We continue to enjoy the exceptional back end to the year this week in Kilkenny. Cows are grazing away outside and look like they will continue to do so for another few weeks.
Yield is dropping quickly enough on once-a-day milking, but milk solids are making up for some of the shortfall and the reduced workload is making up for the rest.
We are now drying off batches of cows based on calving date, and we should have a third of the herd dry by the end of this week. About half should be dry by the end of November, and we will see how long the rest will stay milking after that. We will go dry fully by 20 December at the latest.
We are using selective dry-cow therapy on about a quarter of the herd, based on milk recorded cell count.
While everything is running reasonably smoothly on-farm, we have a lot of decisions to make off-farm over the coming weeks and months in the Glanbia catchment area. We have an opportunity to buy back the remaining 40% of the Irish business from the Plc, and despite what is in my opinion an inflated price, it still is the right move to make for Irish farmers.
The big question is not whether or not to buy the business, it’s how does this business move forward over the next few years and who steers it. Over the last five years, the Plc was allowed to lead our farmer representatives completely on their decision-making around margin, milk price and driving the value of the GII business.
Numerous attempts were made by milk suppliers to impress on the farmer representatives on the board the importance of examining and reducing the 3.2% profit after tax (PAT) margin. This would have allowed the company to pay a higher milk price and reduce the inflated valuation that the high margin was driving in the company.
The board completely ignored these concerns and even facilitated this situation more by propping up the terrible milk price that GII was delivering with co-op funds. The chair doubled down further this spring by stating that in his opinion, the margin should be even higher than 3.2%.
Only a few months later, we are supposed to welcome with open arms the decision to buy back the business for possibly €100m more than if the margin had been examined and reduced to a sustainable level a few years ago as requested. We are told that we need to buy out the business to remove the 3.2% PAT margin that is now suddenly proving too challenging for milk price.
But now we are purchasing 40% of a business with its value based on an EBITA of approximately 7% to run it at an EBITA of closer to 4%.
Over the last few years, the high margin/low milk price and co-op top-up combined to cost farmers in excess of €100m. We were given all sorts of reasons why the margin couldn’t be touched, bank covenants etc. These all seem strangely redundant now that the Plc influence is to be removed from the company.
Farmers have become very busy on-farm over the last few years and often have very little time or energy to stand back and take a hard look at this situation. It is very important to ask ourselves now if we have confidence in this group of people to take sole responsibility for a €2.4bn turnover company on which we all depend for our livelihoods.
We are expected to give the same group carte blanche to invest up to €170m of our funds in making some potentially high return investment play over the next few years. This is the same group that negotiated away our Glanbia brand for a paltry €4m compensation and oversaw the peak milk fiasco, which has resulted in restricted cow numbers on farms at a time when benchmarks could be set for the national herd.
The word ambition was used heavily at the launch of this proposal. Ambition can be a great thing when matched with good direction and ability. It can also be a very dangerous addition to any project without the right controls.