Oireachtas Joint and Select Committees
Wednesday, 22 June 2022
Joint Oireachtas Committee on Agriculture, Food and the Marine
Fixed-Milk Price Contracts: Discussion (Resumed)
Jackie Cahill (Tipperary, Fianna Fail)
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Before we begin, I remind Members, witnesses and persons in the Public Gallery to turn off their mobile phones. The purpose of today's meeting is, in the first session, to resume our examination of fixed-milk price contracts and, in the second session, to examine the issue of ash dieback disease and its impact on the private forestry sector. In the second session, the committee will hear from representatives of Limerick and Tipperary Woodland Owners Limited.
Since 28 February, the legal requirement to wear a mask in all settings has been removed. However, it is still good practice to continue to use face masks or coverings, particularly in crowded areas. The service encourages all members of the parliamentary community to wear face masks when moving around the campus and when in close proximity to others.
Before we begin, I bring to the attention of those present that witnesses giving evidence from within the parliamentary precincts are protected by absolute privilege in respect of the evidence they give to a committee. This means that witnesses have full defence in any defamation action for anything said at a committee meeting. However, witnesses are expected not to abuse this privilege and may be directed by the Chair to cease giving evidence on an issue. Witnesses should follow the direction of the Chair in this regard and are reminded of the long-standing parliamentary practice to the effect that, as is reasonable, no adverse commentary should be made against an identifiable third person or entity. Witnesses who are to give evidence from a location outside the parliamentary precincts are asked to note that they may not benefit from the same level of immunity from legal proceedings as witnesses giving evidence from within the parliamentary precincts and may consider it appropriate to take legal advice on this matter. Privilege against defamation does not apply to the publication by witnesses outside the proceedings held by the committee of any matters arising from those proceedings.
Members are reminded of the long-standing parliamentary practice to the effect they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. Parliamentary privilege is considered to apply to the utterances of members participating online in the committee meeting when they participate from within the parliamentary precincts. There can be no assurances in relation to participation online from outside the parliamentary precincts and members should be mindful of this when contributing.
The first session will run from 5.30 p.m. until 7 p.m. Today, we will hear from the following representative of Ornua: Mr. John Jordan, CEO; Mr. Colin Kelly, managing director of trading and member relations; and Ms Anne Randles, director of corporate affairs. I call Mr. Jordan to make his opening statement.
Mr. John Jordan:
I thank the Chairman and members of the committee for the invitation to meet with the joint committee to discuss fixed-price milk contracts and their future and Ornua’s role in the dairy industry. I will take this opportunity to thank the committee for the flexibility it has shown to Ornua in scheduling this meeting. I personally wanted to be here but, due to diary conflicts, it was not possible for me to attend any earlier than today.
Ornua is a dairy co-operative, Ireland’s largest dairy exporter and owner of the Kerrygold brand. We are a second-tier co-op in that we are owned by almost all of the dairy co-ops across Ireland, including eight of the nine processing co-ops. Our members are, in turn, owned by 14,000 dairy farmers. There is no mandatory obligation on our members to trade or collaborate with us but they do so because we create significant value for them.
Ornua’s purpose is to create value for Irish family farms. We export to 110 countries worldwide and have annualised sales of in excess of €2.5 billion and a global team of 2,900 employees. We have been in existence for more than 60 years. We operate from ten business units worldwide, including 16 production facilities and nine innovation centres. We have sales and marketing teams working in-market right across the globe.
As a co-operative of co-operatives, we operate collaboratively with our key stakeholders, that is, our farmers, our member processing companies and our own employees. Our key role is to build long-term, sustainable and value-adding routes to market internationally for Irish dairy products. Complementing this, we have a number of businesses that leverage our core competencies to generate additional profits. This combination of value-adding routes to market and profitable businesses enables us to pay to our members strong purchase prices for their products, as evidenced by the Ornua purchase price index. We now pay out at an index of 178.5, which equates to a milk price equivalent of 55.2 cent per litre, excluding a processor margin. We also pay to our members the Ornua value payment, which is a combination of product premia over and above the base purchase price and a performance-based cash bonus. The Ornua value payment to members was €78 million in 2021.
Over and above being a key customer for all our members, our value to our shareholders lies in: our co-operative structure; the strength of our market return in terms of purchase prices; the strength of our brands, in particular Kerrygold, our long-term customer relationships and our overall business performance in terms of our Ornua value payment; our funding of members’ working capital; market volatility management; product innovation; and market intelligence and insights.
Kerrygold is Ireland’s only food brand with a retail value in excess of €1 billion and 2021 marked another record year for the brand, with volume growth up 12%. Kerrygold continues to be the fastest selling brand on supermarket shelves in Germany and is the number two butter brand in the United States. We now sell more than 11 million packets of Kerrygold butter and cheese around the globe every week.
Importantly for today’s discussion, as a co-operative whose purpose is to create value for 14,000 Irish farming families, we successfully captured and returned significant value to our member co-ops last year. As I have mentioned, the Ornua value payment for 2021 was €78 million. This is a record payout, up 13.5% year-on-year, and amounts to a compound annual growth rate of 26.5% over the past five years. It is an important contribution to our member co-ops which, in turn, support farmers’ incomes.
It is an important contribution to our member co-ops which, in turn, supports farmers’ incomes. In addition, we purchased €1.2 billion or 389,000 MT of premium Irish dairy products and we paid strong prices as reflected in the Ornua purchase price index, PPI. We are confident that this purchase price will exceed again this year in both value and volume. This performance delivers on our commitment to maximise returns to our member co-operatives and the 14,000 farmers who supply them.
Market volatility is very much a feature of today’s dairy commodity market, and this market risk has to be managed. In 2015, Ornua presented to this committee on the risks to dairy farm incomes of greater market volatility and the need for resilience and adaptability. For farmers, the best insulator against volatility is a combination of market return, fixed milk price schemes and margin protection schemes, and efficient and shrewd financial planning.
Ornua itself has invested significantly in volatility management resources, skills and mechanisms to ensure our own product prices trade in a narrower, less volatile range than the commodity markets and to ensure we can provide an option – I would stress it is only an option - for our co-op members to hedge or de-risk a portion of their business. We know that our fixed product price schemes have brought welcome stability to our co-op members over the past number of years.
