Report recommends more milk price volatility tools for farmers

More tools should be available for dairy farmers to help cope with milk price fluctuations, according to a new report which points to Ireland as having among the highest dairy sector volatility in the EU.

These tools could include insurance schemes and income averaging for tax purposes, the report authored by Wageningen University and Teagasc recommends.

Countries whose dairy sectors rely heavily on exports tend to see more milk price volatility than those whose supplies are more in tune with national demand, the report states.

This volatility experienced by dairy farmers here is driven by fluctuations in global dairy markets, foreign currency volatility and the seasonality of Ireland’s production system.

The report suggests that one of the advantages of having dairy sectors with lower rates of self-sufficiency is a “lower exposure to price volatility” from global markets.

Ireland’s milk price volatility is apparent despite a previous study’s finding that states where co-operatively-owned dairy processors dominate the supply chain generally experience less severe fluctuations.

Fixed price contracts

The report’s authors singled out fixed milk price contracts as one of the few tools already available to Irish dairy farmers to help manage the risk posed by relatively high levels of market volatility.

They stated that “significant hardship and financial stress” was brought to a relatively small cohort of dairy farmers who had to enter the bulk of their milk fixed price agreements for 2021 and 2022, when input costs rose but locked-in milk prices were unable to increase in line with commodity markets.

The price gap left between fixed and unfixed supplies over this time has diminished the “general appetite and demand” for milk price contracts between farmers and co-ops, the report notes.

Other recommendations

The report also recommended that further consideration should be given to assessing the advantages and disadvantages of introducing a greenhouse gas emissions levy for dairy farmers.

Its authors claim that doing so could create a “better financial incentive” for farmers to adopt emissions reduction measures.

However, the report states that supports should be provided for investing in these technologies and more work should be done to assess incentives or rewards for individual farmers taking climate action.

It was added that better advice is needed for farmers facing a “diverse range of environmental obligations” which have the potential to “confuse, alienate and discourage [action]”.