Milk price, investments and processor profitability combine for sustainability

The year 2014 will go down as a good year for dairy farmers. Similar to 2013, average milk price paid out was over 36 c/litre.

This year, in a change to the presentation of results for dairy farmer returns, we report required farmer investment in their co-op (share up), co-op profitability and milk price. All three combine to form a foundation for sustainable dairy farm returns.

While it may seem late in the year (mid-2015) to be reviewing 2014 results, it is only possible to complete this work after all annual accounts have been published and KPMG have reviewed all information presented.

The Milk Price Review is simply the money paid out for all manufacturing milk supplied in the calendar year divided by total litres supplied – all milk-based payments included. It is this simplicity that is key to the understanding of how the review is calculated regardless of peak to trough ratios, winter milk schemes, etc.

With greater complexity of pricing systems, the Irish Farmers Journal/KPMG Milk Price Review is now more important than ever to provide clarity to farmers. Milk price is ranked on net price paid after deduction of levies and charges as this is the fairest comparison.

The majority of manufacturing milk is included in the league (4.77bn litres) but some co-ops such as Boherbue and North Cork remain outside the review.

Conditional somatic cell count bonuses are included in the payout, as are premiums paid for better fat and protein in milk. Hence processors with higher quality and better milk solids will rank higher.

Processors with fixed milk price schemes can win or lose in some years but it is important to say that this is a good service to suppliers, especially those farmers who carry a high debt level to help manage volatility.

No liquid milk

In recent years, a significant change was made to the definition. This ensured that no liquid milk was “leaking in” – a long-term issue for some processors who suggested that some liquid milk was being included in a manufacturing Milk Price Review.

The definition was changed to milk “purchased for and used in manufacturing”. This has prevented liquid milk bought at a higher price being included in the manufacturing Milk Price Review.

Winter milk is included in the review and while it normally attains a higher value, it is of course produced at a higher cost to the farmer. Our colour coding and percentage winter milk in total supply is included to help differentiate summer pools from winter.

Additional information

As dairy businesses have evolved, we have presented more detailed information in the coverage around the review to help understanding. Additions include the peak-to-trough ratio and graphical illustration of the per-cow difference in milk value.

In the last two years, the share-up structure and capital funds required by processors have been announced. We detail some of the differences. It is important to say revolving fund payment is included as paid. Co-op or plc share dividends are excluded unless paid on litres of milk.

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