Ornua is not involved in the operation of any fixed milk price schemes for farmers or in setting the structure or parameters of these schemes. Our involvement is to provide a bridge to manage volatility and hedge uncertainty for our customers, our business and our suppliers, that is, our member co-ops. Those co-ops in turn may or may not offer fixed milk price contracts to their farmers. We have, of course, become aware of a certain number of farmers and farm families under financial pressure and, indeed, mental strain due to the fixed milk price arrangements they have in place with their co-ops, given the unprecedented and unexpected rise in input costs in 2022. While we are not involved in managing these schemes, we strongly believe it is incumbent on everybody to step up and support these hardship cases. To this end, Ornua has offered a flexible programme to our members to enable them to target such cases among their own farmer supply-base in whatever way they see fit. Ornua’s fixed price contracts with its members are for an agreed volume of product - butter, cheese or powder - purchased at an agreed fixed price. We have offered to increase the contractual purchase price on 10% of this volume, subject to the member supplying the same volume in 2023 at this increased price. This is intended as an option for member co-ops and a potential contribution to addressing the difficulties that have arisen. It is not and was never intended to be a full solution to bridge the price between fixed and prevailing milk prices for all of the Irish dairy sector.
The Ornua offer is based on an assumption that 10% of the volume of Ornua purchases on a fixed price basis is from milk supplied by farmers in hardship. Therefore, Ornua’s offer is a price increase of an average of c. €1,000 per MT on 10% of product purchased from the member co-ops in 2022. This offer can be managed by the co-op in whatever manner it deems most appropriate for its situation. It would equate to 10 cent per litre on 10% of the volume, or 1 cent per litre on all of their volume. There is a link to 2023, in that the volume and price are in turn fixed for 2023 at the same increased return.
As Ornua is not involved in the design or management of any of the fixed milk price schemes, we have no data on hardship cases. This information is held by the individual co-ops and it is only they who can determine whether to take up this discretionary offer and how it should be used. Ornua is also not the member co-ops’ sole customer for fixed product price contracts. The Irish Farmers' Journal recently estimated that more than 1 billion litres of Irish milk was in fixed milk price schemes. If this is accurate, Ornua is a counterparty for less than one third of the milk in fixed milk price contracts. Ornua’s offer of support is being funded by Ornua. It is entirely separate from the payment supports recently brought in by individual dairy processors and aims to provide equity across all our members, while helping co-ops to target hardship cases. Some member co-ops have taken up the offer and others have chosen not to. The principle of equity is important in this context, as not all of our members offer a fixed milk price scheme to their farmer suppliers, while others reportedly have only a small proportion of their farmers in such schemes and an even smaller number of hardship cases. Not all members will, therefore, avail of this offer - to be fair to them, there appears to be a challenge in supporting just a proportion of farmers and not all others - and yet all farmers will ultimately be implicated. The cost of Ornua’s offer will impact Ornua’s annual result and the overall amount of Ornua’s 2022 value payment.
Despite this, and notwithstanding the fact that Ornua is only one of a number of customers used by the processing co-ops to off-set their fixed milk price schemes, we believe that our offer of support is the right thing to do, is balanced and is in keeping with our values. While confidence in fixed milk price schemes has been very significantly impacted by the negative experience of some farmers in 2022, we believe, given the volatility of world markets, that hedging and derisking tools will continue to have a place in all our businesses. Having said that, lessons will need to be learned from recent experience and consideration given to how income margins can be protected under any new schemes if there is an appetite for them. It will be important also to ensure that farmers are appropriately advised on the use of volatility management mechanisms in their businesses so they strike the right long-term balance between income and market stability when seeking to de-risk their businesses.
Jackie Cahill (Tipperary, Fianna Fail)
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I thank Mr. Jordan. Ornua has been a great success story for the dairy industry. I sat on the board of Ornua for eight years and it served the daily farmers and cannot be questioned. The success of the Dairygold brand really amplifies the hugely important role it occupies in our dairy industry. Before I go out to the members of the committee, can I ask Mr. Jordan how many co-ops have taken up the proposed scheme?
Mr. John Jordan:
We have eight primary co-ops where the primary shareholders supply product to us. In the same way, we offer the fixed volume contracts, we offer the same scheme to all eight co-ops. At this point it is probably appropriate that the co-ops would identify who is taking up the scheme. Some have and some have not.
Jackie Cahill (Tipperary, Fianna Fail)
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Mr. Jordan is not going to tell me how many. I am not asking for individual names just the number which have.
Jackie Cahill (Tipperary, Fianna Fail)
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That is only a quarter. That is a poor. I accept Ornua has made an effort to help the co-ops and there was a very good bonus payout for 2021 but we find ourselves in a unique situation here. Many farmers who signed up to this were under a lot of pressure from financial institutions to do so. Especially for those with a high level of borrowing, financial institutions put individual farmers under pressure to sign up to these fixed price contracts. In earlier times, fixed price contracts had the cost of inputs factored into them but these contracts were a simplistic contract just stating price with no protections whatsoever. We have a number of farmers with 80% or 85% of their milk in these. It varies downwards depending on what part of the county you are in. Some co-ops did not offer more than 15% to any individual suppliers. I know of one, a fairly small co-op in overall terms, where a significant number of its suppliers have 85% of their milk on these contracts. Unless those farmers get significant help, they are going to be in serious trouble. I refer to giving them help with conditions attached - that is, that they have to sign up to a contract going forward at whatever the price is. These farmers have it up to their necks with fixed price contracts at the moment and they will not want to know about signing up. Whatever help is being given to them, and some of the co-ops have come up with their own schemes to help suppliers, this is a supply chain issue. There is the primary producer and the processor. Mr. Jordan said he thought Ornua has only 33% to 40% of the fixed price contracts. I accept that and I am not saying Ornua has them all, but unless everyone along the supply chain shares the pain here, the primary producer is going to go out of business. For whatever reason fellows signed up to it, they are caught now in a unique situation. No one expected the price of the raw material to go as high as it is, or the price of the inputs. They are caught in a bind and they are going to need help.
I have reports from Glanbia council meeting the other day where men broke down and cried. These men are facing financial ruin. A man with 500,000 or 600,000 l tied into a scheme like this, unless he gets significant help, he just cannot stay in business. It is in everyone in the dairy industry's interest to try to keep these men afloat. Hindsight is great. They signed up to this thinking they were giving their business stability. It has had the exact opposite effect. It has put them into dire financial circumstance.
I accept Ornua made a big payout to the co-ops last year and it made a great profit. While I accept it will have an impact on the performance of Ornua in 2022, I would urge it to come up with a package for the co-ops that deal with it that will allow an extra payment to these farmers. Give or take some of the figures, most of the co-ops have come up with something between 5 cent and 8 cent. We will not put a figure on it here but if Ornua, as a huge player in the industry and a major purchaser of dairy products, could bring another package to the table, this would enable another payout to these suppliers to bridge the gap from the price they are on to where the marketplace is.
