Revamped Ornua PPI index ‘out by €550 per farmer’ on July returns
CHANGES to the Ornua Purchasing Price Index (PPI) have undervalued farmgate returns for July milk by close to €10m, or by €550 for the average dairy farmer, according to IFA estimates.
The IFA this week launched an ‘adjusted PPI’ which it said reflected the “full value returned by Ornua to co-ops every month in cents per litre”.
While Ornua’s official PPI estimates that returns from the market equate to a farmgate price of 29.3c/l for July milk, the IFA’s ‘adjusted PPI’ said returns to farmers should be in the region of 30.29c/l a difference of 0.99c/l.
Given that close to one billion litres was supplied to dairies during July, the difference between the two PPIs equates to €10m or €550 on average for the country’s 17,000 milk suppliers.
The significant difference in the estimated value of farmgate milk supplies centres on changes to the Ornua PPI which were adopted by its board last month, and come as the country’s main dairy processors prepare to fix July milk prices for their suppliers.
Ornua’s PPI changes resulted in the allowance for processing charges being increased from 6.5c/l to 7c/l.
In addition, Ornua stipulated that its PPI would reflect returns solely from dairy commodity markets. Returns from premium products and annual members’ bonuses would be expressed alongside the PPI as an ‘Ornua Value Payment’.
However, the IFA claimed the combined impact of increasing the processing charge and taking the ‘Ornua Value Payment’ out of the PPI calculation deflated the overall Ornua PPI for July by 0.99c/l.
Transparency
IFA dairy chairman Tom Phelan said farmers have always valued the Ornua PPI for the transparency it provides in milk pricing.
However, he maintained that the onus was on Ornua to ensure that “this value and this transparency” were continued into the future.
“IFA is committed to estimating the full value returned by Ornua to co-ops every month in cents per litre,” Mr Phelan said.
“For July milk, our estimate of this value is 0.99c/l including VAT, which added to the basic PPI of 29.3c/l including VAT would equal to a total net return to co-ops our new IFA Adjusted PPI of 30.29c/l including VAT.”
Meanwhile, European dairy markets remained generally steady this week, despite the 5pc reduction in the GDT.
Dutch spot prices for butter and whole milk powder were unchanged, although skim milk powder was back €70/t to €2,100/t.
“The Ornua PPI moved from 101.3.in June to 101.7 in July and while that’s obviously a marginal increase, it does reinforce our feeling that dairy markets are still moving in the right direction,” said Gerald Quain of ICMSA.
Pointing out that the average milk price in the EU for June was 32.24c/ kg, he said there was scope for Irish prices to increase again this month.
However, industry commentators maintained that demand in the service sector across the EU remained sluggish, while global milk supplies are running 1pc up on this time last year.