December bonuses of 3p/litre paid by Lakeland Dairies and Fane Valley put these two at the top of the monthly league table, while a bonus of 2p/l from Glanbia Cheese was enough to lift it into third position.

These three were the only prices over 20p/l in the league, which is for December milk after the deduction of transport charges for a supplier of 650,000 litres per year, with average NI seasonality of supply and with average milk quality of 4.11% butterfat, 3.3% protein, 4.66% lactose, TBC of 19 and SCC of 185.

LacPatrick’s end-of-year supplement of 1p/l was enough to put its December price above 19p/l, but it has fallen below Glanbia Milk and Fivemiletown, where the usual monthly bonuses of 0.6p/l are included in the prices. The price for Dale Farm Red Tractor milk dropped to the bottom following its base price reduction of 0.3p/l for December, while all of the others held base prices unchanged except for a cut of 0.5p/l by Fane Valley.

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While Aurivo and Dale Farm are trailing the others for December, with prices below 19p/l, it’s clear that all of the prices would be below 19p without the bonuses. Fane Valley and LacPatrick would be at 18.22p and 18.33p, respectively, with the others 0.5p to 0.6p higher.

With lower compositional quality for January milk, the harsh reality of prices below 18p/l appears likely for the milk supplied during the first month of 2016.

Those payments due this month will bring home the dire milk price situation to all dairy farms in Northern Ireland, with base prices 4p/l to 5p/l less than what seemed a very low level in January last year. At present, it seems unlikely that milk buyers will come up with any other bonuses or supplements to support their prices apart from the expected February top-up from Aurivo.

Processors maintain that they have been supporting prices in 2015 in recognition of the pressure on milk producers but it’s not possible to continue doing so for much longer.

The weakening of the sterling exchange rate should provide some relief for the processors and could help to stave off price cuts. The exchange rate against the euro has moved to around 76p at the end of January compared with 70p at the beginning of December. That’s the opposite of its strengthening in January 2015 and better than the rate throughout practically all of 2015, but still leaves it well below the average 2014 level of around 80p to the euro.

In comparing prices paid for milk, we strive to compare like with like by accounting for adjustments made by the milk buyers that affect the amounts received by the farmer.

Across the range of milk quality (Table 1), prices from each buyer vary depending on the adjustments that they make for compositional quality, hygienic quality and transport charges made for particular volumes of milk collected (as shown in table 4). There are also differing volume bonuses paid for supplies from some large producers. Details of these are given in the footnotes.

All of these adjustments mean that prices paid to farmers would differ even if the buyers were all declaring the same base price. The December base prices are shown in Table 5 and it also has to be noted that not all buyers operate on the same standard base level of compositional quality.

Adjustments for hygienic quality also differ, although they are not published in these pages due to pressure on space. All of these differences are taken into account in calculating the figures shown in the price tables.

Red Tractor

Some buyers also pay a supplement for milk that is farm-assured, according to specifications set for Red Tractor-branded products. As indicated in the footnotes, Red Tractor bonuses are payable by Glanbia Cheese (0.4p/l) and by LacPatrick (0.2p/l). These are not included in the prices quoted in Tables 2 and 3 and in the milk league table. The majority of supplies to these companies are not Red Tractor-assured.

In the case of United Dairy Farmers, its Dale Farm Red Tractor price is the only one quoted in the tables. Approximately 98.5% of United’s milk supply is from farms that are Red Tractor-assured or in the process of becoming assured.

The small number of United members who don’t qualify to receive the Red Tractor price are paid 2.5p/l less for December milk and that penalty looks set to apply until further notice. The producers whose farms are in the process of becoming assured are to be paid the balance of 2.5p/l in the first month after they achieve assured status, with a back-payment of 2.5p/l on all litres supplied between 1 December and the commencement of their Red Tractor pricing.

That back-payment isn’t available to members of United who opted not to apply for Red Tractor certification before 31 December. United has indicated that separate collection arrangements will be put in place from 1 April this year for milk from members of the co-op whose farms are not Red Tractor-assured. That milk is to be segregated and processed separately.

Costs associated with this segregation may be passed on to the non-assured producers and, if so, this is likely to increase the price penalty beyond 2.5p/l.

Clearly, this would put extra pressure on those producers and threaten their chances of continuing in milk production.

United has indicated that, from 1 January, the minimum volume of milk that the co-op will pick up from a farm on a single collection has doubled to 400 litres.

On enquiry by the Irish Farmers Journal, a spokesperson for United indicated that this change affects only a very small number of members.

It seems that there is no room for sentiment in the dog-eat-dog world of the dairy business in Northern Ireland.

Comment

The actions being taken by United Dairy Farmers are clearly driven by the competitive forces that exist in the local milk market, where many processors have ceased business since the deregulation of milk marketing in 1995.

Ruthless decisions have been taken to enable businesses to survive, including producer co-operatives.