There is a huge difference at the moment. You are talking about more than 20 cent per litre between the price they are receiving and where the marketplace is. If we take an average of 6 cent, which some of the co-operatives have gone with, there could be another top-up on that. We had the Irish Co-operative Organisation Society, ICOS, before the committee a number of weeks ago and we made the same points. It is in everyone's interest to try to keep these farmers in business. They are top-class producers of dairy products. Their advisers, whoever was advising them, could have not foreseen a situation like this coming into play where there has been such a rise in the raw material price and in input costs. I plead with Ornua, as a major player in the industry and a hugely respected cornerstone of an industry that has served farmers very well over a long period of time, to come up with a better package than what is on the table at the moment which would allow another payout to these affected producers.
Mr. John Jordan:
I thank the Chairman. I absolutely recognise that there are families - men and women - farming who are in serious financial and personal stress or hardship because of the situation they find themselves in. The Ornua view is that the flexibility it has shown on the fixed product contracts will allow co-ops to create a pot of money which they can target at those specific hardship cases. Absolutely nobody wants to see someone go out of business because of decisions they made on fixed price contracts. Overall, and to reiterate what the Chairman said, we are creating value by paying product price in terms of producer price index, PPI, and indeed the Ornua value payment. The flexibility shown on the fixed product price gives pot of money or fund availability potentially to co-ops. How they then allocate it and apportion that among their farmers is a decision they have to make. As the Chairman is aware, we do not have sight of any of those farmer details or indeed figures around the farmers.
Jackie Cahill (Tipperary, Fianna Fail)
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I call Deputy Carthy.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I concur with the Cathaoirleach in respect of the reputation Ornua, in particular the Kerrygold brand, has internationally. It is something we should be very proud of. When I was in Brussels I was at a European event showcasing some of the major European brands that have an international impact and one of the gifts we received was Kerrygold. I joked at the time I was probably the first Irish person to try to smuggle it back into Ireland. That reputation is based on the associated reputation we have as a food producer and the relationship Ornua has with co-ops and the co-operative model and, in turn, with the farmers who supply these co-ops and the communities those farmers are part of. That is something to be nurtured.
Could Mr. Jordan explain where the fixed price contracts fit in at his end? I am assuming Ornua is purchasing in on that fixed price and that it is selling out on that fixed price. Could Mr. Jordan explain that process briefly?
Mr. John Jordan:
I thank Deputy Carthy. We buy in a number of different models, ranging from fixed price, which accounts for about 7% of our annual purchases; index linked, which would be linked to international quota commodity markets like the European exchange; spot deals, which are deals done on the day with individuals who purchase product; or longer-term contracts, based on formula and history within Ornua. That then comes in centrally into Ornua and we have an inventory of product to sell. We then sell that product across a customer base in a very similar manner, whether it is fixed, index linked, on the spot or, indeed, longer-term contracts. The benefit or financial performance of all that comes out in the Ornua results. It is in the 2021 results or in the budget for 2022. It is that set of transactions that allows Ornua pay the product price, which is referenced through the PPI, and then in turn, allows us to pay the Ornua value payment.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am referring specifically to the 7% that relates to the fixed price contract.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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When Ornua is purchasing in this 7% and then selling it out, am I correct in saying that is all sold out on a fixed price?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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In some instances, Ornua is purchasing in at a fixed price but is selling out at the prevailing market price. I am trying to put this in layman's terms as much as possible.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I will try to put this simply. Is Ornua also selling out 7%? In terms of what Ornua is selling out at a fixed price, would it equate to 7% of the output?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I imagine the people who are purchasing from Ornua at a fixed price are doing fairly well in the current climate. They have got a good deal.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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At the end of the day somebody is benefiting. I am not sure anybody who has been in a supermarket right across Europe has seen any reduction, or certainly not in terms of dairy products.
Does Mr Jordan accept or believe that those farmers who are selling on a fixed price contact are losing money on the proportion of their product that has fallen under fixed price? They are selling at below the cost of production in the current climate.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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They are operating at a loss. In regard to what we just talked about, namely, the origins and the reputation of Irish dairy products, does Mr. Jordan think that is fair at a time when the overall milk price is so distorted in terms of that fixed price contract?
Mr. John Jordan:
The introduction of fixed price contracts - I was this committee a number of years ago at which it was talked about - was a volatility tool to help manage the volatility of the market. For ten years, give or take, those fixed price contracts matched or, in fact, were marginally ahead of variable contracts. That was the purpose of them. They were not-----
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Yes, we accept that.
Mr. John Jordan:
Certainly in 2022, there have been exceptional circumstances. As alluded to by the Cathaoirleach, there are hardship cases where those that have extreme volumes linked into these fixed price contracts are in financial hardship. We are absolutely on the page that as an industry, whether it is farmers, co-ops, Ornua or other customers on the fixed price contracts, we need to step up and support them. That is not about every litre of milk in Ireland that is on a fixed price contract. It is about sustaining those farming families that are suffering financial or personal hardship.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I appreciate that. We have a situation, however, where essentially we have a market chain. As Mr Jordan said, the fixed price contracts model benefited everyone on that chain for about a decade and in normal circumstances because everybody has the assurance of knowing how much they are going to be purchasing and how much they are going to be selling their product for. It gives an assurance and has a stabilising effect across the market chain. In the here and now, however, that chain has been severely distorted and the difficulty from this committee's position is that only one element of that chain is expected to carry the burden. I get a sense that Ornua is almost looking at this as a charitable endeavour as opposed to the fundamental future of the sector and this model if the current situation is not addressed.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Mr. Jordan has acknowledged that everybody who is selling under a fixed price contract at the moment is losing money, that is, the farmers. Everybody else in the market chain, including the co-ops, Ornua and their purchasers, have quite an amount of security. The only people who are taking a hit in this instance are the primary producers, the people who, I would argue, are the most important in the chain.
Does Mr. Jordan accept my proposition that if further action is not taken, it will undermine the future of the fixed contract price model into the future?
As the Cathaoirleach has rightly said, very few farmers will be willing to engage in the process in the future because of the experiences in the here and now and the failure of other players in the market to burden-share to any substantial degree.
Mr. John Jordan:
In terms of future contracts, certainly our view is that they should play a role but, without doubt, people will be scarred from the effects of these events. Again, even at customer level, with the way the market is today there are not people looking to fix product price. It will take time to work through this and there will definitely have to be lessons learned from it, in particular in terms of how those milk price contracts with farmers and co-ops are set and the model and criteria on those, but indeed the contract that Ornua will put in its call for product pricing. We will certainly have to review those. A lot of those discussions will take place before anyone signs up to the next round of fixed-price contracts.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Thank you, Chair.
Jackie Cahill (Tipperary, Fianna Fail)
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As a number of members want to ask questions, I will put a ten-minute time limit in order to get everyone in.
