Quota prices approaching ‘bubble’ proportions

The Chairman of ICMSA’s Dairy Committee has expressed concern about the prices being reached for quota exchange.

The Chairman of ICMSA’s Dairy Committee has expressed concern about the prices being reached for quota exchange.

Pat McCormack said that the prices made no commercial sense and in his opinion there was ‘a bubble’ in the making.

“The further increase in the price of quota has to be of concern to individual farmers and the sector generally. The reality is that we have seen a dramatic and unjustified explosion in the cost of quota. In the case of Kerry, that increase is almost four-fold from 8 cents to 30 cents and in Connacht Gold, a traditionally low-cost quota area, it has almost doubled from 5 cents to 9 cents. That situation also applies in Arrabawn while in the Lakeland area, it has trebled. Regardless of the means of assessment, these price increases make no commercial sense,” stated the ICMSA Dairy Chairman.

“At individual farm level, it may make sense for a farmer faced with a massive superlevy bill to offset in effect the risk that he now faces. But surely this is no way to organise and plan a sector that is capable and poised for expansion given the right conditions,” noted the Dairy Committee Chairman.

He continued, “There are too many unknowns, many of which could be addressed and clarified in a relatively straightforward way. In fairness to the Department of Agriculture, they have set out very understandable system of providing information regarding the supply situation based on the average of the last three years. This system is unfortunately not followed by all co-ops and that all adds to the uncertainty and pushes up the price of quota unnecessarily.”

“The raft of announcements and schemes by co-ops and milk purchasers regarding seasonality penalties and possible capital contributions schemes post April 2015 are all contributing - and in my view, unnecessarily - to this substantial inflation in milk price. There is a bubble in the making here and ultimately it will be dairy farmers who will pay for it. At a time when quota prices should be falling, the opposite is the case. We all know this but people who should be giving more direction and speaking out on these matters have chosen to remain silent. In the New Year, and in advance of the second stage of the milk quota trading scheme 2012-2013, there should be more guidance and solid information to farmers so that they can make rational decisions”, continued Mr McCormack.

“The Milk Quota Trading Scheme is not the real market. The real market is selling Irish dairy products on the domestic and foreign markets at a profitable margin. The Milk Quota Trading Scheme is merely re-distributing money within Ireland from active dairy farmers to people who are exiting the sector on the eve of the quotas being abolished in any event. More rational consideration of these points based on sound data and proper analysis is required and long over due,” he concluded.