Lakeland Dairies CEO Colin Kelly has warned that dairy income volatility is a challenge that must be managed by individual farmers rather than at co-op level.

The dairy boss told a meeting of Cavan Irish Farmers' Association (IFA) that volatility should be expected more in grass-based production systems that are dependent on weather conditions more than other confinement dairy systems seen around the globe.

“There’s not a lot we can do from a volatility perspective. The fact that we are a grass-based system means we are always going to have that,” he said at the meeting in Cootehill when asked if the co-op would establish a stability fund.

“Some of that volatility in the dairy market is positive. If we look at up to 2007, there was pretty much no volatility, but, since 2007, we have had the chance of getting a hell of a lot higher milk price, but also you have to take the downs.

“Unfortunately, the solution is for each individual farm to manage that as best they can themselves.”

Stability fund

Kelly stated that the Lakeland Dairies board has explored ways of mitigating milk price volatility in the aftermath of the 2023 milk price collapse.

It has assessed the possibility of banking funds during strong milk price years to have these resources ready to support milk prices when global dairy markets slip, he said, but found the option to be a non-runner.

“Some of you and some of your counterparts would say to us ‘why don’t you build a milk stability fund?’” the CEO continued.

“The challenge with that and the reason I am against it myself is with two billion litres in milk, half of that coming from NI and the other half coming in the main from the spring-calving model in the south, we could turn around and say 2024 was a good year, let’s put away €20m.

“What could happen is the market collapses in quarter one of 2025 and we pay out that €20m to support milk price, but those of you who are spring calving don’t get any of the benefit, even though you contributed to building the fund.

“It’s not the answer people want to hear, but there is nothing the co-op can equitably do [to reduce volatility] and the fact that our unique selling point, our advantage, is the grass-based system which is driven by the weather in the main-– this volatility is something that we ultimately have to live with.”

He suggested that Lakeland Dairies is looking more to input costs than milk prices as being an area of farm finance where the co-op can help mitigate market swings.

“It would take a brave person to bring up fixed milk price schemes with the challenges we have had with them in 2021 into 2022.

“I think they are a tool for managing risk. Something that we are looking with is a system that could potentially give some protection on the inputs without forcing you to buy from Lakeland.

“It is something we are working on, but volatility, unfortunately, is something that we are going to have to deal with at an individual farm level.”