Timely fixed milk price offer
Over the past four years, world prices, as represented by auctions run by Fonterra, doubled, halved and nearly doubled again.
That world milk price volatility can only increase when EU milk production control goes in 2015.
Against that background, Glanbia’s 28c/l plus VAT for three years for at least 15% of a farmer’s milk quota is a welcome steadying initiative.
The scheme was developed in partnership with a small group of Gambia’s key customers, who want to minimise the impact of volatility on their businesses just as much as farmers do.
Well done to IFA and the ICMSA for welcoming the price security promised by the scheme. Glanbia have indicated they will expand the price fixing opportunity for farmers, subject to exploring similar price fixing partnership opportunities with more of their key customers.
The scheme will be available to up to 25% of Glanbia manufacturing milk suppliers from January, with the price based on 3.6% butter fat and 3.3% protein.
Having come up with the initiative, Glanbia is justified in using it to encourage milk suppliers to raise their milk quality and improve their supply profile to a point where they qualify for the fixed price. That’s why it is available only to suppliers performing at the upper end of quality standards and with a monthly milk supply profile.
Applicants must supply at least 15% of their milk quotas at this fixed milk price.
Other elements of milk pricing, such as winter and seasonality payments, are not affected.
Glanbia have introduced a level of planning and risk management that has not been available in the Irish dairy industry to-date.
It has the potential to considerably boost the Government’s plan to increase milk output 50% by 2020 — especially if other processors come forward with similar schemes, as they have been urged to do by IFA.
There is no reason why they should not follow suit, helped if needs be by the use of futures, such as the NYSE Liffe’s skimmed milk powder contract, to cope with the inevitable volatility which will follow disappearance of milk quotas in 2015. With such instruments available, processors can protect price and profit objectives better than previously.
Other processors may be forced into matching Glanbia’s initiative, if there is enough of a 2015 shake-up to end the current virtual captivity of each co-op’s milk supply.
Glanbia says its prevailing price, set in the normal fashion and reflecting market conditions, will apply for all but 15% of milk supplied by fixed price participants.
However, it will be interesting to see how the overall milk market develops here, if fixed milk pricing expands within and beyond Glanbia — and the current rigid supplier-processor relationship is loosened.
