The current milk price – as it stands – is not supported by actual demand in the marketplace, according to Kerry Group chief executive Edmond Scanlon.
By: Conor Finnerty
Scanlon was speaking as he presented the group’s preliminary financial results this afternoon in Dublin.
The chief executive was quick to underline that 2017 was “a good year for dairy”, adding that – from a Kerry perspective – “stability in milk pricing is very important”.
He said: “Anything we can do to get volatility out of any of our commodities, including dairy, is a positive thing.
Right now, it’s fair to say that the current milk price – as it stands – is not supported by the actual demand in the marketplace.
“The very strong performance in dairy in 2017 has been driving a huge amount of increase in supply – especially in some of the major European manufacturing, supply and exporting dairy countries.
“We would certainly have some concerns about that. There’s no doubt that dairy demand is soft right now.
“It’s too early in the year to predict what the milk price is going to look like. From our stand point, we want to see stability,” he said.
In recent days, Kerry confirmed that it will hold its January milk price at 36c/L including VAT. As well as this, it announced that it will pay a top-up of 0.8c/L including VAT on all milk supplied in 2017 – milk included in fixed milk price contracts will not be eligible for the top-up.
This top-up payment is being issued in order to fulfil Kerry’s milk contract commitment.
Scanlon went on to explain that Kerry would have some concerns about too much supply coming into the market at the moment and not enough demand – especially from European suppliers.
Giving his views on a recent warning from the EU Commissioner for Agriculture and Rural Development, Phil Hogan, regarding dairy expansion, Scanlon said: “Restraint has been one of the words used in terms of the supply of dairy right now.
Because, usually after a good year, we have a year that is particularly challenging.
Kerry’s chief executive is of the opinion that the increase European supply could potentially being taken up by middle eastern countries, as “oil pricing improves and as demand improves”.
Continuing, he said: “With respect to China and the Asian countries, they look between Oceania and Europe for their supply primarily. It’s fair to say that if New Zealand is going to be a little bit lighter in milk supply this year, we believe there is more than enough supply in Europe to offset that demand.
“Trying to get an equilibrium between supply and demand here is the optimal situation. Anything we can do to get volatility out of this market is a good thing for everybody in the supply chain,” he said.
As well as this, Scanlon explained that the skimmed milk powder intervention issue and the current pricing of that is “certainly an overhang across the total market; that needs to be dealt with – but it’s going to take a little bit of time”.
With regards to the 1.75c/L ‘goodwill’ payment offered by Kerry Group in 2017 to suppliers through Kerry Co-op in order to resolve the long-running ’13th payment’ issue, Scanlon said “right now that’s very much an internal discussion”.
He added that it is very important for Kerry Group to have a good relationship with its farmers.