Martin Browne (Tipperary, Sinn Fein)
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I welcome the witnesses as well. In terms of clarity, was the increase in the contractual purchase price Ornua has come up with based on the ability to absorb the costs and current prices or did it have anything to do with the increased input costs?
Mr. Colin Kelly:
In terms of the offering we made of 10 cent a litre and the points that were made earlier, we felt that something should be done for those people who were in financial and personal stress.
On the PPI and the increase received over the years, the fixed price is an element of that. It is the 7%, as we touched on. The increase in the prices that we have seen on the PPI is as a result of the general increase in the market. When we look at pricing over the past three years, the milk price was just over 30 cent a litre in 2020, just under 36 cent a litre in 2021 and it will most probably average somewhere in the low to mid-50 cent a litre this year. The increase in the PPI is the function of the market. The increase in the Ornua value payment is ultimately the value that we are returning to members, but the 10 cent per litre offering that we touched on was our offer to the industry in recognition that there are people with personal financial threats.
Martin Browne (Tipperary, Sinn Fein)
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I assume that the fixed price scheme is based on the products at the other end of the chain. What are they? Do they include cheese? How does the process work?
Mr. Colin Kelly:
The way it works is that we do not buy any milk. The fixed-price schemes are in place for ten years now. It was an ask from the industry, as volatility has become very familiar in dairy and commodity markets. We saw it in particular in recent years. What we do is we buy physical product. As Deputy Browne says, we buy butter, cheese and powder. The powder that we buy can be in the form of skim milk powder, fat filled milk powder, rennet casing or ultimately whatever the market is calling for at the time and what our member co-operatives want to make at that period. We buy based on product prices, which is converted back to a cent per litre, which is offered by the member co-operatives to each of their 14,000 farmers.
Martin Browne (Tipperary, Sinn Fein)
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Is there a way of linking the contract price to the cost of inputs? Has that been explored?
Mr. Colin Kelly:
My understanding is that it did happen previously. There were some schemes offered by co-operatives whereby the price was linked to the inputs, but at the time it was felt that was ultimately a variable-price scheme rather than a fixed-price scheme and the sense from farmers was that perhaps they would prefer a scheme that was not linked to inputs. Again, we are a step removed from that, so I cannot say that for certain.
Martin Browne (Tipperary, Sinn Fein)
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I had a meeting recently with Concept Dairy. It has a particular focus on technology and information sharing to ensure that farmers can benefit from transparency when deciding on whether to enter contracts. Is the information that is available to farmers who are deciding whether to enter into the contracts significant? Are the hedging and de-risking tools that were mentioned used when discussing these contracts with the farmers?
Mr. John Jordan:
I might take that question. It is important to stress that any contract with milk supply is between the member co-ops and the farmers. We have no sight or sign of those, so it would not be fair to comment. Even our own comments in that regard are anecdotal in that regard.
Transparency is a fundamental principle of a co-op and Ornua is a co-operative. We publish on our website our purchase price index, which reflects the product price that we pay for product. We do declare our Ornua value payment, which is the brand premium and cash bonus. We try to give as much visibility as we can in our business, obviously with commercial sensitivities excepted.
Martin Browne (Tipperary, Sinn Fein)
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I appreciate that, but just for transparency, in the opinion of the witnesses, is the information that is out there sufficient for farmers to make these decisions? I am not asking them to comment on any individual case but the overall situation.
Mr. John Jordan:
We are not even aware of the position. When we offer a fixed-product price, when a co-op takes that and converts it to a milk-price offer to its farmers, we are not even aware of that piece of it. The only thing we offer is fixed-product price to the eight co-ops who supply us. Beyond that, we have no sight or sign of any of the transactions, dealings or engagement.
Mr. Colin Kelly:
In relation to the hedging, there is not enough liquidity in derivative markets to hedge the level of volume that we produce in Ireland. In the United States it is a very different farm model, and they can hedge from the start right to the end from a farm supply chain perspective. The EEX, the European Energy Exchange, on which butter, powders – and now cheese - are traded, would not have the liquidity to cover the Ireland volume, let alone the European volume. Similarly, from an inputs perspective, we do not have access to that in Europe to cover them on derivative contracts. In my understanding, the only way to do that at the moment is through physical positions, which obviously involve a lot of working capital and ageing-type risks.
Martin Browne (Tipperary, Sinn Fein)
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Gabhaim buíochas, a Chathaoirligh.
Paul Kehoe (Wexford, Fine Gael)
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I concur with what the Chairman and other speakers have said about Ornua. It has been a great success story. However, young farmers specifically are facing some very difficult years ahead. The Chairman is correct. I have spoken to a number of young farmers in my constituency in Wexford and beyond. The banks give them an ultimatum. If they want the money to expand, they have to sign a fixed-price contract for some years' duration.
It states very clearly in Ornua's mission statement that its aim is to create value for Irish dairy farming families. Ornua has had success over the years. When we read the mission statement and see what is happening today, it is very hard for Ornua or anybody to defend that sentence. I know Ornua has been in negotiation with co-ops and only two of them have signed up.
I am a little bit disappointed with the opening responses. When the Chairman asked if the witnesses were aware of some of the cases of hardship farmers are going through at this time, while I am not sure of the exact language used, but the response was that it was not Ornua's responsibility, it is the responsibility of the co-ops. I do not agree. I had one farmer with me last Thursday night who was in tears. He said that only for his wife’s income he would not be able to keep his farm afloat. He is milking up to 300 cows.
I would have said he is one of the wealthiest farmers in the parish and that he has done very well, expanded operations, came home from college and educated himself. He told me he could name 20 or 30 other farmers in Waterford, Wexford and south Kilkenny, of whom I would be aware and who might be involved in my political party, each of whom would express similar sentiments. They have borrowed heavily and educated themselves, they are top-quality dairy farmers and milk suppliers and this is what they are going through. They are depending on their wives' incomes. The cost of fertiliser has gone up 300%, with the price of concentrates, oil and electricity almost doubling. It is very difficult for me. There is very little I can do for these people. I am not sure what the Government can do. Somebody is making hefty profits on the back of these farmers.
What were the conditions attaching to the financial package Ornua put on the table for the co-ops? Were there different conditions for each co-op or were they the same across the board? I urge Ornua to speak to some of those to whom I refer. There will be no problem whatsoever with one of the farmers. However, some are afraid to come out publicly. They are afraid of their co-ops and what they might do to them. It is a terrible thing for farmers to have to say that they are afraid of their co-ops.
Mr. John Jordan:
I apologise if my opening statement conveyed anything other than understanding that there are hardship cases. We absolutely recognise that and have spoken to some of those farmers. We acknowledge there are farmers and farming families under serious financial and personal stress and strain as a result of these fixed-price contracts, in particular, as the Deputy alluded to, a smaller cohort that are in a high proportion of fixed contracts.
