While all of the main buyers except Glanbia Cheese held their base prices unchanged from the previous month’s level, the prices paid for average January milk are down by between 0.2p/litre and 0.45p/litre due to lower average percentages of fat and protein in the milk.

Glanbia Cheese cut its base price by 1p/l. This took it to the bottom of the January league, having been in third place in December, when a winter bonus of 2p/l was paid. None of the buyers in this league paid a winter bonus for January milk, so prices paid by Lakeland Dairies and Fane Valley also moved sharply downwards from the previous month’s level.

Slightly over half of the milk bought by Glanbia Cheese now qualifies for its Red Tractor bonus of 0.4p/l. That addition put its Red Tractor milk suppliers on a par with Fane Valley’s price for January milk, but it is still at the bottom end of the league.

LacPatrick’s price in this league is just a hair over 18p/l for milk collected on alternate days. Its Red Tractor bonus of 0.2p/l is paid on slightly over half of LacPatrick supplies, but that still comes in below the prices paid by Aurivo and Lakeland Dairies, neither of which operates a Red Tractor bonus scheme.

All of those trail Dale Farm Red Tractor prices, which were the third ranked for January milk. Over 96% of the milk purchased by United Dairy Farmers is in the Red Tractor category now. The small number of United members who are outside that premium category received 2.5p/l less for their milk in January, which was just over 16p/l. The prices published here include a loyalty bonus of 0.1p/l paid on January milk supplied to United/Dale Farm.

At the top, the prices paid by Glanbia Milk and Fivemiletown Co-op were the only ones above 19p/l. These prices include bonuses of 0.6p/l, which apply every month, not just in winter.

The January league prices are after the deduction of transport charges for a supplier of 650,000 litres per year, with average NI seasonality of supply and with average milk quality of 4.06% butterfat, 3.24% protein, 4.68% lactose, TBC of 20 and SCC of 182.

Across the range of milk qualities shown in Table 1 and for the two sizes of supplier shown in Tables 2 and 3, the prices paid by Fivemiletown Co-op and Glanbia Milk are generally at the top, although marginally bettered by Aurivo for the milk of below-average quality.

The bottom places are generally occupied by Glanbia Cheese, Fane Valley and LacPatrick. Prices paid by these three were below the price calculated for comparable milk sold to First Milk producer co-op in Britain.

With the exception of Dale Farm Red Tractor prices, the base declared by the main milk buyers in the monthly price league has been below 20p/litre since June 2015.

Slippage since then has seen most base prices fall to January 2016 levels between 16.5p/l (Glanbia Cheese) and 17.75p/l (Aurivo). Maintaining an exceptional position, the Dale Farm Red Tractor base price, inclusive of the premium, was 18.2p/l for January. The stronger pricing by Dale Farm reflects its product mix – it has more consumer products and less commodity products than some of the other processors. Prices for products going into retail sales have not come down so far or so quickly as prices for dairy commodities but they are inevitably being dragged down.

However, all of these featured buyers are below the base price set by Strathroy Dairy, which remained at 20.5p/l right through from July 2015 to January 2016.

With most of its output processed for sale in retail stores as liquid milk, Strathroy’s pricing depends on the deals that it has with the retailers. These are linked to some extent with movements in dairy commodity prices elsewhere in the world, but they are less affected by the volatility of dairy markets than other processors who manufacture milk powder or butter or cheese for sale as commodity products.

The pressure suffered by Strathroy suppliers on milk pricing is less than the pressure on other milk producers in NI. But the Strathroy suppliers are not on contracts that pay a price linked to costs of production as occurs with much of the liquid milk supply to large supermarkets in Britain. Strathroy suppliers also have to be prepared for the times when world dairy markets rise strongly and the price obtainable from Strathroy’s customers does not rise at the same rate.

Strathroy pays a winter bonus of 1p/l from October to February.

Although trailing at the bottom of the January league table, Glanbia Cheese prices remain in the higher positions in our comparison of rolling average prices for the 12 months to January 2016. Other leading prices over the 12 months were those paid by Lakeland Dairies, Glanbia Milk and Fivemiletown Co-op (whose prices are the same as those of Glanbia Milk).

Aurivo and Dale Farm Red Tractor prices are also showing up in some of the higher placings in these comparisons.

Production patterns

If your production pattern differs from the Northern Ireland average seasonal profile, the prices you receive over 12 months will differ from those shown here. These prices are calculated from the official quoted price schedules of the buyers, including their adjustments made for milk quality.

Fears of a large surplus of milk across the UK through the April to June period this year have been expressed in a letter from Dairy UK to the British Government, which warns of milk prices being driven down if EU market intervention rules are not adjusted.

The letter, sent by United Dairy Farmers/Dale Farm Group chief executive David Dobbin in his role as chair of Dairy UK, states that, based on the current production profile, the dairy trade expects a large surplus of milk in a market that is already saturated. It points out that intervention is currently filling up rapidly and Dairy UK is concerned that the intervention cap will be reached before this year’s peak production period.

Once the cap is reached, in accordance with articles 3.1 and 3.2 of Council Regulation 1370/2013, the Commission is expected to introduce a price-tendering process for any further product being submitted into intervention.

Dairy UK warns that this will inevitably lead to a reduced intervention price, driving farmgate prices even lower than they currently are.

Two possible solutions are suggested:

  • Ask the Commission to keep the same price as now.
  • Ask the Commission to reset the intervention cap of 109,000t for SMP and 50,000t of butter once they are reached, rather than introduce a tendering process at that stage.
  • In this letter, sent last week, Dairy UK has appealed to the Minister of State for Farming, Food and the Marine Environment, George Eustice MP, to use the lobbying weight of the UK Government with Commissioner Hogan on this matter.

    The letter concludes that this would ‘‘help avoid even greater distress at farmer and processor level in the UK dairy industry and would be a positive way that Defra could support us at this time’’.

    On enquiry by the Irish Farmers Journal, David Dobbin said that Dairy UK had previously asked for the intervention prices to be increased and this latest appeal to the Government does not remove the previous request but it is seeking an immediate action on intervention at this difficult time.

    According to Dobbin, prices for dairy products are falling across the board at present.

    Spot milk is being traded at 14p/litre or less – and the trend is downwards. He says that a decision to extend the availability of intervention at the current price levels would at least put a bottom in the market and could stop the slide.

    Others maintain that the intervention price being so far below the cost of production means that it is no real help and it would be better to let prices fall further to force some producers out of business and bring UK supply back down more in line with demand.

    Reduction

    Dobbin says that any reduction in UK supplies would be immediately filled by dairy products from the Republic of Ireland, where the volume of increased production since the removal of milk quota is on course to equal the total milk output of Northern Ireland by the end of 2016.

    There is a wide range of prices being paid for ex-farm milk in Britain.

    As dairy commodity markets have fallen over the past two years, prices paid for milk supplied on contracts aligned to milk production costs have shown their worth from the producer point of view. See Figure 1.

    These contracts are aligned to the supply of liquid milk in most cases to various major retailers in Britain such as Marks & Spencer, Waitrose and Tesco. The producers are expected to make their books available to an independent consultant to allow production costs to be calculated.

    They also have to meet various requirements on animal welfare and other specific demands laid down by the retailers – but these requirements certainly seem to be a small price to pay when the returns being obtained for the milk are so far ahead of anything available from the normal trade.

    For the buyers, the additional cost of aligned prices is currently thought to be more than £200m per year – which is either paid by the consumers or absorbed by the retailers or both.