On Friday, 13th September, correspondents in the Irish Times wrote that “the co-ops control the quotas in each of their regions and determine what an individual farmer’s share will be”. This was reiterated on Monday 16th September, when it was stated that farmers had “…extra quota allocated to them by the bigger co-ops-which has strings attached.”. These statements are incorrect and they fundamentally misrepresent the operation of European Milk Quota Regulations in Ireland.
Co-ops do not control quotas which are an EU wide constraint on milk production introduced in 1984. The quota system is regulated by national legislation and audited by the Department of Agriculture, Food and the Marine and by the EU. Milk quotas are the property of individual farmers who, as correctly stated, can take their quota and move it to another milk buyer on giving three months’ notice. The Department also operates milk quota trading schemes where farmers can trade quota among themselves, within co-op regions, but independently of the co-op.
It was then stated in The Irish Times that co-ops contrive to run a two tier pricing structure (between branded and own-brand milk) to exploit the consumer. This is not only incorrect, it is unfair.
Since 1988, the retail price for milk has been deregulated and in 2005, the revoking of the groceries order further liberalised the trade. Own brand milk forms a growing market sector and, as with any other market segment, the consumer is free to choose between offerings. But the fact is that co-ops don’t control selling prices for milk; retailers do.
Co-ops who are in the consumer milk business have invested heavily in developing their brands, innovations in packaging, enhanced nutritional benefits, and in certified quality systems. This creates choice and value for the consumer and supports investment and jobs in rural areas. It also adds cost to their production process.
It was accepted, on the basis of National Milk Agency statistics, that the farmer receives only about 33% of the final retail price. However, we also know from published accounts that dairy co-operatives struggle to deliver a profit margin of 1-3% from their operations. That suggests strongly, as asserted recently by the IFA, that retailers enjoy substantial margins and there is a lack of competition in the retail sector.
As regards price differentials between own-brand and branded milk, own-brand milk is cheaper. It is packed, often by co-ops or other processors at the behest of the multiples. It is a basic product which makes no contribution to investment, to innovation, or to the quality systems operated by the co-ops who have no influence over the price at which it is offered.
In relation to a further point raised in the Irish Times, suggesting that farmers accept a poorer milk price in return for a dividend or share value growth, the principle objective of dairy co-operatives is to ensure that their members receive the highest milk price that the market can return. The issue of dividend or share value appreciation is not a factor in most dairy co-ops as shares have a nominal value, normally €1, and are redeemed at par on retirement.
It is also a fact that milk supply from Northern Ireland has increased by 51% or 671 million litres since 1993, due to the transfer of unused milk quota into Northern Ireland from Britain. Over 70% of this increase has been exported into the Republic for processing and for liquid (consumer) milk. More than a quarter of total liquid milk consumption in the Republic is now milk produced in Northern Ireland – over 150 million litres annually.
In the Republic, farmers are constrained to produce milk within the national quota of just over 5 billion litres, about 10% of which is used for liquid consumer milk. If southern farmers produce over the quota, then they must and do pay an EU superlevy fine of 28c for every litre that they produce over their individual quota.
The Irish Times was right in one respect. There are challenges in the liquid milk market. The problem, however, does not lie with the margins being retained by either the farmer or the co-op.
21 Nov 2023