Next year will be the 20th anniversary of the introduction of the milk solids payment system in Ireland. Prior to A+B-C milk pricing, farmers were paid on litres produced with a small differential based on percentage of fat and protein in the milk. The incentive was on volume as the more litres sold the higher the milk income would be.

However, given that Ireland manufactures over 94% of the milk produced into hard products, moving to a solids-based payment system made sense at the time and still does. With A+B-C, farmers are rewarded for every kilo of protein and fat produced and penalised for every litre that the solids are carried in.

This is because the value of the milk for the processor is in the solids. It is these solids that eventually make the butter, cheese and powder.

The water or liquid fraction that carries the solids in the milk is a cost to both farmers and processors as it has to be harvested from the cow, cooled and stored on farms and then transported and processed at the dairy plant, all of which costs money and uses energy.

Farmers John and Tom are farming next door to each other on similar type farms. John is progressive and focusses on breeding high EBI cows and measuring grass, while Tom is more focussed on yield per cow along with other things.

They both supply the same co-op and get the same base price for their milk, but get a very different actual milk price.

Let’s say at this time of year both farmers produce 10,000l of milk every two days. John’s protein percent is 3.80% while the fat is currently at 5.10%. Meanwhile, Tom’s protein percent is down at 3.55% and the fat is at 4.10%.

To work out the milk solids in each tank of milk, we must first convert the litres to kilos. The standard conversion used in Ireland is that each litre of milk weighs 1.0297kg of milk. So, 10,000 litres of milk equates to 10,297kg of milk.

The next step is to work out the kilos of fat and protein and this is done by multiplying the percentage of each into the total quantity of milk in kilos.

So, for John with milk at 3.80% protein, the full tank of milk contains 391kg of protein (10,297kg multiplied by 3.80 and divided by 100). With milk at 5.10% fat, John’s full tank of milk contains 525kg of butterfat. Adding the fat and the protein together gives total milk solids of 916kg in the tank.

In contrast, Tom’s protein is lower at 3.55% so in total he has 365kg of protein and his fat is also lower at 4.10% which equates to 422kg of fat. Combined, Tom has a total of 787kg of milk solids in the full tank of milk.

Payment wise, co-ops pay a price per kilo of protein (A), a price per kilo of fat (B) and a deduction for every litre supplied. The A and the B price tends to fluctuate monthly in response to the market, while the C price, or volume deduction tends to be fixed.

If we use the Tirlán price for May at €7.6109/kg protein, the value of the protein in John’s tank of milk is €2,976. The current Tirlán price for fat is €3.8037/kg. This would mean that the fat in John’s tank is worth €1,997. Next is the volume deduction and for Tirlán this is set at 4c/l so with 10,000 litres in the tank, €400 will be deducted from the combined A and B price.

Therefore, the total value of John’s tank of milk is €4,573 worked out by adding €2,976 (A) to €1,997 (B) minus €400 (C).

For every litre of milk in the tank, John receives a milk price of 45.73c/l (€4,573 divided by 10,000 litres).

John’s milk price per kilo of milk solids is €4.99/kg MS (€4,573 divided by 916kg of milk solids). These prices are all excluding VAT which is currently at 4.5%.

Using the same values for Tom’s milk, the value of protein will be €2,778 and the value of fat will be €1,605.

Because there is 10,000 litres of milk in both tanks, the value of the C deduction for Tom will also be €400. So in total, the value of the tank of milk on Tom’s farm is €3,983 or 39.83c/l.

In terms of milk solids, the price per kilo of milk solids for the tank of milk on Tom’s farm is €5.06/kg MS.

There are a couple of things to note from this example. Firstly, the difference in value between the two tanks of milk is enormous. The tank on John’s farm is worth €4,573 while the tank on Tom’s farm is worth €590 less at €3,983 with all prices excluding VAT.

Both farmers are getting the same base price at 35.96c/l ex VAT but the actual received price per litre is 9.77c/l higher than the base price on the farm with the higher solids whereas it is only 3.87c/l higher than base price on the farm with the lower solids.

