Specialist liquid and winter milk producers supplying fresh milk over the winter have a number of battles on their hands. There are four main issues facing the sector which are affecting profitability:
The import issue is a contentious one and riddled with double standards.
Twenty-nine percent of all the milk produced in Northern Ireland is processed in plants south of the border, with Lakeland and Aurivo lorries crossing the border on a daily basis.
Meanwhile, Strathroy Dairies is ferrying milk from farmers across the southeast to its liquid milk processing plant in Omagh, Co Tyrone. A share of this milk then makes its way back south in the form of Strathroy and own-branded dairy products and milk. This cross-border movement of the same milk is not accounted for in the NMA figures. It is considered imported milk even though some of it is bound to have been produced on farms in the Republic.
There is a big difference in perception among farmers, particularly liquid milk farmers, between imported milk for manufacturing and imported milk for liquid consumption.
Republic of Ireland-based co-ops have been actively chasing the Northern Ireland milk pool through acquisitions and by enticing existing suppliers away from their existing Northern Ireland-based processors.
This milk is used for the manufacture of dairy products for export and because it helps to increase throughput in plants and has a lower peak-to-trough ratio, it’s considered efficient milk from a processor point of view.
Imported milk for liquid consumption is seen in a different light.
The National Dairy Council (NDC) spends millions every year promoting milk with the NDC logo, meaning it is farmed and processed in the Republic of Ireland. This protectionist policy is difficult to swallow for producers in the North, particularly when you consider all the beef and dairy imported into the UK from southern Ireland.
Protectionist policies in the liquid milk market are nothing new. In the 1980s, the Dublin District Milk Board brought a High Court injunction against Town of Monaghan from selling Monaghan milk in the Dublin region. It wasn’t until the mid-1990s, with the dissolution of the Dublin and Cork District Milk Boards that the market for milk opened up and it was only then that milk from the North started entering the southern market.
The NMA was established in 1996 to replace the milk boards and its remit is to essentially ensure that there is enough liquid milk available for consumption.
Data compiled by the NMA show that in the 2020-21 milk year, the number of registered liquid milk producers decreased from 1,338 to 1,324, a reduction of 14 producers or 1%.
Not only do these producers supply liquid milk for consumption, but they also produce over 6% of the total amount of milk available for manufacturing.
This cohort of farmers produced 912m litres of milk in 2021 and the total amount of liquid milk consumed, including that milk which was imported, was 563m litres.
A small subset of 3% of these farmers participate in Teagasc profit monitor each year. A slightly larger subset of over 4% of spring milk producers participate in profit monitors and, in general, farmers in both groups tend to be cost and profit focused so they aren’t representative of the average farmer.
However, the profit monitor data does highlight some of the differences between the producers in terms of profitability.
To summarise, despite producing more milk per cow (511kg MS/cow in winter milk herds versus 490kg MS/cows in spring milk herds) gross output per litre was 1.42c/l lower for the winter milk herds. Variable costs were 0.81c/l higher for the winter milk herds.
We often hear it said that more milk volume dilutes fixed costs but this data shows there are higher fixed costs on winter milk herds, with a 0.71c/l increase on spring-calving herds. The main difference here is due to labour and machinery costs.
Winter milk herds were less profitable to the tune of 2.94c/l, compared to the average spring milk producer
Herd size may be having an impact, with average herd size in the winter milk herds at 208 cows, while it is 162 cows for the spring herds.
There is also a higher percentage of replacements retained on the winter milking herds.
All in all, winter milk herds were less profitable to the tune of 2.94c/l, compared to the average spring milk producer.
The above data is not based on a controlled experiment, so there may well be management factors involved, but it does show that the average winter milk producer would be better off being in spring milk only. This is before the impact of additional workload from autumn calving is considered.
Based on the profit monitor data, winter milk producers would need an additional 3c/l on all their milk just to remain on a par with their spring milk counterparts.
Increase in feed costs
In other words, the existing winter milk premiums are wholly insufficient to compensate producers for milking over the winter, and that’s based on last year’s costs – feed costs have increased by around €120/t since then.
Family tradition and a sense of duty to carry on winter milking will only last for so long.
As labour resources get scarcer and as increased scrutiny comes on the use of inputs, particularly imported soya, there will be further pressure on winter milk supplies.
The changes to the nitrates directive are another major challenge for winter milk producers.
For as long as there is a year-round supply of milk from Northern Ireland and with no hard border, imports from Northern Ireland will continue to grow and take an ever increasing share of consumption in the south.
This, coupled with multiple processors competing with each other on price, means that the price paid to liquid milk farmers will never be high enough to adequately compensate for the increased costs and workload.
There is plenty of evidence to suggest that for most milk processors, the liquid milk business is a cost centre as opposed to a profit centre. This means that having a liquid milk business reduces the overall profitability of the co-op.
At present, there are eight co-ops involved in the liquid milk business, each with their own or multiple brands. Tirlán owns the Avonmore brand which is the second most recognisable Irish brand across all brand categories.
A one-litre carton of own-brand NDC logo milk in Dunnes Stores costs €1.05, while a one-litre carton of Avonmore milk costs 42% more at €1.49.
Smaller brands such as the Clona brand in Cork are retailing for €1.40/litre with Thurles milk retailing at €1.39/l.
Interestingly, Spar own brand milk without the NDC logo (presumably imported) is selling for €1.39/l.
This highlights both the opportunity with a branded product like Avonmore to charge more, but also the depressing reality of the impact of an own-brand label, like Dunnes, to charge so much less.
Branded milk such as Clona and Thurles are competing with Avonmore on price.
It would make far more sense for these smaller players to cut their marketing costs and produce liquid milk under the Avonmore brand, using a licence agreement or similar arrangement. This should deliver a higher return to farmers and reduce competition in the market while maintaining local processing jobs.
Although it should be noted that Tirlán suppliers aren’t getting 10c/l more for their liquid milk now.
Without a substantial increase in milk price, it is inevitable that farmers will start leaving the sector at a faster rate in the years to come.