Glanbia guarantees rate of 32cpl for the year

Pat McCormack of ICMSA on fixed milk price

Glanbia’s Dairy Ingredients Ireland fixed-price offer guarantees an inflation-adjusted milk price of 32cpl (including VAT) for 2012.

Given that input costs are unlikely to decrease, a price of 32cpl is likely to be paid in 2013 and 2014 also.

An adjustment will be made if the market price for milk goes outside the 25.2 to 34.7cpl range.

Suppliers have until Friday, Mar 30 to register, and must say how much milk they want to fix at the price.

In 2011, price fixing would have cost them money, but they would have gained compared to the average 2009-2011 milk price.

Pat McCormack is deputy president of ICMSA and chairperson of their dairy committee.

He farms at Lisheen-Greenane, near Tipperary town, and he supplies Tipperary Co-op.

* Would you fix some of your milk price if you had the choice?

>>The decision to fix milk price is based on two issues: the fixed price offered, and your view of the dairy market over the next three years. Since 2007, dairy farmers have seen massive volatility, from the highs of 2007 to the lows of 2009, and the improvements experienced in 2011.

A fixed-milk-price scheme provides dairy farmers with a level of certainty that allows them to make more informed decisions.

Personally, I would look favourably on a fixed-price scheme for a proportion of my production, in order to provide a level of certainty for my business.

* Up to 30% of Glanbia farmers are estimated to have availed of it since it was launched in 2010. Why such high adoption of such a new concept?

>>>>Dairy farmers, I believe, took the decision to avail of the offer based on their 2009 experience, when dairy farming was barely a break-even enterprise. The Glanbia scheme provides a level of security against volatility, and the farmers are taking the decision to avail of it.

While the milk price was better in 2011 than the fixed price, I believe that dairy farmers will examine the scheme over the three-year period, and decide on that basis whether it was a good decision or not.

* Is ICMSA giving any general advice on price fixing?

>>>>Each individual farmer’s position is different, according to debt levels, family circumstances, stage of development, etc, and these issues will be central to a farmer’s decision to opt for a fixed price. ICMSA’s advice is that all farmers should consider the merits of the scheme, assess their own circumstances, consider the dangers of volatility to their business and then take a decision on the matter.

* It’s fairly complicated. Do farmers have a good understanding of it and what does the decision boil down to?

>>>>The decision boils down to whether you believe the general milk price over the next three years will be higher than the fixed price offered.

* What is the application procedure for a Glanbia farmer? How is it decided?

>>>>Glanbia have circulated the details of the scheme, and an application form, to their suppliers.

* Any sign of other co-ops adopting it? Is it likely to attract any suppliers intoGlanbia?

>>In the context of quota abolition and growing volatility, there is a lot of discussion at co-op level regarding the future structure of the industry.

These discussions include the possibility of fixed-price schemes, and ICMSA understands that some processors are actively examining these options.

* Are farmers looking for it in other co-ops?

>>Dairy farmers in other co-ops do not want a repeat of 2009, and are looking for solutions from their processors to address volatility. These solutions should include fixed-price schemes.

* What are the good and bad features of it?

>>The good feature of the scheme is simply that it provides a level of certainty for the farmers, and a bad aspect is that the ordinary milk price could be higher than the fixed price over the three year period.

Also, if the scheme is oversubscribed, a farmer may not be able to contract as much milk as he/she would like.

* There have been worries that the price for non-contracted milk might prop up the contracted price. Have farmers been reassured on this? Glanbia has stated that the scheme price is based on contracts with customers and is not cross-subsidised.

>>A clear indicator on this matter will be the general Glanbia price relative to other Irish processors and that price will be judged on that basis.