Glanbia revises index-linked milk price scheme for added flexibility

FARMERS have responded positively to Glanbia’s decision to revise its index-linked milk price scheme to ensure greater flexibility in reacting to future input cost inflation.

The scheme offers suppliers a fixed price of 28c per litre (VAT exclusive) for a percentage of their milk from January 2011 to January 2014.

The scheme was widely welcomed when it was announced last December, with farmers noting that hedging on a fixed price would allow participants to plan ahead. The new flexibility measure has boosted that welcome further.

IFA national dairy committee chairman Kevin Kiersey said that Glanbia’s revised fixed-price milk contract was a genuine attempt to address farmers’ legitimate concerns with their initial offer.

He said the revised scheme should allow the milk price to increase to reflect input cost inflation, and that it would be open to all suppliers, regardless of production pattern and test results.

Mr Kiersey said: “As we said last December, this is a positive move by Glanbia to address farmer concerns over price volatility. A stable milk price for three years will give farmers more confidence to invest in the future of their business, and I believe the Glanbia proposal will suit many of their suppliers.”

He added, however, that the IFA concern over possible cross-subsidisation of the contract price by the market-based price remained, as expressed last December when the first version of the scheme was launched.

“Glanbia must reassure farmers, whether they choose to partake in the scheme or not, that the price they will receive for their non-contracted milk will not suffer to prop up the contracted price. They must also be satisfied that justified price increases, if they drive milk prices above the contracted price, will be fully passed back,” Mr Kiersey added.

Glanbia Dairy Ingredients Ireland said that it has revised the scheme from its original December 2010 terms to reflect market changes in recent months. While the original concept was well received by suppliers, Glanbia said it had failed to attract the required volumes of milk as market events overtook it in the context of current pricing versus the market and raw material costs.

Since February, Glanbia has engaged with its supply base to understand the key issues that prevented the required uptake and with its customer base to endeavour to meet supplier’s needs through a revised scheme.

Glanbia Ingredients Ireland chief executive Jim Bergin said: “After significant negotiations, our customer partners have responded positively to the changed market realities and we are pleased to have agreed a revised index-linked fixed-milk price scheme which addresses the key concerns raised by suppliers.

“As a result we are now in a position to launch this revised scheme which seeks to address suppliers’ concerns in relation to margin erosion, as a result of input cost inflation.

“This is achieved through the new scheme by the inclusion of a mechanism to adjust the base milk price each year to reflect increases in input costs. In addition, as we have managed to secure additional interest from customers we are now in a position to open up this offer to our full supply base.”

The scheme relates only to the base manufacturing milk price.

Details of the scheme have been posted to all Glanbia suppliers this week and the closing date for applications is April 8.