Not only are costs rising fast for farmers but costs at processing level have increased substantially also.
Milk processing is a big user of gas and oil as water is removed from milk to extract the fat and protein that makes butter, cheese and powders.
Dryers or evaporators are fuelled by gas in most of the major milk processing plants and the price of gas has gone from £0.63 (€0.75) per therm at the start of June to £2.40 (€2.86) per therm this week.
While gas prices are influencing costs at farm level, particularly in terms of fertiliser, the gas price increase is also affecting the processors, which will be paid indirectly by the farmer also in most cases.
On the dairy side, Lakeland Dairies would be more affected than most as it has a relatively flat milk processing curve and so is much busier now than most of the other processors down south, which are winding down for the year.
That could come to €30m or €40m of an extra cost for the year
Michael Hanley of Lakeland said: “Gas prices have gone through the roof for a business like ours. The price of a unit of gas has gone up hugely.
“I reckon it has quadrupled to over €2 per therm and for a business like ours that’s 3 or 4c/l if it continues.
“That could come to €30m or €40m of an extra cost for the year.”
Dairy Industry Ireland executive Conor Mulvihill said the industry body had surveyed members and the results show cost inflation is a significant pressure, eroding tight margins.
He said: “Our members are seeing cost increases of 20% plus over 2021 across all key cost centres – raw materials, energy, packaging, transport, shipping etc.”
Meat Industry Ireland director Cormac Healy added that “as well as dealing with increased processing costs, there is concern about what consumer price inflation in Ireland, the UK and EU might do to consumer demand for meat”.