The dairy farmer should not be left holding the can for Glanbia’s poor contingency planning
Glanbia just dropped a bombshell on its milk suppliers and the wider dairy industry by announcing a super-levy type fine for suppliers who exceed a peak milk production quota.
A minimum penalty of 30pc (11 cent per litre) in the milk price is proposed for supplies in excess of the new quota in April, May and June, starting next year.
This is because Glanbia project they will be unable to process peak milk supplies from their suppliers in 2022-24.
March 31 will mark the sixth anniversary of the removal of EU milk quotas.
Dairy farmers served a 31-year sentence of restrictive milk production from 1984 to 2015 under the EU milk quota regime, to hear this news now from Glanbia is devastating for many dairy farmers.
True, restrictions in some form were anticipated in the medium term to cut greenhouse gases and improve the quality of our rivers and streams, but this came totally out of the blue.
To make matters worse it has come from within the industry, a farmer-controlled dairy processor. One supplier said to me, “it is just like Judas betraying Jesus Christ”.
The questions I have are: why is it always Glanbia announcing the bad news and complicated schemes for dairy farmers? Why now, in the middle of the most stressful period of the year for all dairy farmers?
Yes, the breeding season is about to start, but the breeding ship has sailed for planned numbers in 2022 and 2023 — these heifer calves and bulling heifers are already on the ground.
The ‘temporary measure’ is supposed to be for 2022-24, but they are guaranteeing nothing post-2024.
Other milk processors, with lesser financial clout, have gone about their business quietly and planned well for the future peak milk production challenge.
There has always been a spirit of collaboration between dairy processors; are Glanbia saying that no other processor has spare capacity to process the excess milk?
I notice Glanbia are not refusing to collect the surplus milk, so where is this milk going to go? Of course, it will still be processed by Glanbia, but why are they not taking some of the financial pain?
If a dairy farmer does not make enough silage, he has to go out and buy additional feed at his own expense; is it not logical that if Glanbia do not prepare for peak milk production processing capacity, they should pay the price?
Dual suppliers are dairy farmers who supply two processors. I estimate there are more dual-suppliers in Glanbia than with any other processor.
They have a distinct advantage as they can switch milk supply to another processor to avoid the Glanbia penalties in May, June and July.
These dual suppliers were accommodated when the first Milk Supply Agreements (MSA) were signed after the removal of milk quotas. The question is; are Glanbia now breaking their MSA for all the suppliers who solely supply them?
Are these suppliers now free to switch to another processor or apply to become dual suppliers?
I am sure some of the neighbouring co-ops and private processors would only be too happy to sign up new suppliers and process the surplus milk. These are serious questions yet to be addressed.
I spoke to one farmer who has recently bought land onto the grazing block.
A detailed farm business plan was prepared to secure the bank finance, based on expanding cow numbers in the coming years to ensure the bank repayments are met; what is supposed to happen here?
How many more suppliers are in similar circumstances?
I note Glanbia are still accepting new entrants to dairying from Glanbia Co-Op members and accommodating those who have entered in the last three years by allowing them to expand to 550,000 litres. How does this make sense when they are now restricting those how have build up the Co Op and Plc over the years?
However, the biggest item of interest I see in the Glanbia press release is the proposal for a seasonality bonus scheme for milk supplied in December, January and February.
This goes against all the Teagasc research and advice of the last 20 years where calving patterns to match the grass growth curve were promoted at the most profitable system of milk production.
To be fair, it was probably inevitable that milk processors would eventually look for more milk to process through the new expensive stainless-steel plants in the off-peak season to boost bottom-line profitability.
The lower usage rates of processing plants in Ireland due to seasonal milk production is one of the main reasons given for Irish dairy farmers being paid the lowest milk price in Europe.
I appreciate that the delay in the planning application for Belview has forced Glanbia’s hand in dealing with planned peak milk supply.
However, to me it smacks of poor contingency planning — surely there is a way to work with other milk processors in Ireland, Northern Ireland and/or mainland Britain to cope with peak milk production in 2022-24?
The dairy farmer should not be left holding the can.
Mike Brady is managing director at Brady Group agricultural consultants & land agents; email: firstname.lastname@example.org