Liam De Paor
Co-Founder and Event Organiser, Farmex.
Dairy farmers in Ireland have seen volatile milk prices gyrate from as low as 22c per litre in 2009 to 47c in 2013. Last year was one of the best years ever for Irish dairy farmers. But 2018 milk prices have fallen. So, would farmers be well advised to take up the fixed milk price contracts on offer from their co-ops and Plc’s?
The price of milk at farmgate is determined by demand and supply on the world market. Large customers such as China can have a huge impact on prices when they purchase significant quantities of dairy products. A drop in supply from a major supplier such as New Zealand due to dry weather can also help farmgate prices. Of course, the actual price paid by the Irish Coop or Plc will depend on their product mix, processing efficiency and marketing success. The Chief Executive of Glanbia Ireland, Jim Bergin, has said that US and Oceania processors have a farmgate price of 27c/l to 29c/l. The Glanbia base price for February manufacturing milk at 3.6% butterfat and 3.3% protein was 30.36c/l excl. VAT. But, for example, Dairygold Co-op suppliers can avail of a three-year fixed milk price of 31.25c per litre for 5% or 10% of their milk supplies. So, the case for fixed milk price contracts is in the balance but would appear to offer good value in the short term.
Worries about Brexit are also a topical issue as Britain is a huge market for our cheese. In 2016, 34% of our dairy exports went to the UK, representing 53% of cheese exports, 29% of butter and 12% of SMP (Skim Milk Powder). Exports of cheddar cheese were 78,000 tonnes, representing 82% of all cheddar imported by the UK in 2016. Ireland is the only significant exporter of cheddar to the UK market and the UK market is the only market of significance for Irish cheddar. There is also a very significant cross-border trade. In 2016, we imported over 800m litres of milk from N. Ireland for processing. Of this amount, approx. 120m litres were sold as fresh milk, accounting for 25% of our fresh milk market.
If the UK impose any significant tariffs on Irish imports then this would create huge economic problems for us. However, Britain cannot readily source alternative cheddar and many other dairy products elsewhere at a lower price; the exception might be butter from New Zealand.
However, the UK exports more to Ireland than it does to China, India and Brazil combined. In fact, we are their 5th largest market. So, presumably common sense will ultimately prevail in these Brexit negotiations and we will not end up scoring own goals in our respective economies.