How the big co-ops plan to keep milking high prices

One of the great mysteries of suburban life and, for all I know, rural life, is the price of milk. How is it that you can walk into a convenience store, supermarket or other shop and see a two-litre container of milk for €1.50 beside a two-litre container of milk for €2.50?

There is no difference between the milk and no one pretends otherwise. You only have to go into a convenience store late at night to realise people have figured this out. The cheap milk will be sold out and you are forced to buy the expensive milk.

And this is what is going on in the Irish milk market, some would argue. The makers of the expensive milk are doing everything within their power to make sure there is no cheap milk available so you have to buy their expensive milk.

Milk quotas
They – and here we mean the big co-ops – do it in a number of ways, the most notorious being the use of milk quotas to lock farmers into contracts so they can't supply milk to the cheap milk-makers.

The cheap milk-makers usually pay the same or more to farmers as the big co-ops but the hands of dairy farmers are tied because most of them want – or need – to sell more milk than they have a quota to produce. As a result, they need the extra quota allocated to them by the bigger co-ops – which has strings attached.

The High Court will hear a case later this year in which one of the cheap milk companies, Donegal-based Green Pastures, has accused Aurivo – the merged Connacht Gold and Donegal Creameries – of manipulating the quota system to lure their suppliers and put Green Pastures out of business. Aurivo denies the allegation.

Dairy farmers are nearly always shareholders in their local co-op and thus either directly or indirectly interested in the massive dairy businesses that most of the co-ops have assembled over the years.

These businesses are the makers of expensive milk and hence pocket the extra €1 squeezed out of late-night convenience store shoppers. Some of this flows back to the farmer in the form of dividends and share-price appreciation.

This combination of the stick and carrot has allowed the Republic’s co-ops to keep an iron grip on the supply of raw milk and, in the process, keep up prices.

Their power has meant most of the limited own-label or cheap milk on sale in the Republic has to come from the North.

Own-label
However supplies of Northern milk are limited and thus, for decades, expensive milk-makers have managed to keep up the price of their own milk. The hard times of the last five years though have made consumers far more conscious of price, driving demand for cheap milk. Some of the expensive milk companies are now quietly suppling cheap milk under own-label to the big retailers. So it is quite possible that cheap and expensive milk on the shelf in front of you literally comes from the same cows.

The other threat to expensive milk is the end of quotas in 2015, which will greatly diminish the co-ops’ power over farmers, who will be able to produce as much milk as they like and sell it to whomever they like. The cheap milk companies can’t wait for 2015, but the expensive milk companies are not going down without a fight.

Their latest wheeze is the National Dairy Council quality mark. This guarantees the purchaser nothing other than that the cow who produced the milk was living in the Republic at the time.

What it does assure you is that you could be paying more than you should for milk in order to support an industry that has had you paying over the odds for years, but which has spawned three or four genuinely world-class food businesses. Your choice.