Climate pressures and price disputes sour the mood for Irish dairy co-ops

Tensions persist between Kerry Co-op farmers and food business Kerry Group, while the industry is opposing government moves to cut herd sizes

The dairy sector has been through turbulent times in recent years: even before the crises of Covid-19 and Ukraine, it operated in uncertain markets with volatile pricing.

The co-op sector has not been immune to these shocks, with the collapse of Australia’s Murray Goulburn offering a high-profile casualty in 2018. A year later, New Zealand’s Fonterra scaled back global ambitions after record losses. It has since recovered from this but last month reduced its 2023/24 season milk price forecast for the second time this month.

Other co-ops, like the UK’s Omsco and First Milk, have managed to maintain performance and prices. But in Ireland, the sector has been dogged by long-running disagreements over the price paid to farmers for milk. This tension dates back several years, notably between food and dairy business Kerry Group plc and its largest shareholder, dairy farmer-owned Kerry Co-op.

The row flared up in 2015 over a 13th annual payment pledged to farmers by Kerry Group so it could honour its contractual commitment to pay a leading milk price on a like-for-like basis. 

Around this time, Kerry Group CEO Stan McCarthy stood down as CEO of Kerry Co-op and as the row rumbled on, the case went to arbitration. A major bone of contention for farmers was whether or not west Cork co-ops should be included as competitors when determining the extra payment.

In 2019 the arbitrator found in favour of the farmers; but there are still disagreements. In June this year, the chair and several board members from the Kerry Co-op joined farmers for a protest outside Kerry Group’s milk processing plant at Charleville. This followed a series of monthly price reductions. 

Kerry Co-op’s vice chair Conor Creedon said the price reduction “was especially frustrating as the month of May represents peak milk production when some 16% of milk is produced … Kerry Co-op is determined to rectify this and Kerry Group plc will have to stand by the leading milk price commitment that it established with the suppliers some years ago.”

The Irish Creamery Milk Suppliers Association (ICSMA) has also been critical of price cuts. In April, chair Noel Murphy accepted that cuts to farm ate prices by co-ops in the first two months of 2023 were a response to wholesale pressures, but added: “It is time for these milk purchasers to show their mettle over the next number of milk price announcements and define and emphasise the benefits of our products in a way that raises them above base commodity spot prices.

“It has been well known and commonly accepted that farmgate price never reaches the highs of the wholesale markets, but the opposite should also be correct: farmgate price should never go as low as the bottom falling wholesale price. Against that principle, the base price of milk needs to be held at current levels – at a minimum – for the remainder of 2023.”

This issue is especially urgent in light of soaring input costs in the wake of the Ukraine conflict and the inflation crisis. “There is no doubt prices had to come back,” said Murphy, “but it is now approaching a level where costs of production are coming close and, in many cases, exceeding the base price. 

“What’s even more unacceptable is that these savage cuts are happening at a time when we consumers are still seeing food inflation; so someone along the line is effectively taking the farmers’ margin. It is now time to ensure that dairy farmers are protected through the next number of months, and this means, at a minimum, holding prices at their current levels.”

The price looks unlikely to improve for farmers, with ICSMA noting that Kerry Group’s fixed price for March-October 2024 is 33.5 cpl for 2024 – below the cost of production.

There is some conjecture in the Irish farm industry that Kerry Group is looking to exit the dairy processing business by selling to the co-op – with farmer members divided over whether or not to buy them out. The Kerry Group has been contacted for comment.

Co-op ownership of hybrid agri-businesses like Kerry Group and Glanbia gives farmers a link and sense of ownership in the supply chain: but this link can be broken if a farmer splits their legacy between children. One heir can receive the farm, and another can receive the shareholding in the plc. This contributes to a split in interest: should the business offer a high milk price or a high share price?

Meanwhile Ireland’s dairy farmers face further pressures as policymakers look for ways to reduce climate emissions. The Food Vision Dairy Group, launched last year by ministers to identify ways the dairy sector can stabilise and reduce agriculture emissions, proposed an exit scheme to reduce herd sizes and cut production.

Last month, the Irish Cooperative Organisation Society (ICOS) announced its opposition to the scheme – in line with other trade bodies like Dairy Industry Ireland. 

Niall Matthews, chair of the ICOS Dairy Committee, said: “ICOS does not believe that the proposed scheme will contribute to a viable and sustainable dairy industry into the future. The dairy industry must be allowed to increase productivity at an organic and reasonable growth rate, so as to support existing family farms and generational renewal. The reduction in emissions can be achieved by adopting science-based measures on farm, and by supporting the adoption of new technologies.”

Any scheme to cut emissions should not impact on milk volumes available to process at co-op level, added Matthews. “These co-ops on behalf of their farmer owners have invested heavily since the abolition of quotas to handle the volumes of milk that were part of an agreed national strategy,” he said.

The apex also wants the policy to allow for organic growth by milk suppliers, promote generational renewal, new entrants to dairying, diversity and a balanced age profile in the industry; and provide a guarantee that the rights of landowners will not be impinged and lands are transferable to all enterprise. 

“ICOS is warning the government that the introduction of a policy that will reduce milk supply could have very serious economic implications for processing co-ops,” said Matthews. “The dairy sector has already transitioned from a period of expansion to moderate growth. It is essential that milk processing plants are utilised as efficiently as possible due to our seasonal grass-based production model. We cannot support a policy that could reduce milk supply with consequences for the investment made in dairy processing by farmers and their co-ops.”

Cutting Irish milk production could also be counter-productive in terms of reducing global emissions, said Matthews: with demand around the world for dairy on the rise, milk production would rise in other countries to make up the shortfall. 

“The leakage of dairy production from a temperate grass-based system, as we have in Ireland, to other systems could double or treble global emissions associated with the same amount of product,” he warned, “while resulting in a zero environmental dividend and long lasting economic and social implications for rural communities in Ireland, which is not acceptable.”

With sustainability concerns on the rise and inflation continuing to bite, these issues are not going away for the dairy sector, and the future of Kerry Group’s involvement in the industry, and the wrangling over sustainability measures, will remain a key focus for the Irish co-op movement.