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Glanbia Ireland’s fourth fixed price milk scheme for NI offers suppliers a choice between two payment rates for butterfat and protein. Under option one, suppliers will be paid under the current payment framework. In 2022, every 0.01% increase in butterfat above a base of 3.87% is worth 0.024p/l.
This rises to 0.027p/l and 0.03p/l in 2023 and 2024, although the base level rises to 3.88% and then 3.9% by 2024.
Protein is worth 0.043p/l in 2022 for every 0.01% increase above base, rising to 0.049p/l for 2023 and 0.05p/l by 2024, with base constituents moving from 3.22% in 2022 to 3.25% in 2024.
Options
Option two is an A+B-C type model with butterfat paid at 0.036p/l in 2022 for every 0.01% increment increase above base, reducing to 0.034p/l for 2023 and 2024.
Protein is worth 0.071p/l in 2022 for every 0.01% increment, reducing to 0.068p/l in 2023 and 2024. The base level for butterfat and protein remains 3.87% and 3.22% under this option.
The latest scheme runs from 1 April 2022 to 31 December 2024 with a base of 38p/l in 2022, reducing to 36p/l for 2023 and 2024.
Winter bonus payments, volume and 0.4p/l sustainability premiums are paid on all eligible litres, in or out of the scheme.
Cost comparison
To compare which option returns the highest milk price, our example assumes a farmer is producing 1m litres at the Glanbia average of 4.13% butterfat and 3.34% protein in 2021.
In the example, milk solids remain static throughout with 10% of annual supply committed. Cell counts are 12 TBC and 120 SCC.
Under option one, the fixed price contract pays an average milk price of 41.15p/l for 2022, once sustainability, volume and winter premiums are all added in.
In option two, the average fixed price is 41.80p/l, and worth an additional £650 for the year.
Years 2 and 3
Over the next two years, option one pays an annual price of 39.22p/l, falling marginally to 39.19p/l in 2024. Under option two, the outlined solids return an annual price of 39.71p/l in both 2023 and 2024.
Over the lifetime of the scheme, option two is worth an additional £1,660 to the farmer at the outlined solids.
Increasing solids
If the Glanbia supplier is able to increase butterfat to 4.23% and 4.33% during 2023 and 2024, with protein rising to 3.39% and 3.43%, being on the A+B-C model is worth an additional £2,043. But even if the farmer produces low solids at 3.95% butterfat and 3.12% protein throughput the scheme, our calculations suggest that the A+B-C option is still worth an extra £390.
The key issue that favours this A+B-C type approach is the fact that the butterfat and protein base does not change over the life of the scheme, but the base does increase for both in option one.
SHARING OPTIONS: