When we compare the ranking of processors in c/litre with €/kg milk solids, we can see most milk processors ranked similarly (Table 1). The price ranges from €5.03 per kilo milk solids for Bandon suppliers down to €4.42/kg MS for LacPatrick suppliers. Last year (2016 milk prices) the price ranged from Lisavaird paying €3.89 per kilo milk solids down to Aurivo paying €3.18 per kilo milk solids.

LacPatrick which is ranked last when we look at it on a c/litre basis, remains in last place when ranked on a milk solids basis. In c/l terms, it paid out 32.97 c/l, but in euro per kilo milk solids it paid out €4.42/kg MS.

Did much change when we rank on milk solids? Bandon, Aurivo and Kerry fared best. They all moved up in rank when calculated and compared on price per kilo milk solids. Remember, when we do this, we look at the pot of money paid out to suppliers for manufacturing milk divided by the total kilograms of milk solids purchased by the processor.

Why compare on solids?

One of the issues with comparing processors on price and volume (c/l) figures is that processors that don’t get good milk solids from suppliers can’t pay out a high price per litre. They don’t get the high-quality milk solids so the farmer is not rewarded with a better price. The Irish Farmers Journal/KPMG Milk Price Review calculates the volume of manufacturing milk in litres, and this volume is then used to calculate the price per litre from the total amount of money paid out to farmers.

Poor milk solids delivered by farmers to the processors can be for a variety of different reasons. The main reasons for poor fat and protein are that farmers are using low milk solids genetics, don’t have good grassland paddocks, or possibly herds are producing more milk indoors due to heavy ground conditions or higher annual rainfall in a region.

At this stage, the vast majority of milk in the Republic of Ireland is paid for on a milk solids basis – that means a value on the fat and the protein and a deduction on the water element. As cow genetics, soil type, grass quality and weather differ between counties, regions and farms, by calculating a price per kilo milk solids, we neutralise to a large extent the effect of poor milk fat and protein on price.

When we calculate this euro per kilo milk solids price, we see some change on ranking. The overall trend and positioning is still the same in the main. Some processors pay some flat bonuses not related to fat and protein and this could skew the figures slightly, but not dramatically.

Definition

Remember, the simplest definition of the IFJ /KPMG Milk price review is the total amount of money paid out to manufacturing suppliers (not liquid) in a calendar year divided by the total volume (litres) of milk delivered which allows us calculate a c/l price.

However, the majority of milk for those processors involved in the milk price review is purchased on a milk solids basis. Paying for milk solids rather than volume essentially means that the processors are sending a signal to the supplier that they want higher milk solids (more fat and protein) and the higher the price they can pay for solids then the stronger the signal is that they want more milk solids. Higher milk solids allow the processor make more cheese or powder etc, so hence they can afford to pay farmers more for higher milk solids.

In some respects, the c/l figure discriminates against those processors that traditionally have a supply base with low milk solids. To investigate this, and in effect to neutralise this as one of the issues for differences between processors, we divided the total pot of money paid out for milk by the total amount of milk solids purchased.

To calculate the total milk solids collected, we totalled the monthly volume of milk solids and subsequently totalled the annual volume of milk solids purchased. When we divide the total money paid out by the total milk solids we are able to calculate a price per kg MS. We use the average fat and protein percentages for each processor for each month to calculate the monthly milk solids production.