Ornua has insisted that it is not directly involved in the operation of any fixed milk price (FMP) schemes and has defended its role in seeking to dampen the impact of such hedging mechanisms on farm incomes this year.
Addressing the Joint Oireachtas Committee on Agriculture on Wednesday, Ornua CEO John Jordan said the business was the buyer of less than one third of the estimated one billion litres of milk purchased under FMP schemes.
However, he accepted that many farmers with large volumes tied into FMP schemes were under serious “financial stress and mental strain” due to the “unprecedented and unexpected rise in input costs in 2022”.
As a consequence, Ornua offered to increase the contractual purchase price on 10% of the volumes supplied under FMPs, subject to the member co-ops supplying the same volume in 2023 at the increased price.
“The Ornua offer is based on an assumption that 10% of the volume of Ornua purchases on a fixed-price basis is from milk supplied by farmers in hardship,” Jordan explained.
“This offer can be managed by the co-op in whatever manner they deem most appropriate for their situation. It would equate to 10c/l on 10% of the volume or 1c/l on all of their volume.
"There is a link to 2023, in that the volume and price are, in turn, fixed for 2023 at the same increased return,” he added.
Last week, both Dairygold and Glanbia said that they were declining to become involved in the Ornua scheme.
In a letter to suppliers, Dairygold claimed the Ornua package offered a “minimal level of funding” and tied farmers into a further FMP scheme for 2023 at just 42c/l, which it said was too low.
However, Jordan defended the Ornua offer, pointing out that it is being funded exclusively by the marketing body.
“It is entirely separate to the payment supports recently brought in by individual dairy processors and aims to provide equity across all our members, while helping co-ops to target hardship cases. Some member co-ops have taken up the Ornua offer and others have chosen not to,” he said.
We believe that our offer of support is the right thing to do
“We believe that our offer of support is the right thing to do, is balanced and is in keeping with our values,” the Ornua CEO added.
Jordan accepted that confidence in fixed milk price schemes has been “very significantly impacted by the negative experience of some farmers in 2022”.
However, while accepting that structural changes will have to be made to FMPs, he contended that “hedging and de-risking tools” will continue to have a place in the dairy business given the volatility of world markets.
“Lessons will need to be learnt from recent experience and consideration given to how income margins can be protected under any new [FMP] schemes if there is an appetite for them,” he said.