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With the majority of the NI milk pool processed into products such as powder, cheese and butter, and given the current cost of energy to remove water from milk, the argument for encouraging farmers to produce higher solids milk is perhaps stronger than ever.
In the last 18 months Dale Farm, Lakeland Dairies and Tirlán have all made changes to the way they pay for milk by offering higher increments on butterfat and protein.
However, with milk price increasing by approximately 17p/l over the last 12 months, these higher increments have not kept pace with base price.
This means the message being sent to dairy farmers is to keep breeding and feeding for higher yield rather than higher solids.
A 7,000-litre cow producing the same milk solids as a 6,000-litre cow will gross over £200 more income annually under current payment systems in NI.
Water
Prior to the first changes made to increments in April 2021, processors were generally valuing the fat and protein content of milk at 20p/l.
Back then, base prices paid hovered around 28p/l to 30p/l, which meant the water content in milk was valued at 8p/l to 10p/l.
If we take the example of Dale Farm, from 1 April 2022, higher increments mean the co-op is now valuing fat and protein at 22p/l. However, base price since April has averaged 43.85p/l, so farmers are effectively being paid 21p/l to produce water.
Fat and protein at Dale Farm will increase in value during the 2023-24 year, and again in 2024-25 at which point, milk solids will be worth 28p/l.
In the case of Tirlán, it also valued milk solids around 20p/l prior to 2021. As of 1 April 2022, this has increased to 23p/l.
Its base price has averaged just over 45p/l since April, leaving the water component of milk at 22p/l. By April 2024, fat and protein will be valued at 29p/l under Tirlán’s current payment framework.
Comparing herds
To highlight the message being sent by current payment systems, we have compared two dairy farms, each with 100 cows.
Fat increments are worth 0.025p/l for every 0.01% above a base of 3.88%.
Protein is worth 0.04p/l for every 0.01% above a base of 3.21%. An average base price over the year of 42p/l is assumed. A volume bonus of 0.5p/l is payable on 1m litres annually, reducing to 0.3p/l for 750,000 to 1m litres.
High solids
Farmer A runs 100 cows with an annual yield of 8,000 litres averaging 4.45% butterfat and 3.4% protein.
On top of the 42p/l base price, the farmer receives an extra 1.43p/l for butterfat, 0.76p/l for protein and a volume bonus of 0.3p/l.
This brings the average milk price to 44.49p/l. Annual milk sales come to £3,559/cow.
Farmer B also runs 100 cows, but annual yields average 10,000 litres/cow at 4.1% butterfat and 3.25% protein.
Top-up payments are worth 0.55p/l for butterfat, 0.2p/l on protein with a volume bonus of 0.5p/l.
This brings the average annual milk price to 43.25p/l, giving yearly milk sales of £4,325/cow.
Differential
Farmer B is generating an additional £766/cow by driving yield rather than milk quality.
Even if farmer B is feeding an extra 1t of concentrate per cow costing £420/t, this still leaves an additional £346 of income per cow.
Market signal
Farmers respond to market signals, and those driving yield over milk quality are making the correct decision for their businesses, even if pushing out more water (which must be hauled and dried) just defies all other logic.
Some processors have tried to send a different signal to farmers by putting more value on to fat and protein. But what we have learned in 2022 is that these increments should also be linked in some way to rises and falls in overall milk price, otherwise the signal gets quickly lost.
Ultimately, the simplest solution is to pay farmers on the basis of yield of milk solids.
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