However, in this example the price paid per kilo of milk solids is actually higher on the farm with the lower percentages and the lower total milk solids. The reason for this is down to the ratio of kilos of protein to kilos of fat produced.

As a proportion of all milk solids produced, Tom produces more protein relative to fat compared to John and protein is worth more than fat hence his milk price per kilo is higher, even though he produces less overall milk solids than John.

On this point, co-ops too have different ratios for A and B price. Lakeland, Arratipp, Tirlán and Aurivo pay twice as much for protein as they do for fat, whereas Dairygold, Kinisla and Carbery pay 1.5 times more for protein than fat.

Therefore, co-ops with the same base price in cent per litre can have a different price per kilo of milk solids if the ratio of fat to protein is different. This is often reflected in the monthly milk league.

In 2005, Ireland produced 4.915bn litres of milk in with an average protein content of 3.33% and an average fat content of 3.77% which equates to 359,000 tonnes of milk solids.

In contrast, last year Ireland produced 8.835bn litres with an average protein content of 3.61% and an average fat content of 4.34% which equates to 723,000 tonnes of milk solids.

On a volume basis dairy output has increased by 80% but milk solids have increased by 101% over the last 20 years.

They say success has many fathers and the growth in milk solids is a success story driven by farmers but assisted by better genetics, new research and advice around grassland management and the introduction of A+B-C pricing system.

To put it in context, if the percentage of fat and protein stayed the same as it was in 2005, Ireland would need to be producing 9.9bn litres of milk annually.

This is over 1.1bn litres more than it is today.

The last major dairy plant built in Ireland was the Kilkenny Cheese facility built by Tirlán and Royal-A-Ware at a cost of €200m to process 450m litres of milk annually.

€500m more

Ireland Inc would therefore need to have spent almost €500m more on stainless steel to process the extra milk.

However, that’s only half of the story as the extra volume also has to be processed annually.

The latest estimate of the costs of milk processing from Ornua is 9.5c/l which across 1.1bn litres works out at a total cost of €105m annually or just over 1c/l across the entire milk pool.

These costs don’t include the additional cost at farm level.

International context

Of course, Irish farmers are not alone in seeing improvements in milk solids.

Between 2015 and 2025 butterfat percent in the United States increased from 3.75% to 4.24%, which is a 13% increase.

Over the same time, butterfat percent in Ireland increased from 4.03% to 4.34%, which is a 7.6% increase, or almost half the rate of gain of the US dairy sector.

Lower

The rate of gain for protein is lower in the US, but it still increased by 5.8% over the last decade to reach 3.29% protein last year.

The actual percentage of protein is higher in Ireland but the rate of gain is similar at just over 5.2% of an increase over the last decade.

In New Zealand, protein percent increased by 3% over the last decade while butterfat increased by just 3.9% which is substantially lower than in the US and Ireland, but the starting point was significantly higher.

From a dairy farming and a dairy industry point of view, the focus on milk solids makes total sense.

Improvements made over the last 20 years has saved co-ops half a billion euro on stainless steel and reduced the cost of processing milk by €105m per year.

The sector has made great strides, but some things still don’t make sense.

Firstly, why are co-ops, Teagasc, banks and farmers still talking about milk prices in cent per litre? As the examples above demonstrate, base price in cent per litre bears no resemblance to actual milk price.

Are we going to wait another 20 years before we all start talking in terms of euro per kilo of milk solids because at the moment, dairy farmers are the equivalent of cattle farmers talking about beef prices in pounds per pound.

Secondly, ICBF and the AI companies need to show greater leadership on the whole issue of bull selection.

High volume

There are far too many bulls on the market with high volume and low solids, which are being promoted by the AI companies.

Given the long-term negative impacts of using these bulls, any company that lures a farmer into buying them should be ashamed of themselves.

It needs to be called out because the US is powering ahead and from a competitiveness point of view Ireland risks being left behind.

The Irish Farmers Journal will play its part by communicating milk prices more in terms of €/kg MS than c/l, like we do in the monthly milk league, but we also need the co-ops and Teagasc to do the same.