Ornua warned against ‘moving the goalposts’ on dairy price index

IFA and ICMSA concerned over proposed changes to dairy co-ops’ Purchasing Price Index (PPI)

THE IFA and ICMSA have expressed deep concern regarding proposed changes to Ornua’s Purchasing Price Index (PPI) which could adversely affect returns to dairy farmers.

Moves to increase the processing allowance which is used to convert the PPI into an estimated farmgate milk price have been strongly opposed by the farm organisations.

It is understood that the proposals will increase the allowance for processing from 6.5c/l to 6.9c/l. This would reduce the PPI conversion to a farmgate price by 0.4c/l.

IFA president Tim Cullinan said reports that Ornua were reviewing aspects of the PPI had left farmers very concerned.

“Farmers and the IFA have always valued the transparency the PPI has brought to the dairy market. The same transparency must apply to any proposed change in any aspect of the PPI,” Mr Cullinan said.

“Any review must also be used to show the full benefits Ornua returns to co-ops.

“I think Ornua need to reflect on the timing of the review when there is such volatility and uncertainty in the market due to Covid-19 and with Brexit looming.

“Farmers need to have full confidence in the PPI and we can’t risk any perception that the goalposts are being moved.”

The ICMSA has rejected the need for changes to the processing cost element of the PPI.

“There should be no changes to the processing costs used in the PPI calculation until a full and independent assessment of processing costs in Ireland is carried out in a clear and transparent manner,” said Ger Quain of ICMSA.

“It is simply unacceptable that adjustments can be made based on data provided by processors,” he added.

It is understood that the proposed PPI changes are due to be discussed at Ornua board level over the next week.

Mr Cullinan said the IFA was looking for a top-level meeting with Ornua to discuss the matter.

The Ornua PPI is a monthly indicator of market returns on dairy products purchased by the marketing body typically butter, cheese, whole milk powder and protein products relative to comparable returns generated in the base year of 2010.

Efforts to increase Ornua’s estimated processing charge are being driven by the dairies, who argue that the cost structure of the industry has changed radically since the charge was set in 2010.

Converting the Ornua PPI into a farmgate milk price has been a thorn in the side of many dairy processors over the last few years, with the farm organisations pointing out that returns to farmers have traditionally tracked below the PPI equivalent price.

The current PPI equates to a farmgate milk price of 29.88c/l. However, many of the country’s processors are paying below this level.

Bonuses

Meanwhile, the ICMSA has claimed that all processors should be paying at least 30c/l for June milk given the improved market sentiment of the last few weeks.

The ICMSA’s Ger Quain warned processors that suppliers wanted the market value for June milk, not bonuses paid later in the year.

“Farmers are very clearly saying that they want their milk price paid in full now and not as retrospective bonuses later in the year. ICMSA does not accept milk processors using milk suppliers as a risk management tool by holding milk price at peak and paying bonuses later,” Mr Quain said.

While processors have described current dairy commodity markets as “sticky”, traders report that milk supplies across Europe remain tight.

‘Ornua need to reflect on the timing of the review when there is such volatility and uncertainty in the market due to Covid-19 and with Brexit looming’