For spring-calving herds to decide whether it is worthwhile applying for this EU supply compensation scheme, you need to weigh up the monetary value of your output with higher autumn solids compared with a reduced supply but the addition of a compensation cheque.

For southern spring milk producers, typically the October, November and December supply is 8%, 4% and 2% of the annual total. For a 60-cow spring milk producer delivering 300,000 litres, it means the supply reduction during that period is 42,000 litres. The maximum allowed compensated supply reduction for this period is 50%. Hence a 21,000 litre reduction is eligible for compensation. Should the maximum compensation of 14.4 c/litre apply, the compensation cheque is a maximum of €3,024.

Listen to Jack Kennedy's explanations in our podcast below:

If we assume a base price of 24c/litre for October to December and a 4.5c/litre premium for higher solids, then the reduced output is worth a total of €6,100 at current market value assuming seasonal norms. A 50% supply reduction means there is a net loss of about €3,000 in output to the farmer. However, reduced meal feeding to the value of about €1,600 and a reduced workload to the tune of about €2,400 would see a net gain to the business of about €900 or €15 per cow. So, in summary, the gain is small but could vary from farm to farm.

For winter/liquid herds

In Ireland many farmers who supply milk during the winter must supply a defined percentage or volume for each month during winter. Hence any reduction of supply needs to factor this in – for many this will rule out participating in this compensation scheme.

Pros

  • 14.4c/l compensation for reduced supply for October, November and December.
  • Ideally obtain most of reduction in November and December, ie produce what you have to in October from herd.
  • If you stop milking, you must reduce meal feeding and labour cost.
  • The volume reduction relates to the three-month period (not individual months).

    • Cons

  • Marginal monetary gain. Our analysis shows the reduced costs just about offsetting the reduced value of output.
  • If you decide to reduce supply you could miss out on higher output (prices dependent) should the global dairy market lift further.
  • Compensation levels could reduce at National and EU level if oversubscribed.
  • Reduced compensation if you don’t meet agreed volume reductions.
  • Compensation cheque might not arrive until late March 2017.

    • Need to know

  • The compensation for production reduction is set at 14c/kg (14.4c/l) compared with the corresponding period in 2015 (reference period).
  • You cannot reduce by more than 50% of the reference period production.
  • The first possible period is: October, November, and December 2016.
  • Deadline to have your application form with your co-op is 15 September.
  • Farmers who have reduced production by less than committed will receive reduced payments
  • Minus 20% or less of what was committed means no payment.
  • Between 20% and 50% of what was committed: 50% payment.
  • Between 50% and 80% of what was committed: 80% payment
  • Between 80% and 100% of what was committed: 100% payment