This is a subscriber-only article
The new cheese plant
In the best-case scenario, when would this new cheese plant have been up and running?
In late 2021 in plenty of time to manage the peak milk for 2022.
What about alternative proposals for investment at other sites? There is some talk about investment in Virginia as another option.
We have outline planning permission for an alternative development at the Virginia site but the impact on peak milk volumes would not be significant enough. The resulting value of the product would not be nearly as attractive as the cheese plant proposed at Belview, nor would it be possible to construct a similar funding model – which will see the cheese plant constructed without direct contribution from milk suppliers. Remember that the proposed cheese plant is focused on creating value- adding continental cheese products and is an important hedge against Brexit – so it has importance other than growth.
What about working with other milk processors in toll manufacturing arrangements?
Yes, we already do a lot of this and will continue to work with other processors to manage peak, but, like us, other processors are limited in what volumes they can take in at this peak milk time of the year. We have exhausted all possibilities with other processors.
Milk supply agreement
Are milk supply agreements (MSAs) still in place for all?
Yes – there is no change regarding MSAs and this piece is important for the farmer and Glanbia.
Given that this is a fundamental change in how supply works, would you expect to be challenged on it?
It is important to recognise that we have made every possible effort to ensure that we have a policy position that works for both our milk suppliers and the business. I think our suppliers, when they reflect, will see this in what we have proposed.
Why announce this now, In advance of breeding?
To give some notice to allow farmers make adjustments for calving and for potential investments.
What mean calving date is built into this management system to allow for bonuses in December, January and February?
It is not up to me to prescribe calving dates or to decide the model. This is a Glanbia solution and if we get better utilisation of plants then it’s a positive for the business and indirectly for farmers.
Profit after tax (PAT)
The 3.2% profit after tax – will this be reviewed now in light of such dramatic changes to the way milk is being managed and growth potential?
No, a review of the 3.2% PAT is not part of this policy. It is important to note that Glanbia is now having to commit to material investment in our existing infrastructure to maximise peak processing capacity and increase investment in developing international markets for shoulder milk.
It looks like the farmer is taking all the heat on this – who takes the blame for this in management?
Let’s be clear, we are not stopping growth – growth will still happen and we will process the growth milk, it’s just managed growth. Yes, I agree there is a psychological change happening here. However, these are the issues we are faced with now and what we must manage. On the point of who takes the blame – Glanbia management have for the past seven years worked with our suppliers and ensured that we could process all of the milk that they indicated they would supply in our milk planning census. Remember, we have facilitated 1.6bn litres of growth milk and have plans for another 450m litres with the proposed new plant. Glanbia is not the villain in this. The planning process is the real issue here, as it’s taking so long to arrive at a conclusion it is forcing us to make this change. We have no choice but to take these actions.
Allowed growth
The allowed growth is 5% and 2.5% per year?
This is the growth allowed over the peak months – there will be no limitation on growth in any month outside these months – therefore, in fact there is no actual annual limitation. Over peak Glanbia will still accommodate a growth rate of 5% each year for our smaller-scale suppliers and 2.5% per year for our larger-scale suppliers.
Is it the annual supply or the three-month supply (April, May and June) that farmers need to focus on when picking the year?
The three peak months.
So, a farmer producing 1m litres annually picks their reference year as, let’s say, 2020. The milk supplied in April 2020 was 120,000 litres, 150,000 for May and 130,000 for June. These are now the reference monthly volumes and the farmer can supply 2.5% over these volumes each month so April rises to 123,000 litres, May to 153,750 and June to 133,250. Is that right? Any other supply pattern considerations?
This is correct. And the following year this farmer will be allowed to grow his/her peak monthly output by a further 2.5% and so on for the duration of this policy.
Penalty
What milk price is taken for the 30% penalty?
The prevailing milk price in the relevant month/year. Actual average price paid to the supplier in that month.
You also say instead of the 30% penalty on the additional milk over the reference volume that it could be the “cost of disposal”? How much is that?
That we can’t say. The 30% penalty could turn into an actual charge on additional supplies. The clear message to suppliers is that they should not plan to send in volumes above their allocations during the peak months.
Is the new peak milk winter bonus paid out on top of existing out of season bonuses?
No – this is a build on the current ‘unconditional winter bonus’.
Available to liquid, ACS and manufacturing suppliers?
Yes in future, the liquid and ACS groupings will get paid the bonus on ‘incremental milk supplied in the relevant months above the 2020 levels’.
New entrants
A new entrant can get in if a co-op shareholder but his/her limit will be to grow the herd to circa 105 cows?
Yes, the Glanbia average.
So if a farmer is investing in 200 acres of land in the hope of milking 200 cows, if you are going to limit that farm to the Glanbia average (about 105 cows), the financial proposition for that farm is very different in terms of returns?
Yes, I agree, but we have set this out as a temporary measure and, while I cannot give an absolute guarantee of where the world will be at in three years’ time, it is our clearly stated position that we want to address the current challenge we are facing and return to accommodating sustainable growth for all our suppliers. Also, keep in mind the limit on supply is at peak only (and managed growth is allowed) so this farmer can consider an alternate supply pattern for the balance of his supply/cows.
Retirement scheme
Why create a retirement scheme that will cost a young farmer 0.075c/l? In effect for the average farmer with 500,000 litres he will be paying €375 per year into a retirement fund for processing capacity?
Yes. It makes business sense for Glanbia and the existing farmer suppliers as it’s much cheaper than building new processing facilities. So for the retiring farmer it’s up to €15,000 for a supplier that stops milk production on his/her farm. This system runs parallel with the peak management system. Rates differ depending on the scale of the retiree and an upper limit set on the volume that will qualify. In any case, the maximum payment will be set at €15,000 per year for five years – resulting in a payout of €75,000 to such an applicant over the course of this five-year scheme.
SHARING OPTIONS: