The Irish Co-operative Organisation Society Ltd have said they do not believe financial risk management tools to protect against potential milk price volatility are fit for purpose yet and will not encourage farmers to adopt them until they are ready.

The ICOS comments come following media reports today (Tuesday) which suggested that Irish Co-ops declined a possibility to lock in milk prices at fixed prices as a method of protecting against potential milk price volatility.

The reports centred around the potential to hedge a position on various dairy products on financial markets, which, if fully operating, could allow farmers and milk processors to insure milk process at a particular level.

However, ICOS said the reality is that "while dairy futures markets and other such derivatives offer enormous potential as risk management tools, and could in time form the backbone of a balanced risk management strategy, right now the European dairy futures market is in its infancy. The volumes being traded are quite small."

It added that presently, the European futures market uses European price quotes to settle contracts and not Irish milk prices, which would introduce a level of inaccuracy and inefficiency to the running of the exchange from an Irish point of view.

ICOS said an enormous amount of work is being done behind the scenes by the Irish dairy industry to create the instruments needed to make dairy futures relevant and of value to Irish farmers, "and that over the next 18 months or so we will see significant developments in this area".

However, it said that the tools are still not precise enough to depend on. "A number of industry players have traded small volumes on the current financial market, but only as a way to develop their own skills and to test the model."