers will see very little difference in milk sales at the same base price.

However, for those with solids below base levels set by their processor, they need to look at what management changes can be made on farm, as there are higher penalties coming, irrespective of whether their processor is moving to A+B-C or not.

Butterfat: Standard 3.8% - 3.84%

Aurivo 3.87%, Lakeland 3.85%, Tirlán 3.88% & Dale Farm 3.95%

Protein: Standard 3.15% - 3.19%

Aurivo 3.21%, Dale Farm 3.24%; Lakeland 3.19%; Tirlán 3.23%

Lactose: Leprino Foods 4.6% - 4.64%;

Lakeland 4.8%; others do not adjust for lactose