In June 2022, the average milk cheque for your typical spring calving herd was close to €35,000, but for June 2023 it’s closer to €25,000 for the same milk (see milk league ). That’s a drop of €180m in revenue across the Irish dairy sector.

Income is one thing but when costs also go up, farmers are battling on both fronts.

How frequently farmers tolerate operating at a loss. If Ryanair or CRH saw revenues drop 30% year on year, it would make headline news.

The long production cycle works against farmers. They calve down a certain number of cows or the crop is sown and, in many cases, the production cycle can’t respond to market signals. Buyers know this and they know margins will be squeezed. However, they also know farmers, to a large extent, can’t respond.

In farming, it’s easy to dial up production, but much harder to dial it back when prices slide as you still carry a lot of the costs.

Forward fixing milk price was working to an extent for some farmers, but that too fell apart when it hadn’t accounted for the input price shift for the main ingredients – energy, feed and fertiliser.

The monthly milk league is our estimate of the average milk price paid out to milk suppliers right across the country for milk they haven’t got a fixed price on.

We set a league standard and then we look at what the co-ops pay suppliers and compile a table.

We rank the prices paid on the price paid per kilo of milk solids.

What the monthly league doesn’t do is reflect the money actually paid out on an annual basis by the processor because conditional bonuses, volumes, etc, are not accounted for.

The exercise we used for this in the past was called the Irish Farmers Journal KPMG annual milk price review. KPMG used to review the co-op books and came up with the average price paid.

The reality of what Tirlán and North Cork paid out could actually have been very different

The simplicity of the exercise was that it captured the money paid out for manufacturing milk and then divided that by the volume of milk. Why was this exercise necessary?

Let’s use 2022 to answer that question. In May, we published an annual summary of the 2022 milk league tables from the Irish Farmers Journal, the IFA and the ICMSA. The summary tables ranked the west Cork co-ops best, followed closely by Tirlán and North Cork. The reality of what Tirlán and North Cork paid out could actually have been very different.

Remember, a large cohort of Tirlán and North Cork milk supply was tied into fixed milk price contracts at a much lower price than the variable milk price.

So for those two co-ops, the 58c/l price we calculated for 2022 was closer to 40c/l for over 50% of milk supply for some farmers. So it’s fair to say since this annual exercise finished, farmers have actually gone backwards in understanding what each co-op paid out to milk suppliers.

Farmers still need some mechanism for locking in margin, not just price

In summary what we have described above for dairy farmers is: (1) Irish farmers are price-takers dependent on global markets; (2) they cannot lock in margin; (3) the farmers need an exercise that compares annual co-op returns and (4) often farmers can’t respond to market signals quickly.

Yes, of course, other sectors are in the same boat. When the grain crosses the weighbridge, the farmer doesn’t know the price attained unless the farmer has sold the crop forward at a fixed price. About 10% of the grain is sold forward each year.

When the suckler farmer puts a cow in calf, they don’t know what beef price will be in three years’ time.

So economic sustainability isn’t going well at the moment – what about the environmental sustainability challenge?

Tom O’Dwyer and Cathal Buckley of Teagasc outline how farmers can reduce costs and carbon emissionsby adopting key farm sustainability measures.

Teagasc has been criticised for accepting the decline in the suckler herd to solve the climate challenge, rather than activating farmers in large numbers to adopt new technology. It’s clear the sector has lots to do.

In conclusion, farmers need better market information and price reporting. Farmers still need some mechanism for locking in margin, not just price.

Farmers need to use sustainability tools, but as we discussed last week, farming also needs to be allowed to use the sustainability benefits a farm business brings in energy and carbon sequestration to offset the farm’s emissions.

Jack Kennedy.