On the offer we have made to the co-ops, not all of the eight co-ops are in fixed product price schemes with us. That is an important piece in terms of our equity and how we deal with them. We made the exact same offer to all co-ops. The terms and conditions and the flexibility shown on the contract were the same for all. That was, in layman's terms, 10% of the volume locked in for 2022, roughly €1,000 per tonne increase, which would equate to 10 cent if going to 1% or 1 cent if going to all. There was the same volume linked in 2023 at that higher price.
Paul Kehoe (Wexford, Fine Gael)
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If I was Minister for Agriculture, Food and the Marine and I asked what the Government or my Department could do in this situation, what would Mr. Jordan say?
Mr. John Jordan:
That is an interesting question. I do not know the answer. Talking to farmers, there seem to be two or maybe three groups. Some have a portion of fixed milk and a high proportion of variable that are doing financially better than last year and are okay. Deputy Carthy said every litre of milk locked in at those fixed prices loses money. If it is a smaller portion of your milk, however, you are probably still doing okay financially. A second cohort probably needs access to working capital to get through this rougher period. Then there are those who will need money on the profit and loss, P&L, side to get them through this. It is about how farmers, co-ops, Ornua and other customers for fixed price put something together and step up and allow the co-ops target, as the Deputy and the Cathaoirleach called out, the serious hardship cases.
Paul Kehoe (Wexford, Fine Gael)
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Who does Mr. Jordan believe is creaming off the profits in the context of these fixed prices? Somebody is creaming something. Somebody is making money somewhere.
Mr. John Jordan:
Ultimately, in most of these situations, it is the consumer. We have all entered contracts that at a point in time looked good, whether it was us to our customers, their customers to customers or pricing at retail. What is in Ornua's purchase and sales is reflected in our financial performance. In 2021, we paid record high product prices. The Ornua value payment is not to be underestimated. It was €78 million in 2021, which was up from €30 million five years ago. In terms of the financial performance of Ornua, we pay a significant portion of that back to our member co-ops.
Paul Kehoe (Wexford, Fine Gael)
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It is probably a difficult question to answer, but if there were no fixed-price contracts and everyone got what their milk is worth, what percentage of increase would go on the carton of milk, cheese or dairy products in the supermarket? What is required? If the consumer is making the profit, that is okay. I, the Senator beside me or someone who is buying the litre of milk in the supermarket is making a profit.
Mr. Colin Kelly:
If we looked at it and went on the industry publications, bearing in mind we are about one third of fixed price, it appears there is about 1 billion litres of fixed-price product in Ireland and we produce 8.6 billion litres of product in Ireland. If you were doing a quick sum, you would take that 1 billion over 8.6 billion and say the price needs to go up 12% to 15% to cover that. Each co-op and farmer has different exposure, however, so it is not a simple sum.
Paul Kehoe (Wexford, Fine Gael)
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What other countries are in a similar situation with fixed-price contracts where farmers face financial hardship and ruin? Maybe dairy farmers will go out of business. I do not know. I have no proof of that and there is no use in me saying they will go out of business. Smaller farmers in a fixed-price contract will definitely be gone.
Mr. Colin Kelly:
In the US many farmers hedged, in that they sold forward on class 3 and class 4 milk. That is more financial, but they have the ability to lock in their inputs and are growing much of their own feed so have more control. There is some anecdotal evidence of it across Europe but we do not have any hard facts to say it is a problem in France or Germany. It is definitely a problem in the US but in that instance it has been farmers locking in on derivatives.
Paul Kehoe (Wexford, Fine Gael)
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Any farmer I spoke to praised the witnesses' organisation. They were not critical in any way but they are going through a very difficult time.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I thank the witnesses for coming in. The reputation we have is pretty good. How many litres are locked up? Is it 1 billion litres that are locked up in fixed-price contracts? Is that per year or over a three-year period?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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What is Ornua's contract with the co-ops? How many litres are involved?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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If there was 20 cent of a difference in that, how much would it be per year?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Right. What is Ornua's profit yearly?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Am I correct in saying the new fixed-price contract Ornua appears to be offering for 2023 is 42 cent or something like that?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Explain the 10 cent to me, because I want to get my head around that.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I read in the newspapers that it is 1 cent per litre. Is that right? For the farmer, is that on every litre around the country or on the fixed price per litre?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Is it not 7%? How many farmers are involved in this? My understanding is that it is 7%.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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What would it be to them, in monetary terms, per litre?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Why is there this snag in it from Ornua whereby if a co-op goes into this, it has to come into the 2023 contract? Simply put, why is there not a recognition we are in wartime? At the moment, the Government has made a decision on roads contracts, and if we consider electricity for businesses, companies have left this country and contracts have gone out the window. Why is there not a recognition that we do not put in other clauses for 2023? Let other years stand for themselves. It is my understanding it costs 39 cent or 40 cent to produce milk at the moment with current costs. It is recognised farmers are losing money. Why is this clause being put in? I would like an answer to that question.
If the price of fertiliser and diesel remained the same and everything stood as it was, we would not be here talking about this because Ornua would have no case to answer. However, we are in wartime. I am no expert in milk but I have spoken to farmers in Kerry today who have 50 cows, and those farmers are on their knees. A farm with 50 cows is a family farm. Another farmer has 230 or 240 cows and he also is on his knees. In certain areas some farmers might have taken up more than others. Is Ornua as a company not prepared to recognise it has been stated by the Government that 70% of extra realised costs on roads and public buildings are going to be paid? Contracts are being walked away from. I have seen road contracts for tarmacadam and so forth abandoned. In terms of electricity, businesses entered contracts with Spanish companies in February that are now gone, and nothing can be done about it. Yet here is the farmer, the old reliable, being left in the lurch. This is not a good sentiment. The vibe I am getting is that if these farmers are left in the lurch, they will never be got back into a fixed-price contract again. Is Ornua as a company prepared to say to the co-ops, who, as Mr. Jordan said, deal with the farmers, that we are in wartime and in totally different circumstances, and that because of the wartime situation, those contracts can be made null and void if they so wish? Is Ornua prepared to do that?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I know that, yes.
