Farm Ireland

Friday 27 April 2018

Glanbia suppliers poised to rubber stamp milk deal

Darragh McCullough

Darragh McCullough

Glanbia liquid milk suppliers have been offered their first ever three-year deal on milk price, which the 51 delegates of the Fresh Milk Producers' committee will vote on tomorrow in the Farm Centre.

If accepted, the deal will introduce payments for milk solids for the first time and give suppliers a 46c/l premium over the manufacturing price over a 12-month period. This equates to a 3.83c/l premium on a monthly basis, which will be paid on milk supplied when the manufacturing price is between 27-32c/l. If the base price goes above or below this band, liquid milk suppliers will only receive half of the resulting milk price increase or decrease.

The other big change for suppliers is the introduction of a payment system based on constituents. From next January, producers can opt to have all, or a gradually increasing volume of their milk paid for on an A+B-C system similar to that operated for manufacturing milk suppliers.

While the price differential was the key sticking point of the negotiations that have been on-going for nearly 18 months, most of the debate among the 14 separate producer groups is now focused on the number of months over which the premium is spread out.

While a premium payment commencing from October would encourage producers to optimise calving patterns to maximise grass intake, traditional payment structures that started in September are still favoured by some groups.

One of the key issues for Glanbia over the past number of years has been the gradual increase in market share of milk from Northern Ireland.

As a result, the Plc was forced to scale back the size of liquid milk contracts that each supplier had. This current offer also leaves Glanbia free to reduce contracts in line with any reduction in sales volumes.

However, any reduction in the contracted volume that the processor will take from a supplier will only kick in two years after the sales decrease. For example, if sales decrease by 2pc next year, suppliers' contracts will be cut only from January 1, 2013. In addition, milk previously supplied as part of a liquid milk contract will be paid for at 66pc of the winter scheme price in the first year after the cut is made, and 50pc in the second with a annual review thereafter.

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Suppliers appear to be very content with the deal which is seen to be offering some stability to returns over the coming years. IBEC's dairy director, Michael Barry, said this was just one of a number of initiatives that he expects from milk processors in the coming year.

"Family farms are not going to be able to cope with the type of volatility that milk prices will be subjected to over the coming years," he said. "This is why we are seeing the French government insisting that their milk processors offer five-year contracts to suppliers and the EU pushing for more contractually based agreements at farm supply level.

"It suits the companies involved as well because they need stability to guarantee supply to their customers."

Fresh Milk Producers chairman Eamonn McEnteggart described the changes as "far reaching and radical". He added: "We must recognise that we are part of a dairy industry where supply will inevitably increase and as a result a larger portion of our milk will end up in a commodity market which is structured around saleable solids."

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