The final details of the €150m EU milk reduction scheme have been released. Dairy farmers will receive 14.4c compensation for each litre reduced from October to December.

The compensation will only pertain to a maximum of 50% of the volume reduction. So if a farmer’s supply last year was 40,000 litres, compensation will only be available on 20,000 litres during this period in 2016. In the next few days, each milk supplier in the country should receive a letter from their co-op with details of their production between October to December 2015 and details of possible compensation for reducing supply for the same period in 2016.

Milk suppliers have a very short time frame to apply as all details must be returned to each co-op by 15 September if wishing to avail of compensation from this first autumn period.

Our preliminary analysis based on a predicted base milk price of 24c/litre for October to December inclusive, plus the addition of seasonal milk solids premiums, suggests the financial gain for many spring milk producers will be very small. To make it work, the reduced output value must be balanced with reduced variable costs such as less meal feeding and less labour employed.

Listen to Jack Kennedy's explanations in our podcast below:

The situation is different for winter milk herds that traditionally have a higher supply pattern through the three months. Many farmers that supply milk during the winter must supply a defined percentage or volume for each month during the winter months. Hence any reduction of supply needs to factor this in.

IFA dairy chair Sean O’Leary said: “Our advice to interested farmers is to apply for the first period. This means they could produce as normal in October and dry off early for November and December – provided they remain within the 50% limit, beyond which they will not be paid.”

ICMSA president John Comer said the organisation “is proposing that this funding is used to provide dairy farmers with a direct payment of €1,200.”

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