Unlike nearly every other country in Europe, milk pricing structures in NI mainly incentivise dairy farmers to focus on increasing yield, rather than milk solids.
As a result, the drive for litres has seen little change to the levels of butterfat and protein for the average dairy herd since 2012.
Yet, the overwhelming majority of milk produced in NI is dried, processed and exported. With lower solids, there are higher costs transporting milk off farms, increased drying costs and energy use as water is removed. Ultimately, these costs have to come off milk price. Longer term, there is a clear environmental argument for incentivising higher-solids milk.
Over the past decade, the NI milk pool has increased by approximately 30%. Production hit record levels last year with more than 2.4bn litres processed.
In the same time frame, butterfat and protein levels have remained relatively static. DAERA records show that in 2012 the average butterfat and protein was 4.02% and 3.25% respectively. In 2019, butterfat averaged 4.05% and protein 3.3%.
In contrast, milk solids in the Republic of Ireland have moved from 3.94% and 3.36% to 4.17% and 3.54% for butterfat and protein respectively over the same period.
That increase has been driven by a move to a payment system based on milk solids (A+B-C). Best estimates suggest the additional fat and protein percentage has increased the value of the Irish milk pool by an average of €15m per year.
The prospect of an A+B-C payment system in NI has been raised on various occasions in the past, but has still to gain much traction, with co-op boards reluctant to change, and underlying concerns are that it will upset the relatively flat production profile in NI.
While it is correct to point out that spring-calving systems dominate south of the Irish border, it should be noted that the Netherlands operates high-input, high-output systems, with average yields over 9,000l but milk solids at 4.41% butterfat and 3.58% protein. It is possible to breed for high yield and high milk quality.
To illustrate that farmers have nothing to fear from a switch to A+B-C pricing, we compared the prices paid by Lakeland Dairies either side of the Irish border in 2020 to a 1m litre supplier with milk quality at the NI average (butterfat 4.06%, protein 3.3%).
The A+B-C calculation uses Lakeland’s monthly protein (A) and butterfat (B) price, with a deduction made for volume (C).
For a 1m litre producer, our estimate of total milk sales using the current NI system (including winter bonuses) came to £270,410 for 2020.
The same producer, if based in the Republic of Ireland, would have received £274,305 for the equivalent milk (converting euros to sterling at €1 = 89p).
While that figure does not include out-of-season bonuses offered by Lakeland in the south, the data does show that over the course of the year, monthly variations in milk prices either side of the border tend to even out.
But what about a dairy farmer in NI who is producing milk solids above the NI average?
The calculations were re-run, this time assuming the NI farmer has an annual butterfat at 4.3% and protein at 3.4%.
At this milk quality, the farmer in NI has annual milk sales of £281,228. If the same milk was supplied in ROI, they would have received £287,148. So rather than a gap of around £4,000 between north and south, it has widened out to £6,000. In other words, there is a greater reward south of the Irish border to produce higher-quality milk.
While it is unrealistic to expect the NI dairy industry to make radical changes to payment systems overnight, the first logical step would be to revise the current premiums on offer for butterfat and protein, to give farmers the correct signals.