Letter to the editor: Glanbia's 'Catch-22' milk contract
Published 10/06/2015 | 02:30
Madam - In a letter to your paper on 19/5/15, Ken Foster asked why a high value company such as Glanbia couldn't pay a fair price to suppliers for milk.
Siobhán Talbot, Glanbia's CEO, has answered this question regularly when she states that she intends to grow Glanbia profits by double digits every year.
As head of a Plc, her role is to maximise returns for Plc shareholders, so paying milk suppliers a decent price for milk is not in keeping with this aim.
In March price leagues, Glanbia paid its suppliers one of the worst prices in the country at 27.95c/l. This is more than 2c less that Aurivo, who paid 30.1c/l. Glanbia then topped up their price by 1c from co-op funds.
However, this fund is made up of farmers' own money, put there by monies retained from the sale of farmer co-op shares in the demerger in 2012. In effect, the processor is paying farmers for milk with their own money.
The board of Glanbia were so fond of this model that they set up the same structure again and called it 'Unlocking value for Members'. By selling another portion of the co-op's shareholding in the Plc, they reduced the stake to 36pc.
Two and a half years earlier it was at 54pc, so one third had now been sold.
The result of this sale yielded €240m. Instead of this going directly to farmers, one third (€70m) was retained to pay milk suppliers in the form of a top-up to their milk price as and when the board decided.
However, this has not been paid to suppliers unless they sign an onerous milk supply agreement (MSA). I haven't signed it, because I couldn't sign what I considered to be an anti-competitive instrument. I also couldn't bring myself to sign what I considered to be a one-sided contract.
I had to commit for a minimum of five years, but Glanbia had to commit nothing in return.
If Glanbia were prepared to pay at least the average national milk price over the period of the agreement I would have signed. Then again, were they prepared to do that there would be no need for an MSA.
So as a shareholder who owned over 8,000 co-op shares, I now find myself in the situation where almost €13,000 of my money is retained by the co-op and I cannot avail of the so-called top-up to my milk price.
While Glanbia will maintain that the co-op members voted for this, it was engineered in such a fashion as to leave them with little choice other than to do so.
The MSA's were introduced, and then the farmers were told that they couldn't avail of bonuses unless they signed them, and when a majority had signed they voted on whether or not the funds to pay the bonuses should be released.
Last year as a 75ac farmer I lost out on almost €2,000 (0.5c/l) on all milk supplied in 2014.
This year, depending on how long Glanbia continue to prop up their price from the co-op fund, I could lose anything up to €8,000.
I'm a liquid milk supplier so half of my milk production is contracted to the Plc, who are the owners of that division. I'm being penalised in the same manner on this milk and find it difficult to fathom how co-op funds can be used to purchase milk for the benefit of the Plc.
Apparently I'm also unable to sell my liquid milk contract (because I have not signed an MSA) even though Glanbia themselves are buying up contract at €15/l in a rationalisation programme.
This results in another loss to me in excess of €8,000.
If there are other farmers out there experiencing similar difficulties with the manner in which MSA's have been introduced by Glanbia I would like to hear from them.
I can contacted at 085-1570213 or by email at: email@example.com.
'The scheme is totally voluntary on both sides - a person can sell their contract back to Glanbia but we reserve the right not to buy back'
The Farming Independent put the main contentions from Mr Gavin's letter to Glanbia. They confirmed that double digit growth in profit is being targeted by the Plc, and argue that Glanbia suppliers who are co-op and Plc shareholders will benefit from the resultant share price appreciation.
When challenged as to whether the aim of maximising profit compromised the ability of GIanbia to return a fair price to its suppliers, a spokesman for the company said that there was full transparency on milk price through their participation in the KPMG annual milk price review.
"GII is 60pc owned by co-op and 40pc owned by Plc, so [there is] no conflict on paying market milk price. GII accounts are published and profits go to shareholders, of which farmers through the co-op (60pc) and Plc (40pc) are beneficiaries," he said.
In response to the claim that the Milk Supply Agreements (MSA) are anti-competitive, one-sided, and provide no commitments to the farmer, Glanbia said that the MSA provides security to processor and customers. In addition, the spokesman stated that they were required by the processor to fund capacity expansion. "Given supply growth, the onus is on processors to undertake forecast exercises and build capacity to process peak milk volumes.
"British milk suppliers that were given notice from their processor [of delayed payments] probably wish they had a multi-year MSA," he said.
In relation to whether Glanbia could pay at least the minimum average national milk price over the next four to five years, the spokesman said that the company's "milk price performance [is] tracked in the KPMG [milk audit] each year".
On the liquid milk contracts' issue, the company confirmed that a rationalisation process where suppliers were being offered €15/l was underway. "The scheme is totally voluntary on both sides - a person can sell their contract back to Glanbia as part of the rationalisation process but Glanbia reserve the right not to buy back. The aim of the scheme is to buy up liquid quota and re-issue it to specialised liquid suppliers," said the spokesman.