Lakeland Dairies is "reasonably confident" that the dairy markets will help cover the significant rise in input costs for its milk suppliers this year.
Speaking to Agriland, Lakeland chief executive, Michael Hanley acknowledged that costs have increased on farm. The war in Ukraine has also impacted fertiliser, feed and energy prices.
He added that inflation is increasing the cost of packaging, silage wrap and plastics.
"The good news is that milk supply happens to be down across the world. The supply of milk is reduced in the large producing areas - the likes of New Zealand; America; Germany; France and across the water in the UK.
"So there seems to be an undersupply of milk at this moment in time, which has helped the markets up to a strong level - 'spot prices' are quite strong.
"We have always reflected the milk price. We're a co-op and our goal is to get as much as possible from the marketplace; keep the banks happy; pay a competitive milk price; and reinvest in the business.
"We've already increased the [milk] price twice in 2022. There's more in the marketplace as we would see it" Hanley added.
Hanley said that Lakeland is "reasonably confident" dairy markets will cover the significantly increased feed and fertiliser bills for milk suppliers this year.
"We'd be advising farmers to buy the feed that they've always bought and to buy the fertiliser they've always bought. Grow the grass, grow the silage and produce good quality, because we're reasonably confident that the market will pay for that in 2022.
"When we get it back from the customers, we will be reflecting that in milk price and paying that to back to the farmers.
"We acknowledge that the costs have increased significantly on farm, but we're reasonably confident from what we're seeing in the marketplace that the marketplace and the milk price will pay for those increased bills on farm."
When asked by Agriland if Lakeland would pay 50c/L base price for milk, Hanley said:
"50c/L looks to be a big number. Is that a sustainable number? You could talk about spot prices, but we're already at 43.5c/L, which is up nearly 13c on the same time last year - significant increase."
Hanley also noted that Lakeland has "never pushed" fixed price milk schemes nor been strong advocates of the option, but has taken them on a voluntary basis.
He stated that Lakeland would have among the lowest number of fixed schemes in the country and would not have a major volume of milk involved in them.
Lakeland processing capacity
As reported by Agriland, Lakeland recently unveiled a ‘Milk Supply Management Scheme’.
It means that suppliers would be paid a reduced milk price if they exceed a reference volume of supply in peak months. The scheme is aiming to reward a move to earlier calving.
As part of these measures, there will be no new entrants commencing in 2023.
"So for 2022, 2023 and 2024, there are no restrictions on supply. But for the extra new milk coming in April, May and June there'll be a deduction off that and a bonus paid out in January," Hanley explained.
Lakeland collects two billion litres of milk annually from over 3,200 family farms across 16 counties on the island of Ireland. The co-op is expecting a 2-2.5% growth in milk being processed per year up to 2025.
€10 million (about £8.3 million) has been earmarked to increase processing capacity at one facility later this year.
"Processing in Ireland is always tough during peak; it's always busy, and every factory has to continue to work through the month of May, in particular, and the industry can't afford any breakdowns.
"We're comfortable that we can handle extra milk from our farmers for 2022, 2023 and 2024. That's three years and three years is a long time given what has happened in the last seven weeks in a country not too far away from us," Hanley outlined.
Sustainability
Meanwhile, Lakeland Dairies chair, Niall Matthews outlined to Agriland that the cooperative is working to reduce the carbon footprint of every litre of milk at both farm level and during processing.
In recent months, Lakeland appointed a new sustainability manager.
Matthews explained that established Lakeland customers are demanding more in terms of sustainability, adding that any such claims made by a company need to be backed up.
"I think for all dairy processors and farming in general that's the way we have to move - being able to prove anything that we're claiming. We're working on a few projects."
Lakeland chief executive, Michael Hanley noted that farmers, staff and customers are all looking for sustainability and better environmental practices.
Hanley said that their milk suppliers are taking part in various initiatives aiming to get "more from less". "Our farmers are well on that journey," he added.
