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… ‘milk processors need to realize that there is an ongoing price/cost squeeze at farm level and that net margin is being constantly undermined as a result’ … Photo: iStock

Despite the recent improvement in milk prices - which are certainly welcome from a farmer viewpoint - Pat McCormack, deputy president and chairperson of ICMSA’s Dairy Committee said that milk processors need to realize that there is an ongoing price/cost squeeze at farm level and that net margin is being constantly undermined as a result. To address this long –term squeeze, milk prices will have to stay at a high level on a consistent basis and inputs will have to be supplied to farmers at internationally competitive prices.

“The two key variables in profit on a dairy farm are milk price and production costs. While milk prices are close to record levels at present we also see that key input costs are also increasing year-on-year and at faster and more consistent rate that means that even an increasing milk price is being systematically eaten-up and overtaken by input costs.

"Milk prices have shown over the last number of years that they can go up and down quickly but the same pattern has not applied to input costs which appear to be increasing constantly. Since 2010, for example, fertilizer and feedstuff prices have increased by 27% and 38% respectively compared to the 19% increase in milk price in that time. Milk price has been very volatile during this period and it must be noted that 2013 is a good year for milk price.

"But the equivalent figures for 2012 shows a far more depressing trend in that while milk prices rose a meager 4 per cent on 2010 levels, fertilizers and feedstuffs increased by 26% and 23% respectively”, noted Mr McCormack.

“Fertilizers and feedstuffs account for approximately 30% of production costs on a dairy farm each year and this figure will most definitely increase in 2013 due to the fodder and weather crisis. While this analysis looks only at price, volumes of feedstuffs are up close to 50% on some farms from 2012 levels which makes the situation far worse.

Thus, while milk prices have improved in 2013 the rise is being overtaken by greater input costs that we are now increasing on a year-by-year basis. Effectively, rising milk prices are simply playing catch-up with input costs”, concluded Mr McCormack.

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