It’s a far cry from the days of the statutory Milk Marketing Board (MMB) when the charge for milk collection was a set amount per litre regardless of how small the volume collected. In those days, there were large numbers of farms where the collection cost was greater than the value of the milk and this cost was carried by the larger producers within the dairy business and by consumers through the end prices of dairy products.

Commercial pressures within the food supply chain have cut the prices paid by consumers and driven the dairy industry and other farming sectors away from those socialist ideals.

Much of that pressure has been driven by the large retailers, with governments happy to see the effects helping to contain the cost of living.

In fact, the Thatcher government put in process the dismantling of the statutory milk marketing boards and undermined the power that was once wielded by the dairy farming lobby in having a guaranteed price for liquid milk at retail level in the UK.

Guaranteed prices could not be sustained in the competitive environment fostered by the government of the day. The daily doorstep delivery service for milk and the businesses of many small shops have disappeared as a result of the competition.

More recently, it has become clear that massive supermarkets are not immune to competition as lower cost operators and internet based sales have eaten into their market share and undermined their dominance.

While some may be happy to see the likes of Tesco get a dose of this medicine, pressure at the retail level is not good for primary producers.

Our rolling average prices for the 12 months to December 2015 indicate that the top prices over the year were those paid by Lakeland Dairies, Glanbia Cheese and Glanbia Milk. The latter prices are the same as those paid to members of Fivemiletown co-op through its deal with Glanbia Ingredients Ireland Ltd.

Glanbia Cheese has come through the year strongly on prices for 2015, occupying higher rankings due to its suspension of charges for milk transport and its autumn bonus support to producers.

Dale Farm Red Tractor prices have moved off the bottom of the annual comparisons with recent relatively strong placings in the monthly price leagues.

At the lower end of the eight prices compared were those of Fane Valley and LacPatrick, although these were less than 0.6p/l below the leading prices for suppliers of one million litres over the year as a whole.

These are weighted average prices, based on the Northern Ireland average seasonality of milk production when calculating volumes supplied and hence the transport charges that are deducted. Production patterns that differ from the average and milk quality criteria lead to differing prices.

Lakeland

As the merger of Fane Valley Dairies and Lakeland Dairies gets closer, it is noticeable that their pricing schedules differ. The gap between Fane Valley’s prices and those of Lakeland Dairies was wider for the smaller suppliers. However, a majority of the Fane Valley suppliers are producing one million litres, or more.

Some producers currently supplying Fane Valley maintain that they will be worse off with the Lakeland Dairies payment schedule but perhaps more important is the sustainability of the business and its ability to continue to have capacity to process the milk supplied and to pay for it.

Will the merger of these two dairy businesses see their combined business paying a more middle-of-the-road price or will the merged business be a front runner? On enquiry by the Irish Farmers Journal, it has been confirmed by Lakeland Dairies that the changes being made to its milk pricing schedule in the Republic of Ireland do not apply to NI. In particular, there is no plan to change the long running winter bonus payment of 3p/litre paid in NI for November and December milk, although such bonuses are subject to review.

More important than the gap between the prices paid by different buyers in 2015 is the fact that the simple average price gap between 2015 and the two previous years was huge (see Table C and Figure 1).

In March 2015, European Commissioner for Agriculture and Rural Development Phil Hogan proclaimed during a visit to NI that there was no crisis in the dairy sector. Hogan was correct in one way – it wasn’t really a crisis at that time compared with what it is today. The Commissioner was hopeful that there would be some improvement in global dairy markets, but events have shown he was wrong on that score.

Dairy farmers disagreed with the Commissioner last March and can argue now that they called it correctly. Milk producers could not see any reason to be optimistic about prices then and their fears have been realised. But the suggestion that 2014 was a bad year was wide off the mark – the 2014 price averaging 30p/litre was just 2p/l below the average of the previous year.

What would milk producers and processors give to be operating at those price levels now? Instead, 2015 prices averaged under 21p/l. For the full year’s milk that is a drop of around 30% in revenue. And the latest indications from the market analysts are that there is unlikely to be any improvement in dairy markets until milk production levels fall.

Last week, Commissioner Hogan conceded: “We are in a deeper and longer-lasting trough than was originally foreseen.”

There is continued growth in volumes of milk being produced in Europe and other parts of the world.

The latest Commission figures show that total EU milk deliveries in the first 11 months of 2015 increased by 2.2% compared with 2014, with the highest rise (+5.5%) seen in November. Production has been rising strongly in Germany, Belgium and the Netherlands, as well as in the Republic of Ireland.

This has reportedly increased the supply of skimmed milk powder on the market (up by 8.6% in January to November 2015), butter (up 4.3%), cream (up 3.4%) and cheese (up 1.2%).

The Commission’s proposal to extend existing private storage aid schemes for butter and SMP until the end of September was unanimously agreed by EU member states at the management committee last week. The scheme was due to run until the end of February.

Fonterra chief executive Theo Spierings and Rabobank market analysts are saying that a lowering of supplies is needed to bring the market into balance and this largely depends on EU producers reducing their milk output in response to lower prices.

It may have been a case of crying wolf in March 2015 as the prospects now appear much worse.