Sir, – Barry O’Halloran (Business, September 13th) states “The co-ops control the quotas in each of their regions and determine what an individual farmer’s share will be”. John McManus (Business, September 16th), further writes that farmers had “extra quota allocated to them by the bigger co-ops – which has strings attached”. These statements are incorrect and fundamentally misrepresent the operation of European milk quota regulations in Ireland.
Co-ops do not control quotas which are an EU-wide constraint on milk production. The quota system is regulated by national legislation and audited by the Department of Agriculture and the EU. Milk quotas are the property of individual farmers who, as correctly stated, can take their quota and move it to another milk buyer on giving three months’ notice. The department also operates milk quota trading schemes where farmers can trade quotas among themselves, within co-op regions, but independently of the co-op.
McManus also asserted co-ops contrive to run a two-tier pricing structure (between branded and own-brand milk) to exploit the consumer. This is not only incorrect, it is unfair.
Own brand milk forms a growing market sector. But co-ops don’t control selling prices for milk; retailers do.
Co-ops have invested heavily in developing their brands, innovations in packaging, enhanced nutritional benefits, and in certified quality systems. This creates choice and value for the consumer and supports investment and jobs in rural areas. It also adds cost to their production process.
McManus accepts that, on the basis of National Milk Agency statistics, the farmer receives only about 33 per cent of the final retail price. We also know, from published accounts, that dairy co-operatives struggle to deliver a profit margin of 1-3 per cent. That suggests strongly that retailers enjoy substantial margins and there is a lack of competition in the retail sector.
As regards price differentials between own-brand and branded milk, own-brand milk is cheaper. It is packed, often by co-ops or other processors at the behest of the multiples. It is a basic product which makes no contribution to investment, to innovation, or to the quality systems operated by the co-ops which have no influence over the price at which it is offered.
McManus further suggests farmers accept a poorer milk price in return for a dividend or share value growth. The principal objective of dairy co-operatives is to ensure members receive the highest milk price the market can return. The issue of dividend or share value appreciation is not a factor in most dairy co-ops as shares have a nominal value, normally €1, and are redeemed at par on retirement.
Finally, milk supply from Northern Ireland has increased by 51 per cent or 671 million litres since 1993, due to the transfer of unused milk quota into Northern Ireland from Britain. Over 70 per cent of this increase has been exported into the Republic for processing and for liquid (consumer) milk. More than a quarter of total liquid milk consumption in the Republic is now milk produced in Northern Ireland – over 150 million litres annually.
In the Republic, farmers are constrained to produce milk within the national quota of just over five billion litres, about 10 per cent of which is used for liquid consumer milk. If southern farmers produce over the quota, then they pay an EU superlevy fine of 28 cent for every litre that they produce over their individual quota.
The Irish Times is right in one respect. There are challenges in the liquid milk market. The problem, however, does not lie with the margins being retained by either the farmer or the co-op. – Yours, etc,
SEAMUS O’DONOHOE,
Chief Executive,
Irish Co-operative
Organisation Society Ltd,
Merrion Square, Dublin 2.