Irish Examiner

What is the na­tional farm gate milk price?

- Business · Food Industry · Consumer Goods · Industries · United Kingdom · Agriculture and Horticulture Development Board · Central Statistics Office

One might ex­pect a sim­ple an­swer to such a sim­ple ques­tion. In many sup­ply chains the cost of the raw ma­te­rial is nor­mally con­sid­ered an es­sen­tial piece of in­for­ma­tion. How­ever in this coun­try there are a num­ber of dif­fer­ent prices used when dis­cussing the farm gate price of milk and none are ideal at present.

The farm gate price for milk varies from farm to farm due to a num­ber of fac­tors. These in­clude dif­fer­ent solids con­tent, dif­fer­ent milk qual­ity, sea­sonal bonuses, and par­tic­i­pa­tion in fixed price con­tracts to name a few of these fac­tors.

In or­der to de­ter­mine the over­all trend in these dis­parate prices a num­ber of na­tional prices are pub­lished. Three of these are pre­sented in Fig­ure 1. Two are pub­lished by the Cen­tral Sta­tis­tics Of­fice, with one re­port­ing the ac­tual av­er­age price paid to farm­ers while the sec­ond is stan­dard­ised to re­flect milk solids at 3.7% milk­fat and 3.3% pro­tein.

The third price is pub­lished by the

Milk Mar­ket Ob­ser­va­tory (MMO) and is meant to re­port the av­er­age ac­tual price paid for all milk.

It is clear that there is also a sig­nif­i­cant gap be­tween these prices at times, be­ing most no­tice­able in Oc­to­ber 2017. The sea­sonal na­ture of our milk pro­duc­tion leads to a sea­sonal pat­tern of milk­fat and milk pro­tein con­tent in the raw milk.

As a re­sult the ac­tual solids rarely matches the stan­dard­ised solid con­tent and this di­ver­gence con­tin­ues to grow thus re­duc­ing the rel­e­vance of the cur­rent stan­dard­ised price. For 2017 the CSO re­ports an an­nual av­er­age milk­fat con­tent of 4.09% and an an­nual av­er­age pro­tein con­tent of 3.48%. Fur­ther­more the monthly av­er­age fat con­tent ex­ceeded 3.7% in each of the 12 months, and ex­ceeded 3.3% pro­tein on 11 months, of that year. The rel­e­vance of a 3.7/3.3 stan­dard­ised price is ques­tion­able in such cir­cum­stances. Fur­ther­more it may in­cor­rectly give some farm­ers the im­pres­sion that they are at, or above, av­er­age in terms of milk solids when in fact they are pro­duc­ing solids well be­low the na­tional av­er­age.

While one might ex­pect a di­rect com­par­i­son be­tween the CSO ac­tual price and the MMO as both are con­sid­ered ac­tual prices paid, the graph

(be­low), how­ever, again shows di­ver­gence. This can in large part be ex­plained by the fact that the MMO price is quoted per KG while the CSO is per litre. How­ever even al­low­ing for this, there are still dif­fer­ences in these prices. The MMO price has as­sumed a far greater sig­nif­i­cance in re­cent months with the launch of the Euro­pean Liq­uid Milk Fu­tures con­tract on the Euro­pean En­ergy ex­change (EEX). This milk price now forms a 25% share of the in­dex to which this con­tract now set­tles. As such it is vi­tal that the price re­ported to the MMO should mir­ror the na­tional prices as closely as pos­si­ble. This will then re­duce the ba­sis risk for those Ir­ish cus­tomers who wish to use this con­tract to hedge their ex­po­sure to volatile farm gate milk prices. This in­cludes milk pro­ces­sors and their cus­tomers and most im­por­tantly, Ir­ish dairy farm­ers.

As well as pro­vid­ing a valu­able risk man­age­ment tool the EEX milk fu­tures con­tract should also act as a valu­able fore­cast­ing tool in fu­ture as the vol­ume of con­tracts traded grows. As the con­tract is traded up to 18 months into the fu­ture it will pro­vide a valu­able in­sight into mar­ket sen­ti­ment re­gard­ing fu­ture milk prices. Again the closer our re­ported MMO na­tional price is to ac­tual milk prices the eas­ier it will be to de­rive fore­casts.

At present the UK-based Agri­cul­ture and Hor­ti­cul­ture De­vel­op­ment Board pub­lishes sev­eral mar­ket in­di­ca­tors for the dairy sec­tor which pro­vide broad, gen­eral es­ti­mates of mar­ket re­turns. These in­clude an Ac­tual Milk Price Equiv­a­lent and the Milk for Cheese Value Equiv­a­lent and closely re­flect the now dated In­ter­ven­tion Milk Price Equiv­a­lent. Such in­di­ca­tors pro­vide a valu­able in­sight re­gard­ing mar­kets trends and are wor­thy of con­sid­er­a­tion in an Ir­ish con­text.

In essence, now would ap­pear to be an ap­pro­pri­ate time to be­gin a dis­cus­sion re­gard­ing our re­ported na­tional prices and how they may be adapted to re­spond to cur­rent in­dus­try needs. As we ask those be­yond the farm gate to share in the ad­di­tional risk as­so­ci­ated with in­creased dairy price volatil­ity it is es­sen­tial that they too have ac­cess to the most rel­e­vant and ac­cu­rate farm gate price for raw milk.

 ?? Pic: Noel Browne ?? Awards launch: John McNa­mara, Tea­gasc; Paul Hen­nessy, Kil­dal­ton Col­lege and Cathal Lowe, Hooper Dolan In­surances.
Pic: Noel Browne Awards launch: John McNa­mara, Tea­gasc; Paul Hen­nessy, Kil­dal­ton Col­lege and Cathal Lowe, Hooper Dolan In­surances.
 ??  ??
 ??  ?? Dr De­clan O’Con­nor, Math­e­mat­ics De­part­ment, CIT.
Dr De­clan O’Con­nor, Math­e­mat­ics De­part­ment, CIT.

Newspapers in English

Newspapers from Ireland