Mr. John Jordan:
Therefore, to be equitable we have to have a tie-in to 2023 and the two years at that price. That makes it equitable. Ornua's role goes back to Deputy Kehoe and creating value for Irish farming families. We think the best way for us to do that is to continue to drive and capture value in the marketplace through our customers, our ingredients business and our brands, pay a really good product price, and create as much money as we can in the Ornua value payment which we pay out. Our retained profit last year was €75 million. We paid out 58% of our profit back to members and retained 42%, which is a very small level. As many Deputies said, it is about targeting those serious hardship cases that are under financial and indeed personal stress and strain. We believe-----
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Is there not a simple way? The co-ops say they are tied into Ornua. Is Ornua a big enough and bold enough company to recognise the situation that exists at the moment that it is prepared to say to the co-ops that this is wartime, there are contracts but it is prepared to waive them. Then the co-ops will put the pressure on them that they do likewise for the farmers. This cannot go on, given the stories we are hearing at the moment. We are putting farmers out of business who have been at this for years. This is not a solution for Ornua, nor for the co-ops.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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No, it would not.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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The first thing that has to be done is to look after the people who are struggling. Mr. Jordan talked about Ornua's contracts, and I picked up on this earlier when he was talking to Deputy Carthy that he said some of them are a day and some are weeks. What is the longest contract Ornua has with the people to whom it sells products?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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For what percentage of volume?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Is there a proviso in that contract relating to inflation - index-linking - or to problems arising from transport and so on?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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There are things in it that will safeguard the future for Ornua.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I understand the fixed product sale, but what I am asking is-----
Michael Fitzmaurice (Roscommon-Galway, Independent)
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If the cost of transport or anything else goes up, is that as far as ten years?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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How long is it?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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What are the majority of them?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Yes, on what the farmers supply.
Mr. Colin Kelly:
We have a range, as Mr. Jordan touched on, whether it is bought on the day, quarterly, six-monthly, nine-monthly, or 12 months. It is hard to give a definitive answer because it depends on what is happening in the market. A buyer today with record prices will want to buy hand-to-mouth.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I presume in most of Ornua's contracts, as there always has been on contracts down through the years, that if something happens relating to inflation or transport costs, there is room that gives a chance to renegotiate the price. Is that correct?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I presume there is flexibility in some of Ornua's three-year contracts.
Mr. Colin Kelly:
There would, but it would be linked more to supply chain costs than the input costs. When buying from us, the customer is buying the product rather than the milk. Therefore, as Deputy Fitzmaurice says, the customer will look at the price of fuel in terms of delivering that product to wherever the customer needs it. It is more a supply chain cost linking than a farm input cost.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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There is a cushion, and Mr. Kelly is correct that if the fuel price goes up for the supplier, there is a cushion for Ornua. However, the fuel price has gone up, the fertiliser price has gone up, and the electricity cost has gone up for the farmer, and Ornua has not moved to help them.
I know the witnesses are going to say “It is not us and we have it with the co-ops”, but between the co-ops and Ornua, the farmer is piggy in the middle and is getting screwed. Is there not an onus on Ornua to sit down with the co-ops to make sure those farmers are brought up to a realistic value? I am not saying those farmers should get today's prices but the one thing they need is to be viable. Ornua is offering 42 cent under this deal that was mentioned but it is recognised there is a problem producing milk below that, or at least a few cent below that.
Why is there not a banging of heads together rather than leaving the farmer in the lurch? It is not good for the image of the fixed-price contract and not good for the image of companies like Ornua. There will be housewives watching today and they know what they are paying for stuff. If they feel that Johnny the farmer down the road is getting screwed, it is not good for them. Will Ornua give a commitment to sit down with the co-ops to drum out a proper, realistic price? I am going on the figures Mr. Jordan has given for profit, and fair play to Ornua for the profit it makes. If it went to 40 cent on the volumes Mr. Jordan is talking about, it would not put a big dent in that. If I was a member getting a payback from Ornua, I would like to make sure my neighbour was viable and was not put out of business, even if I had to take a few quid less.
Mr. John Jordan:
There is a concept there. We believe the offer we have put forward is fair and equitable to our members as a co-operative. We believe it allows co-ops in particular to target the hardship cases but there certainly is the responsibility on everybody – farmers, co-ops, Ornua and other customers - to step up and play their part.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Would Ornua be prepared to take the 2023 proviso out of this? If, as Mr. Jordan said, there is a 10 cent difference, there is room for the people on the contracts to get, say, 7 cent, 8 cent or 10 cent, and to take this other clause out of it. Is Ornua prepared to make a goodwill gesture like that for those farmers, given the situation they are in at the moment, when it might resolve an issue?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Ornua can turn around next year and bring out its new thing for the next three years. What is the point of bringing out a new scheme? Let us suppose they say they are not going down that road. What is the point of offering a new scheme next year if the chalice is poisoned and we end up in a situation where every farmer says “I will never go near that again.” It is no good to Ornua, it is no good to the co-op and it is no good to the whole industry.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I would advise farmers not to go into it if this is the way they are going to be treated. That is straight out, and they will hear it here today.
Jackie Cahill (Tipperary, Fianna Fail)
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The Deputy can come back in later. I call Senator Paul Daly.
Paul Daly (Fianna Fail)
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I welcome the representatives from Ornua. This is not a topic in which I am as well versed as some of my colleagues, and that is why I sat back with interest to see how the thing evolved and developed. To be honest, I am little wiser and in no way reassured. I would hate to be in the shoes of the farmers mentioned by Deputies Fitzmaurice and Kehoe if they are watching the proceedings today. I accept the matter has been raised but there is no point raising an issue if we cannot come to some kind of a solution or a “get out of jail” for these people, who, as noted, are serious hardship cases at this stage.
I get Mr. Jordan’s point that Ornua does not deal directly with the farmers; it is dealing with the co-ops, which deal with the farmers. Farmers are price takers and have been in every sector, not just milk, unfortunately. If this was any other product or any other industry that we were talking about today, the person who was at the base of the system, where the farmer is in this situation, would know his cost price, would name his price, would include his margin and could not sell for any less, and then everybody who handled that product or processed it, or retailers along the way, would be adding on what they thought they needed to be their margin. Unfortunately, as I said, farmers across all sectors are price takers, not price makers.
Where is the price fixed? In this model, from what I have heard today, it seems that Ornua is working back down along. If it is doing a fixed-price contract with the co-op, the co-op is then going back to the farmer and cannot give him or her any more than the margin the co-op needs on what Ornua has fixed with it. Mr. Jordan said that Ornua is in a fixed-price contract with one of its biggest customers, so it is starting from there. Who is the price maker in this whole cycle, from the 50-cow farmer in Kerry who was mentioned, to the customer that Mr. Jordan is talking about and which Ornua is in a fixed-price contract with for its powder or product, which is going to the retail shelf? Somebody somewhere along that line determines the price and then everybody else is a cut below that.
Unfortunately, as I said, because it is farming, it is going in reverse. If it was any other product, the farmer would decide his price and then everyone else could put what they liked on it up along.
