The board of Ornua approved a number of changes to the Ornua Purchase Price Index (PPI) on Tuesday.
The PPI is an indicative value of what dairy commodities sold by Ornua are making on world markets. For the last 18 months, member co-ops have been struggling to return the PPI price announced by Ornua.
Firstly, the previously included market premium payable by Ornua will be removed and expressed alongside the PPI. Secondly, the annual members’ bonus will be paid monthly and combined with the market premium, and, together, they will be called the 'Ornua value payment'.
Thirdly, the estimated processing cost in the PPI will be increased from 6.5c to 7c/litre. Essentially, collectively all these changes should make it easier for member co-ops to reach the PPI price announced each month.
In a statement, Ornua said: “This increase was advised by member co-ops and validated by an independent review. This adjustment does not alter the PPI or impact the prices Ornua pays for products.
"This cost estimate excludes member co-op supply chain costs (eg logistics, storage, insurance, selling and marketing).”
The PPI was established in 2011 and works off a base year of 2010). It is a measure of the monthly gross value paid to member co-ops for the Ornua product portfolio.
Recently, member co-ops have highlighted to Ornua that the estimated processing cost does not contain new and increased costs that they have incurred over the past 10 years.
They suggested notable increases include seasonality inflated depreciation, maintenance and compliance costs.
They also said customers are demanding greater standards in terms of quality and traceability, leading to new regulatory, environmental and sustainability costs.
Member co-ops have also argued with Ornua that, in addition, borrowings undertaken by member co-ops to fund the expansion of the industry post-quota require greater margin retention to meet strict banking covenant requirements.
Ornua PPI increases for June
PPI margins row central to co-ops' and farmers' futures