A review of the Irish Farmers Journal/KPMG milk prices over the last 10 years shows the West Cork Co-ops have paid out between €369 and €638 more in terms of milk price per cow than the average. At the same time Arrabawn, Aurivo, Lakeland and Town of Monaghan have paid out between €472 and €666 less per cow than the average. The rest of the co-ops are somewhere in between.

Lisavaird are clear at the top followed by Barryroe and then Bandon. Drinagh, the larger of the four West Cork co-ops with the more dispersed milk supplier base and who arguably have higher costs of collection etc, are fourth in the 10-year review. In only one year, 2005, did they pay out less than the average.

Dairygold come next ahead of Glanbia by a small margin. A Dairygold cow earned €147 more than the average while the Glanbia cow delivered €103 more per cow than the average over 10 years. Wexford come next just below Glanbia paying €90 per cow above average.

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Kerry and Tipperary have paid out below the average. Kerry are just below the 10-year average, paying out €68 less than the average over 10 years while a cow supplying Tipperary Co-op earned €213 less than the average over a 10-year period. It is important to note that we only have five years of Tipperary results in this average as they only joined the Irish Farmers Journal/KPMG league in 2008. The rest are 10-year figures.

A Lakeland cow earned €472 less per cow over 10 years which is better than the Aurivo cow that earned €562 less per cow. Town of Monaghan and Arrabawn cows bring up the rear earning €635 and €666 less per cow respectively over the last 10 years. This means over the last 10 years, the average farm in these areas with 60 cows brought in almost €40,000 less than the national average. Remember the best co-ops brought in almost €40,000 more than the average, so that’s an €80,000 difference or almost an average of €8,000 more per year.

The process

For this exercise we’ve taken the difference in milk price result for each co-op and compared it to the average audit price each year for the last 10 years. We’ve added the differences together and the result per cow is in the graph above. So, for example, Barryroe paid out 33.31 c/litre, the top price in 2012, and were 2.49 c/litre ahead of the average in 2012. If we multiply this by 5,000 litres that an average cow could produce, then the Barryroe cow delivered €124 more in milk price than the average audit cow in 2012. We did the same each year for the last 10 years and the result is the Barryroe dairy farm, with 60 cows, was cumulatively better off to the total tune of €32,510 than the average result or €542 per cow. However, over a 10-year period Lisavaird actually top the 10-year league, paying out €38,300 more than the average result or €638 per cow more than the average.

On the other side of the milk price review, Aurivo paid out the lowest price in 2012 at 28.38 c/litre, and were 2.43 c/litre below the average result in 2012. Hence the average Aurivo farm with 60 cows was down €7,290 in 2012. Each year for the last 10 years Aurivo were between 0.1 and 2.4 c/litre below the average so cumulatively the Aurivo farm was €33,700 worse off than the average farm or €562 per cow worse off over the last 10 years. However, over a 10-year period Arrabawn actually bring up the rear of the league paying out €39,940 less than the average or €666 less per cow.

Why completed?

This exercise is about learning from looking back with a view to moving forward. A young milk supplier who was just starting to milk cows this year had three milk lorries passing his gate asked me who should he supply.

One part of the answer is to look at the milk price track record. The other parts are what investment he needs to make in the milk processor; for example the share-up required and seasonality penalties that may impact on farm income etc.

We must also be conscious that a processor may have a very genuine reason or explanation for a poor milk price based on a strategic co-op board decision to invest and build a better business for the future rather than pay out in milk price at the moment.

This might have prevented the co-op paying out a good milk price but a balance sheet review should reflect this.

The other reason for doing this exercise is that it allows existing milk suppliers make an informed decision on milk price track record if the situation arises which allows that farmer switch milk processor.

Imagine if someone said to you for the next 10 years your cow will earn €600 to €700 less in milk price than the average cow milked in Ireland. What would you do? What can you do? You could settle for the average but is that what you are doing at farm level – is average good enough? Can you influence your co-op board members to raise the game?

I suppose the big questions are for those co-ops that are significantly below the average paid – what’s the plan or strategy to improve payout? Lesser, but nonetheless important questions for those co-ops in mid-division – why are they so far off the pace of the leaders and what can they do to aim for the top division? Is that part of the plan?

Hard-working

This article is not about knocking existing co-op board members. In general, board members are hard-working at farm level and trying to double-job at industry level. It’s a big ask and they must be congratulated for their role. Two things are happening at the moment:

(1) Right now farmers are being asked to share up in some co-ops and in many cases farmers don’t know what the money is being used for. Are farmers buying into an underperforming business? What are the future prospects of that co-op? Co-op Management and board members need to explain the answers.

(2) Also now for the first time there are many new dairy farmers starting to milk cows and some of them have a choice where to supply milk – the information above is one part of the jigsaw. It also looks like existing milk suppliers, too, may soon have a choice on who to supply.

IFJ/KPMG MILK PRICE REVIEW

Each year the manufacturing milk price report does not attempt, or indeed is it intended to attempt, to measure the overall performance of milk processors, or indeed to evaluate services provided by milk processors to farmer suppliers.

The average price published in the manufacturing milk price report represents the price paid by the relevant milk processors for the constituents in the milk that was supplied to that milk processor during the year.

This represents the average price of manufacturing milk, used in the manufacturing process, including quality, seasonal incentive and other bonuses and net of quality, inhibitor and other penalties. Prices are stated in cent per litre (c/l) exclusive of VAT.

While the average price difference has been used in this calculation, some farmers within co-ops will have attained a higher price due to high solids and premium quality etc.

Milk price delivered could include an element of non-dairy dividend but this is the same for all businesses. The Irish Farmers Journal/KPMG milk price review is based exclusively on milk purchased for and used in manufacturing – milk destined for the liquid trade is excluded. The review takes no account of seasonality.

We estimate some processors have significant winter milk schemes such as Barryroe (10%), Glanbia (12%) and Town of Monaghan (18%). This should boost product returns but also increase milk supplier costs.