Co-ops and dairy farmers on collision course over Ornua’s PPI hike proposal
EFFORTS to increase the estimated processing charge used to convert Ornua’s Purchase Price Index (PPI) into a farmgate milk price are facing fierce resistance from the farm organisations.
The Farming Independent understands that a lift in the estimated processing cost from its current level of 6.5c/l has been discussed at board level in Ornua.
It has been suggested by some in the industry that the charge could increase by 0.4c/l to 6.9c/l; however, one industry source said discussions were ongoing and a final figure had not been agreed.
A spokesperson for Ornua declined to comment, saying it was “confidential board business”.
The Ornua PPI is a monthly indicator of market returns on dairy products purchased by the marketing body relative to comparable returns generated in the base year of 2010.
The PPI also provides a mechanism to convert market returns into an equivalent farmgate price for milk suppliers. This is achieved by establishing the value of a typical basket of Irish dairy products, converting this into a representative price per litre, and subtracting the estimated processing cost currently set at 6.5c/l .
Efforts to raise Ornua’s estimated processing charge are being driven by the dairies, who argue that the cost structure of the industry has changed radically since it was set in 2010.
But farm organisations say the massive dairy sector investment of the last decade, and a 60pc increase in milk supplies, mean that current processing costs per litre should be significantly lower than 2010.
Losses
The farm organisations also maintain that any hike in Ornua’s estimated processing cost will ultimately result in losses for farmers as it will be used by dairy co-ops and companies to keep downward pressure on milk prices at a time when returns to farmers have already been cut by up to 3c/l.
Converting the Ornua PPI into a farmgate milk price has been a thorn in the side of many dairy processors, with farm organisations pointing out that returns to farmers have traditionally tracked below the PPI equivalent price.
The current Ornua PPI for April equates to a VAT inclusive milk price of 29.4c/l. The West Cork co-ops, Aurivo and Kerry Group are the only processors that paid this price or higher for April milk.