September 2017

I FA DA I RY A N D L I Q U I D M I L K N E W S L E T T E R

STRONG BUTTERFAT RETURNS WILL CARRY AT LEAST 1CPL AUGUST PRICE LIFT

The first GDT auction of Sep-tember confirmed the global nature of the butterfat price inflation and shortages with significant price increases of 3.8% for butter and 3.6% for AMF (butteroil). EU average

butter prices have breached the €6,000/t (€6,180/t on 27th August) - with spots ap-proaching €7,000/t. The mix of products relevant to Ireland, as reported by the EU Milk Market Observatory now returns over 41c/l before processing costs. Dutch and Italian spot milk prices for 3rd Sept both exceed 44c/kg. The IFE raw materi-al value index based on SMP and butter prices calculated for July was 40c/kg at 4% butterfat, and will clearly increase for August to reflect further butter price increases. Global milk supplies continue to grow slower than expected, largely because of lower EU supplies. French output is down 1.25% for the April to August period; German production was estimated 1% below last year for July. Dutch supplies have come back 2.1% in July due to the phosphates-related herd reduction scheme. Eurostat show the German, Dutch, Danish and Italian dairy herds have all shrunk in June 2017 (compared to 2016). Dutch cow slaughters rose 30% in the first half of 2017, and exports of heifers from the Netherlands have also risen, as farmers could also meet their herd reduction obligations that way. US production continues to rise strongly (+1.8%) and the NZ 2017/18 season has started well, but a wet spring is reportedly putting pressure on volumes. International demand remains strong and continues so far to outpace supply. Of course, concerns persist over weak SMP prices, sustained by the large overhang of intervention stock, and the return to very modest buying in by some countries in the last couple of weeks.

ALDI MILK DISCOUNTING DAMAGING FOR FARMERS

Retailers pay lip service to sustainability in the milk chain, but pay too little for fresh milk. Aldi have started aggressively discounting their 3 litre offering of fresh milk to under 67c/l, leaving little to remunerate the true cost of producing fresh milk year-round at farm level, and the cost of processing it. Farmers’ worry that this would lead to a damaging spiral to the bottom has prov-en to be well founded, as other retailers have now matched this unrealistic offer. Untenable dis-counting is contributing to the economic fragility of year-round fresh milk production highlighted in the IFA Milk Wise 2025 strategy. This will cost consumers—especially with Brexit looming - as retailers may struggle to put fresh milk on their shelves at certain times of the year. Retailers claim that they carry the cost of the promotions, but few of them do so for long, if at all—bitter past experience shows farmers’ prices are always squeezed. Our dairies are farmer-owned, and owe it to farmers to resist the bully boy tactics of retailers. They must demand high-er wholesale prices so that farmers can cover costs. Speaking from the protest line in Dunnes Stores and Aldi Portlaoise, John Finn said: “There is no such thing as cheap milk. Year round fresh milk costs around 40c/l to produce to cover costs and pay farmers a modest wage for their labour. For the last 5 years, liquid milk producers have fallen between 2 and 9c/l short of that figure, and despite improved base prices will most likely fall short this year again”. Is Aldi selling below true costs? See overleaf.

Deputy President Richard Kennedy, Liquid Milk Chair John Finn and President Joe Healy at the protest against unsustainable discounting of fresh milk by Dunnes Stores and Aldi.

INTERNATIONAL MILK PRICE ROUND UP

Global dairy markets have supported significant price increases all over Europe and the world. This is a short, up to the minute round up for August/September prices:

Dutch Friesland Campina: September “guaranteed” price +2c/kg to 40.50c/kg to reflect returns and main European competitors’ prices;

Arla +1c/kg increase for September based on fast rising butterfat value. Arla buy

milk in Denmark, Germany, Sweden and the UK. In Arla UK, this increase will raise the price to 30.79p/l (33.00c/l at current exchange rate);

In France, largest private milk purchaser Lactalis +1c/l for Sept to 36c/l, (August

35c/l, July 34c/l); Co-op Sodiaal is quoting 33.7c/l for Sept;

German milk purchaser DMK +2c/l for August to 38c/kg;

In New Zealand, ASB Markets predict stronger butterfat value and lower volumes

due to wet spring could lift the Fonterra 2017/18 forecast price to NZ$7/kg. There is clear scope and justification for a minimum 1c/l on Irish August milk!

