Jack Kennedy explains the difference in the various milk price benchmarks used, specifically the monthly milk leagues compared to the annual KPMG exercise.

1 The KPMG review

Over the last two weeks we have published the results of the KPMG/Irish Farmers Journal annual milk price review.

It shows the prices paid for the participating co-ops based on the milk fat and protein collected from their farmers. So you can see the price ranged from 35.29c/l in Barryroe down to 31.73c/l in Lakeland Dairies. This is calculated by dividing the total pot of money paid out to farmers by the total volume collected. So all money paid out for somatic cell count bonuses that some farmers get, all money paid out for fixed milk price schemes, all money paid out for fat and protein bonuses and any money paid out in winter milk schemes – calculate the sum of all these and divide by the volume. Kerry paid out a once-off bonus of 2.85c/l to all suppliers with no conditions attached so that went into the pot. That’s what lifted Kerry into fourth spot.

2 Standard milk solids

I’ve been asked 10 times in the last week what would happen if milk solids were levelled out. Milk fat and protein is a big price factor – if a farmer produces more fat and protein, they get a better price. Therefore, in Table 2 I’ve taken the KPMG price ex VAT, transport and levies and standardised it at 3.3% protein and 3.6% fat.

This is just for comparison purposes, so we can look at prices across co-ops at the same fat and protein. Bonuses on fixed milk price schemes, winter milk, milk quality etc are still included. So we see a similar pattern to Table 1 except the four west Cork co-ops align themselves at the top, then comes Kerry and then Lakeland Dairies. One of the reasons Lakeland ranked last in Table 1 was that fat and protein are still so poor up that part of the country but you can see from this table they paid a decent base milk price in 2019. When we level the pitch on fat and protein, they jump ahead of Tipperary, Dairygold and Glanbia. There’s not much in it, but if the bottom three were relegated, Lakeland would be safe.

3 The monthly league

Finally, in Table 3 I’ve taken the results of all the Irish Farmers Journal monthly milk leagues published throughout the year, weighted them for monthly supply and calculated an annual milk price. Again, this is not what farmers get paid because farmers are producing better fat and protein nowadays but again it allows us compare base prices between processors and across years.

Each month these prices are calculated based on information supplied by the co-op and from reviewing farmer milk statements. I’d say the ranking story in Table 3 is similar to Table 2, except maybe Kerry is a good bit off because in the monthly leagues I didn’t give Kerry credit for the full 3c/l given it was a once-off payment to top up a number of years. Remember also, I don’t include conditional bonuses for SCC, winter milk schemes or fixed price schemes in the monthly milk leagues, hence the actual milk prices in Table 3 are lower than those in Table 2.

The three models

So what can we say about the different benchmarks? For me all three have a place. Table 1 shows the money paid out to farmers from that processor. KPMG establishes the numbers when they review co-op documentation. Differences in financial performance, management, geography, history and payment terms create the differences. Table 2 is just taking the milk solids difference between processors out of the equation for comparison. Table 3 shows the base price average as established month to month through the year so farmers can see differences between processors as the year develops.

For this exercise I’ve kept the c/l metric the same between all processors for comparison purposes to keep it clean and understandable. In the monthly milk leagues, I establish and rank the euro per kilo milk solids price at 3.45% protein and 4.11% fat. As an industry, we really need to move to euro per kilo milk solids as the only metric or we will continue to sway between both measures. While the majority of co-ops are paying on milk solids, there is still some variation in how this is established.

Progress in milk solids

Finally, Table 4 shows the progress in fat and protein percentage over the last 10 years. So, for example, Glanbia farmers in 2010 delivered on average 3.37% protein and 3.83% fat (7.2% combined). In 2019 Glanbia farmers delivered 4.25% fat and 3.58% protein (7.83% combined).

That’s a lift of 0.63 over 10 years. A combination of better measurement, better genetics and better grassland management delivering better fat and protein. At the opposite end, Lakeland’s solids only lifted by 0.31 over the 10 years, half the Glanbia gain. Some of this is down to soil type (less grazing), poor genetic selection in the milk supply catchment, and more indoor milk etc.

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