Lakeland Dairies unexpectedly announced a 'Milk Supply Management Scheme' yesterday (Wednesday, March 30) which will see suppliers paid a reduced milk price if they exceed a reference volume of supply in peak months.

Agriland reported on the details of the scheme when it was announced last night. The move is sure to generate reaction, but what has Lakeland itself said about the scheme and the reasons behind it?

The processor noted that, over the last 10 years, the volume of milk supplied to it for processing has more than doubled to a current rate of over two billion litres per year.

Lakeland says that it has invested €200 million in new processing capacity to cater for milk supply growth in that time.

Notwithstanding that, the processor said that the peak milk supply period of April, May and June "is particularly challenging on an annual basis".

It also noted that milk supply is set to continue increasing in coming years based on supplier survey responses and current run rates.

These are the primary reasons for introducing the Milk Supply Management Scheme, along with incentives to encourage an increase in off-peak supply, the business said.

According to Lakeland, the scheme is based on extensive milk planning projections, and planned development of existing and new processing capacity.

If future milk supply volumes exceed expectations or capacity developments are delayed or not completed, within two to three years the co-op may not be able to process supplies during peak time.

In that scenario, Lakeland said, it would be forced to sell the excess milk on the open market and "will only be able to pay whatever market return is achieved".

As part of the scheme, the co-op is setting up an appeals committee to deal with appeals from farmers who may feel their base reference milk volume - determined by their supply during peak months in 2021 - should be different.

For example, if milk supply in 2021 was affected by herd disease, such occurrences would be dealt with by the appeals committee on a case-by-case basis and evaluated with reference to the suppliers longer-term milk-supply profile to date.

The committee will consist of the Lakeland chairperson and vice-chairperson, two independent individuals, and co-op personnel.

For farmers that wish to enter into partnerships with a family member, or who wish to transfer the farm to a son or daughter, this will be allowed under the scheme and the new partnership or farm owner will be treated as an existing supplier.