Compiled by: Catherine Lascurettes, Executive Secretary, National Dairy and Liquid Milk Committees Contact: Address: IFA, Farm Centre, Bluebell, Dublin 12; Telephone: 01-4500266; email: catherinelascurettes@ifa.ie

With the winter 17/18 liquid milk price negotiations about to begin between dairies and producer groups, farmers’ attention has understandably been focussed on the current wave of discounting started a few weeks ago by Aldi, and what implications it will almost certainly have on the value available to remunerate them sustainably this winter. The National Milk Agency 2016 reports shows the farmer’s share of the retail price has gone from 43% to 28% in the last 20 years. CSO shows that while the price inflation index for milk has increased by around 36 points over that period, it has done so by far less than the consumer price index (+50 points). We know the price paid to farmers and the costs they incur, and we know the price consum-ers pay, but in between, there is absolutely no margin transparency in the fresh milk chain. So, to try and bring some clarity to the issue, we looked to work carried out in May 2016 by Dr Holger Thiele of the Institut fur Ernahrungswirtschaft (IFE), the German institute for food economics. Dr Thiele states that it costs 21.3c/l to process a litre of UHT milk in large and efficient German plants. As our milk is fresh, it requires costlier refrigeration through the entire chain, and our smaller processing plants do not have the same economies of scale so the Irish cost could be over 2c/l higher than that—before allowing for any profit margin for processors. IFA has already shown, based on work by Teagasc and FDC Accountants, that it costs 40c/l for a specialist liquid milk producer to cover their costs and pay themselves a modest wage. This would bring the Irish production plus processing costs to a total of 40c/l + 23c/l = 63c/l before any profit for dairies. Were retailers to pay dairies at least 63c/l, this would leave them, at current private label retail price levels of 75c/l, a gross margin of 12c/l or 16% of the retail price – not bad bear-ing in mind that retailers face the lowest costs in the chain!

So what are retailers actually paying dairies for milk? Well, while farmer prices and produc-tion costs are well publicised, there is no transparency on wholesale prices and no official reporting, but our understanding is that it is less than 63c/l. This means that the value returning to the up-stream end of the chain is less than it should be to remunerate fairly all its components, especially farmers who are the last and most vul-nerable link in that chain. In other words, while retailers may well be selling milk for more than they pay for it (and therefore not strictly speaking “below costs”), they are paying too little for it, and this is preventing the true costs of the chain being covered. The current discounting at less than 67c/l is unsustainable. Retailers may claim they will carry the cost, but will not go long with a reduced margin. Before long, they will seek to recover a higher margin by pressuring dairies through price-based supply tenders.

Our analysis suggests that the current aggressive and damaging discounting undertaken by Aldi, now being followed by some others, is most likely below the real costs of producing and processing fresh milk, and is therefore unsustainable. Farmer-owned dairies must fight hard on farmers’ behalf to obtain realistic wholesale prices, and resist the bully boy tactics of retailers. Finally, our government must regulate the retail trade more tightly, to prevent supermarkets from undermining food producers by selling below true costs, and to outlaw the price-based 1-year tenders used to spiral down wholesale prices at the expense of farmers’ livelihoods.

ARE RETAILERS DEVALUING FRESH MILK BELOW TRUE COSTS?

What to do with those problem cows?

Know who the culprits are Milk record the whole herd now: any cow over 200k SCC is likely to have at least one infected quarter. There may be no visible signs. Unless you milk record, you might miss the culprits. Minimise the spread of infection! When a high SCC cow is milked, the next 6 using the same cluster can be infected. To prevent this, mark high SCC cows and milk them last. Good milking hygiene + routine will prevent bacteria spread. Deal with these problem cows now! Don’t ignore high SCC cows with invisible infections. These can have a bigger impact on your herd as they can lurk undetected. Should you treat this infection? Treating high SCC cows is not always appropriate, as cure rates from 20-80%. Discuss a treatment plan with your vet. Remove the source of infection instead Drying off individual quarters will prevent the spread of infection. Do NOT use a dry cow tube. Alternatively dry the cow off early. Finally, sometimes you need to just cut your losses and consider cull-ing . For more detail on this, see Management Note M in the Cell-Check Farm Guidelines for Mastitis Control.

SMART FARMING 2018—WANT TO SAVE OVER €5000?

IFA Smart Farming programme participants have saved over €5,000, and contributed positively to the environment by improving grassland management, feed and nutrient use, soil fertility, machinery use, time, etc. Interested? Email smartfarming@ifa.ie or call 01-4260343 www.smartfarming.ie