Producer Prices for Raw Milk

Milk production in Israel is carried out under a quota system. Regarding payment to producers, it should be noted that the payment system refers only to milk produced within the limits of quota, while production above quota will be paid according to the marginal market prices actually received for that milk (mainly exports).
Producer prices include the following elements:
A basic price (target price).
Payment according to fat and protein contents.
Payment according to bacteriological quality and somatic cell count.


Basic Price
The basic price, or target price results from a triple agreement between government, farmers and dairy plants regarding the monthly price which the industry should pay for the raw milk produced and collected each month. The general agreernent is, that the price should reflect the average cost of production plus an agreed return for the farmer's labour and capital invested in the process of milk production.

The average cost of production is established by conducting a country-wide survey of costs once every two years. This survey includes a very detailed cost analysis for a randorn sample representative of all dairy farms. The most recent one had been conducted for the year 1999, while currently a survey is underway for the year 2000/1. As a rule, these surveys are available six months after the end of the fiscal year surveyed, and from that time on used as a 'basket of inputs' for monthly calculations of the basic price to producers. This routine goes on until the results of the next survey come along.

The production unit to which costs are referred regards the cow plus her share of replacement heifers maintained on the average farm. All incomes other than derived from milk are subtracted -thus leave net costs for milk. For example, in 2000, 8.4% of income derived from cull cows sold to slaughter, male calves etc.

Costs of production calculated and taken into account for milk price to producers for the year 2000 are as follows (based on 1999 survey):



Agrotechnic information (2002) Costs (2000):NSI/literas % of total


milk yield per cow (liter)
Fat(%)
Protein (%)
Feed per cow (ton)
Labor (days/cow)
Culling rate of cows (%)
Live births (%/cow)
Heifers in herd (%/cow)
10,137
3.51
3.21
--
8.5
32.6
92
77
Feed
Other costs
Labor
Overhead
Fixed and live capital
Incomes other than from milk
Agenda 2000 reforms
Milk price at farm gate
Delivery and IDB levies
Milk price at plant gate
0.833
0.261
0.387
0.097
0.168
(-0.121)
(-0.062)
1.563
0.078
1.641
50.76
15.9
23.6
5.9
10.23
-7.4
-3.77
95.25
4.75
100%
The thus elaborated milk price is announced as the monthly target price and is being used as a 100 point index of reference for all other advance payments.


Payments for fat and protein contents
Basic or normative contents are established in correlation to the period costs surveyed at the actual levels of contents received for all milk delivered. For example, while the basic price rests upon the 1999 cost survey, normative fat and protein contents are the actual levels for the year -3.376% for fat and 3.142% for protein.

Contents are priced by a ratio of 1:3 for fat and protein, respectively, accounting together for 105% of the basic milk price. This means a penalty of 5% tor excess of fluids in the raw milk delivered.
According to the normative levels mentioned above, content price coefficients are 8.529 for fat and 25.587 for protein. These coefficients multiplied by the monthly basic price (at the farm gate) give the reference prices for bonuses and reductions for actual levels of contents in comparison to current normative levels.

Every month, ICBA Issues a letter of information to its affiliated members. The prices published are not binding, but are intended to serve as a general guideline to farmers and their organizations. As an example, an except of the most vital information for the month of June, 2000 is given below.
All figures given are net prices, exclusive of VAT (17%), to be paid or received by the farmer, in terms of Israeli New Shekels. In June 2000, one new shekel (NIS) was equivalent to app.. US$ O.243.

Cattle feeds: ex mill or pot, NIS/ton
Sorghum, grain
Corn (maize), grain
Barley,grain
Wheat,feedgrain
Wheat bran
Soybean oil meal
Sunflower oil meal
533
533
550
540
380
1070
656
Hay & straw bales, delivered & stacked, NIS/ton
Oat hay
Vetch hay
Alfalfa (Lucerne) hay
Wheat straw
390
533
n.a.
308
Sorghum for ensiling, in field DM
Corn(maize)for ensiling, in field DM
Wheat for ensiling, in field DM(March/April)
472
512
512
Sorghum for ensiling, in field DM
Corn (maize) for ensiling, in field DM
Wheat for ensiling, in field DM(March/April)
472
512
512
Holstein replacements:
Heifers (Herdbook), 5 mo. pregn.
Female calves(Herdbook)
Male calves (week old>

5000
700
650
Milk price paid to farmers NIS/It
Cull cows, NIS/kg live weight
Finished bullocks (Holstein) NIS/kg liveweight
1.45
5.82
7.67
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