Mr. Colin Kelly:
What we would say is that, ultimately, the market decides the price, and that is not to get away from answering the question. What we have now is futures markets which, ultimately, dictate where buyers and sellers view the market. To take the fixed-price schemes we are talking about, when they were set, that was an indication of where buyers and sellers were happy to trade, and that is invariably what drives the market. The big buyers in dairy products around the world are buying derivatives in the same way that they are buying physical product. If we look at the futures over the next 12 months, that gives us an indication of where the market is going to go. That is the best read and we would say that, ultimately, it is the market that dictates where the fixed price is.
In answer to Deputy Fitzmaurice's point, if we were doing a fixed-price scheme later on in the year, obviously, we know from our discussions with our customers where they see markets, we know with discussions from member co-operatives and with farmers where they see global milk flows going, and we look at supply and demand and see where that will take pricing versus where it is at today. Ultimately, the futures markets are the best guide to where buyers and sellers are happy to transact over the period of time into the future.
Paul Daly (Fianna Fail)
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Ornua has fixed prices with co-ops. Those in Ornua are business people, and very successful business people. Ornua has a fantastic model and while all of us here today are trying to be critical to an extent, we cannot be so without acknowledging the success story that Ornua is, and its profits are there for everybody to see. Naturally, I presume that when it is doing a fixed-price contract with the co-ops, its job is to hammer them down and to get that as low is it can. Ornua has to be thinking of its margin. Is that not leaving the co-ops in a position where they have to get as much milk at a fixed price below that again to leave them a margin? Therefore, while Ornua is not directly dealing with the farmers, for one third of the 1 billion litres, it is determining the price of that milk. Once Ornua does a fixed-price deal with a co-op, that co-op manager or purchasing manager who is negotiating the fixed milk price with the farmer has his hands already tied by Ornua. He cannot go a cent more than X or he will not have his margin on his product before it gets to Ornua.
Mr. John Jordan:
One of the very important points made by the Senator suggested that Ornua's motivation was to hammer the co-op and get as low a price as possible. It is fundamentally not and, in the co-op structure, it is actually the reverse. We are incentivised to pay the best product price we can. That is why we publish the purchase price index in terms of what we pay for product. We are incentivised as a business under the co-op model to maximise our cost of goods and pay the best price we can for product. On top of that, through all of our other activities, whether it is branding or subsidiary businesses that do not use Irish product, it is to generate as much profit as we can there to pay up the Ornua value payment, which, as I said, for last year was €78 million. We are not trying to squeeze the co-op. We are trying to find a balance. As Mr. Kelly said, the futures market in commodities products is a good indicator of where anonymous buyers and sellers align.
The co-ops have an option all the time to opt in or opt out of the product we offer. They do that depending on any given year. Under our scheme, some apply for more, some apply for less and some do not take part. It is only if it makes sense for them and, in turn, if it makes sense for the farmers when each of those co-ops take those product prices and convert them into cent per litre, and that is different across each of the co-ops because their own cost base is different and their collection prices are different. Then farmers have the option to opt in or opt out. That is the model and the way it should work.
Deputies Kehoe and Fitzmaurice made points earlier about problems where individual farmers have very high levels of fixed milk in their portfolio, which has created a significant problem for them. They are the hardship cases on which we as an industry need to focus.
Paul Daly (Fianna Fail)
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I am a lifetime looking at contracts being broken. A contract is a contract until it is broken, as they say. It appears there is no way out of these fixed milk contracts for farmers. Hypothetically, if milk was at 20 cent a litre now and the prices of diesel and fertiliser came down as much as they have gone up and farmers were able to survive on that, has Ornua a clause to get out of a contract where it is giving 32 cent but it could be getting it for 20 cent?
Paul Daly (Fianna Fail)
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I reiterate what Deputy Fitzmaurice said. By virtue of the fact we are in wartime, is there not a way of looking at contracts again?
Mr. John Jordan:
Our view is this is a particular issue, as the Chairman outlined at the beginning, for those with serious financial hardship. Collectively, we need to step up and support those and target those individuals in particular. We believe the offer Ornua has made to the co-ops is a part of that solution. As I have said many times, farmers, co-ops, Ornua and other fixed-price customers need to play their part. We believe the offer we have made goes some way towards allowing co-ops potentially to target those specific hardship cases.
Paul Daly (Fianna Fail)
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For the record, and the Chairman asked it at the start, irrespective of what I think of the offer, Mr. Jordan told us that only 15% of Ornua's co-ops took the offer.
Jackie Cahill (Tipperary, Fianna Fail)
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It was two out of eight.
Paul Daly (Fianna Fail)
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Some 75% of the co-ops that are dealing with the farmers did not even accept that offer. Is that because they are in a stand-off with Ornua for a better offer or were they just not bothered?
Paul Daly (Fianna Fail)
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I presume Ornua is negotiating with them, and if there are negotiations ongoing I do not want to-----
Paul Daly (Fianna Fail)
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Or they are not standing off for a better deal, they just do not want the deal.
Paul Daly (Fianna Fail)
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Therefore, there are co-ops that could not be bothered and have not taken up the offer.
Michael Ring (Mayo, Fine Gael)
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When farmers entered into this fixed-price arrangement, to be fair to them and to everybody involved, nobody expected there was going to be a war and nobody expected that electricity prices, fuel prices and the prices of all the commodities farmers use would double and put them under this pressure. I have nothing against profit. One must have profit. People who are running companies and co-ops and farmers must have profit. However, this is a different time. The Government has stepped in and it needs to step in further with regard to fuel and other issues, but farmers who are producing milk now are not getting a fair price for their commodity. Everybody knows that the milk is being produced and everybody knows there is a problem. Somebody needs to do something about it. We saw this with regard to Ukraine when its own product could not be let into Europe and what that is going to do to with the food supply in Europe and the rest of the world.
The greedy people always want to screw everybody every chance they get. Farmers are in trouble. Only a small few are tied into the fixed prices. Why can the witnesses not do something for them and help them out on this occasion? I know they are in a fixed-price contract and we know it is legally binding, but this is not about legality. It is about fairness and about farmers having very serious difficulties. This is about farmers who will go to the wall. That is not good for the co-ops, it is not good for the country and it is not good for the consumer. Somebody is winning from this, and whoever is winning needs to put his hand up and do something now for these farmers. I am asking that something be done now. Let us not talk about it. Let us not have farmers having to leave and their sons and daughters not wanting to take up this industry in the future. We will be depending on them for good food and good milk. We will be depending on farmers in the future. If we do not have our own people doing it and our own commodity, we cannot depend on what is coming in from Europe or from outside Europe because there is such difficulty all over the world now.
