Over the past week, there has been significant interest in Glanbia’s fixed milk and feed loyalty scheme. Although the scheme is optional, two of the biggest concerns raised are the requirement for farmers to purchase 100% of their dairy feed (note: it is optional to apply for the milk element on its own, but priority will be given to those who apply to both the feed and milk schemes) and, secondly, where Glanbia is getting the €30/t to provide the feed discount.
The rebate amounts to a €750,000 payment to dairy farmers annually for five years based on 25,000t of meal allocated under the scheme. Glanbia has said that the €30/t is not coming from margins. After all, typical feed margins are low and in the range of €5/t to €8/t. It says some of it will be delivered through savings in its mills through improved planning, streamlining logistics and delivering greater efficiencies through economies of scale.
It also says some can be delivered through the market as it allows a ‘‘closed loop system’’ which demonstrates integration, control and traceability through the chain from feed to milk. It says certain high-end customers value this and will pay for it. Glanbia also says it is not subsidising the dairy farmer with this scheme.
However some farmers have suggested to the Irish Farmers Journal that the fixed price offered of 31c/l (including VAT)at 3.3% protein and 3.6% fat is discounted to reflect the rebate on feed, especially considering the priority given to feed buyers.
Glanbia says this scheme is about rewarding loyalty. Simply put, Glanbia is aiming to tie in its dairy farmers’ feed purchases for five years and offer them a discount to do so.
Following the lifting of quotas and increasing cow numbers, there is significant interest and competition by privately owned feed merchants in capturing a larger share of an expanding dairy feed market.
Many of these companies have invested significantly in recent years to either expand their existing facilities or enter the dairy feed market for the first time. To reward loyalty, Glanbia is effectively offering a saving of 2c/l to 3c/l on the feed cost of milk entered into the scheme through the feed rebate. Assuming a farmer receives a 20% allocation of their annual milk supply, it works out at 2.25c/l saving (on the milk allocated) on a 100-cow herd feeding 75t of meal per annum. For a farmer feeding more, the saving can be up to 3.5c/l.
It could be suggested that if Glanbia didn’t offer a feed discount, the fixed milk price could be up to between 2.25c/l and 3.5c/l higher indicating a price of up to 34.5c/l over the five years. Whether it is viewed as a saving or an improved milk price, it has the same effect on profit.
Dairy farmers are becoming more familiar with fixed milk price schemes and the benefits they offer. This is the tenth such scheme offered by Glanbia. This one is different in that the price is not index-linked over the five years, does not include other inputs such as fertiliser and has the added layer of complexity in that the farmer is committed to one supplier for its feed requirements for five years. Farmers will need to reflect carefully.
Earlier this year, in February, Dairygold Co-op introduced its second fixed milk price scheme, while Arrabawn announced its first ever. Just prior to Christmas Glanbia announced a three-year fixed milk price offering for 2017 to 2019 inclusive.
Variation
For all three, the fixed price offering varies from 28.55c/l to 29.03c/l excluding VAT and conditional bonuses.
In Glanbia, it is possible to get a higher and lower price if the market went up or under a threshold and/or if input costs rise considerably. Glanbia forecasts that inflation for 2017 is 0.65c/l VAT inclusive, generating an inflation-adjusted base milk of 30.75c/l including VAT for 2017.
Read more
Listen: should dairy farmers be asked to lock in feed volumes?
Over the past week, there has been significant interest in Glanbia’s fixed milk and feed loyalty scheme. Although the scheme is optional, two of the biggest concerns raised are the requirement for farmers to purchase 100% of their dairy feed (note: it is optional to apply for the milk element on its own, but priority will be given to those who apply to both the feed and milk schemes) and, secondly, where Glanbia is getting the €30/t to provide the feed discount.
The rebate amounts to a €750,000 payment to dairy farmers annually for five years based on 25,000t of meal allocated under the scheme. Glanbia has said that the €30/t is not coming from margins. After all, typical feed margins are low and in the range of €5/t to €8/t. It says some of it will be delivered through savings in its mills through improved planning, streamlining logistics and delivering greater efficiencies through economies of scale.
It also says some can be delivered through the market as it allows a ‘‘closed loop system’’ which demonstrates integration, control and traceability through the chain from feed to milk. It says certain high-end customers value this and will pay for it. Glanbia also says it is not subsidising the dairy farmer with this scheme.
However some farmers have suggested to the Irish Farmers Journal that the fixed price offered of 31c/l (including VAT)at 3.3% protein and 3.6% fat is discounted to reflect the rebate on feed, especially considering the priority given to feed buyers.
Glanbia says this scheme is about rewarding loyalty. Simply put, Glanbia is aiming to tie in its dairy farmers’ feed purchases for five years and offer them a discount to do so.
Following the lifting of quotas and increasing cow numbers, there is significant interest and competition by privately owned feed merchants in capturing a larger share of an expanding dairy feed market.
Many of these companies have invested significantly in recent years to either expand their existing facilities or enter the dairy feed market for the first time. To reward loyalty, Glanbia is effectively offering a saving of 2c/l to 3c/l on the feed cost of milk entered into the scheme through the feed rebate. Assuming a farmer receives a 20% allocation of their annual milk supply, it works out at 2.25c/l saving (on the milk allocated) on a 100-cow herd feeding 75t of meal per annum. For a farmer feeding more, the saving can be up to 3.5c/l.
It could be suggested that if Glanbia didn’t offer a feed discount, the fixed milk price could be up to between 2.25c/l and 3.5c/l higher indicating a price of up to 34.5c/l over the five years. Whether it is viewed as a saving or an improved milk price, it has the same effect on profit.
Dairy farmers are becoming more familiar with fixed milk price schemes and the benefits they offer. This is the tenth such scheme offered by Glanbia. This one is different in that the price is not index-linked over the five years, does not include other inputs such as fertiliser and has the added layer of complexity in that the farmer is committed to one supplier for its feed requirements for five years. Farmers will need to reflect carefully.
Earlier this year, in February, Dairygold Co-op introduced its second fixed milk price scheme, while Arrabawn announced its first ever. Just prior to Christmas Glanbia announced a three-year fixed milk price offering for 2017 to 2019 inclusive.
Variation
For all three, the fixed price offering varies from 28.55c/l to 29.03c/l excluding VAT and conditional bonuses.
In Glanbia, it is possible to get a higher and lower price if the market went up or under a threshold and/or if input costs rise considerably. Glanbia forecasts that inflation for 2017 is 0.65c/l VAT inclusive, generating an inflation-adjusted base milk of 30.75c/l including VAT for 2017.
Read more
Listen: should dairy farmers be asked to lock in feed volumes?
SHARING OPTIONS