Let us be fair. I know they entered into a fixed price. When they did, nobody foresaw what was coming down the line. We need to do something for them now, not when they have gone out of business and we are saying we are sorry we let them go out of business. We saw this in Tuam with the sugar factory. We saw what happened when farmers were not getting a fair price for their commodity. Eventually sugar was being brought in from Brazil. Now we do not know if we will ever have enough sugar. We will be depending on another country to provide a product that we could have provided in this country. We have good milk farmers. They work hard and give it everything. It is a hard life and it is time that everybody stepped up to the plate and did something for them.
Mr. John Jordan:
I concur with a lot of what the Deputy said and, importantly, in terms of calling out the quality of milk produced and the quality of farmers. Indeed, there was reference earlier to being well educated. They produce some of the best product in the world and we have called that out many times. Importantly, it is targeting that small few, as the Deputy described it, and how we focus as an industry on supporting those and not let people go out of business, if that is the situation in which they find themselves. That is very important.
Ornua is saying that while there are contracts in place, we are showing flexibility. We are changing the volume and the value of those products and prices and showing flexibility within the contract that is in place. I do not think we are holding to the letter of the law of a contract. We believe we are stepping up and supporting in some way to help them, particularly those hardship cases and the financial hardship cases.
Jackie Cahill (Tipperary, Fianna Fail)
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The witnesses have heard a consensus from this side of the table towards Ornua. Farmers find themselves in a very exceptional situation. When they signed these contracts, none of them thought that costs would go where they went. There are farmers suffering severe financial hardship. We accept Ornua has put a package on the table. I also accept the witnesses' figure that only a third of the fixed milk price contracts come through Ornua. I was actually surprised at that, but I am not doubting their figure. I am surprised because no other entity has stuck up its hand to say it has significant fixed-price contracts. Obviously, there are almost 700 million litres with other co-ops, so that is an issue that needs to be investigated further.
Numerous farmers who are in this situation have been in contact with me. Since before we had representatives of the Irish Co-operative Organisation Society, ICOS, before the committee a number of weeks ago, I have had numerous farmers in contact with me who are in severe financial hardship with this. Many of the farmers who are in fixed-price contracts are also the ones who are heavily borrowed. Interest rates are rising now as well, which will put greater hardship on these farmers. When the witnesses go to their next board meeting, I ask them to have a look at the package they have offered to the co-ops and see if it could be improved. There could be an extra couple of cent per litre paid to those farmers who are under severe pressure. I ask that genuinely as a Member of the Oireachtas.
Obviously, we have no leverage over Ornua as a company. Its board will make this decision. However, I earnestly ask the witnesses to see whether more can be done. I fully accept that doing so will have an impact on the overall performance for 2022 but farmers are under great pressure and, if the shoulder is not put to the wheel for these farmers, some of them will go out of business or will suffer severe financial hardship for many years. That is in no one's interest. Co-ops are extending merchant credit for them and different things are being done but, while it can be deferred, all of that money still has to be paid back at the end of day. Farmers are producing milk and receiving significantly less than the cost of production for it. That will put them in a very bad situation for a great number of years, if they are able to survive. I plead with the witnesses to go back to the board. As they have said, Ornua is a farmer-owned organisation. Sometimes the farmers on the ground do not appreciate that because they do not have much individual contact with Ornua. However, it is owned by the dairy farmers. I ask the witnesses to go back, examine their figures and see whether more could be put into the pot. The farming organisations have a job to do in finding out where the other 700 million l are and in getting the companies involved to come up with a renewed offer to their farmers.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I have a suggestion, if it is acceptable to the committee and with the goodwill of Ornua. If there are eight co-ops, we should not have one front such as Irish Co-operative Organisation Society, ICOS, coming before us. If 600,000 l have gone somewhere and we do not know where, we need to meet the CEOs of the eight co-ops and drill down into the matter.
Jackie Cahill (Tipperary, Fianna Fail)
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It is 600 million l or 700 million l.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I am sorry; 600 million l to 700 million l. It is 1 billion l altogether.
Paul Daly (Fianna Fail)
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Could it be milk that is going directly to the shelves in cartons and not being processed?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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If the committee is willing, we must hold such a meeting within a month, before the holidays. With all due respect to the Ornua representatives, whom we thank for coming in, we should bring in the CEOs of the individual co-ops to answer the questions if they are prepared to come in. This has to be nailed down for the farmers or we are going to be in bother. Perhaps we could work on this in a private meeting.
Jackie Cahill (Tipperary, Fianna Fail)
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In response to the Senator's question, I would just say that there are other liquid contracts there but that is a separate issue from the issue of these fixed price contracts.
Mr. John Jordan:
To clarify, Ornua can only be absolutely concretely aware of the volume we have fixed. The reference to the figure of more than 1 billion l was published in the Irish Farmers' Journal. We have no sight of any other relationships co-ops have with customers on fixed product arrangements.
Jackie Cahill (Tipperary, Fianna Fail)
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I call on Deputy Michael Collins,who does not seem to be there. The joys of modern technology.
Paul Daly (Fianna Fail)
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I second Deputy Fitzmaurice's proposal for a discussion about a private meeting.
Jackie Cahill (Tipperary, Fianna Fail)
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I will try Deputy Michael Collins once more. I did not see him indicate but some of the other lads did.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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I have one last point to make. Would the Ornua representatives be prepared to go back to their board? As I have said, I am not an expert on this but this proviso of 23 keeps coming up. Would they prepared to go back to the board to try to work out a solution with regard to the percentage so that Ornua could give a better offer to resolve this issue for those farmers who are in deep trouble? They are the ones I feel for.
Mr. John Jordan:
I reiterate that as a company, Ornua believes we have made a proposal that offers some flexibility on the volume and value of the contract we have. I also reiterate that this was taken up by some of the co-ops that operate on fixed prices and some that do not. There are other co-ops that do not have any fixed-price product.
Michael Fitzmaurice (Roscommon-Galway, Independent)
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Why have they said the one thing? What is the reason for that?
Michael Fitzmaurice (Roscommon-Galway, Independent)
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They have not gone into the nitty-gritty.
Jackie Cahill (Tipperary, Fianna Fail)
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We will close now because there is a second session to start. I earnestly ask the representatives to take on board we have said here today and to take it back to their board. We have had serious lobbying from individuals who are under severe pressure. I fully accept that Ornua is only a third of the problem but perhaps the delegation can go back to the board and see if Ornua could come forward with more financial help for these farmers. It would be greatly appreciated and would enhance the reputation of Ornua even further among members.
I thank the witnesses for coming in today and for the comprehensive briefing they have given us on the fixed milk price situation. We will now suspend the meeting to allow the second set of witnesses to come in.