No levy or minimum shares needed at GIIL

The country’s largest milk processor says it has removed all obstacles which could have impinged on suppliers’ plans to expand milk output post-2015.

The Glanbia Ingredients Ireland Limited Milk Supply Agreement includes elimination of any potential capital levy, and requirements to hold a minimum Glanbia Co-op shareholding.

An earlier proposal to penalise those who fail to achieve forecast growth volumes has also been removed.

The company has asked all its milk suppliers to commit to the agreement by a June 30 closing date. If they do, they share in a loyalty fund of up to €2.5m paid for the June milk supply

What are the immediate benefits of signing the Milk Supply Agreement (MSA)?

They include access to a range of schemes and associated bonuses currently operated by Glanbia Ingredients Ireland Limited (GIIL), such as the seasonality bonus scheme, index-linked fixed milk price scheme, and €2.5m loyalty fund.

In the long term, the secure MSA milk pool will facilitate GIIL to target growing, valuable markets.

I have supplied milk to GIIL for a long number of years. Why do I now need to enter into a Milk Supply Agreement?

Removal of milk quotas in 2015 represents a new dawn in the Irish dairy industry. Up to now the relationship between GIIL and its suppliers was dictated to a large extent by quota regulations, which severely limited milk output at farm level. With the removal of quotas comes opportunity for growth and expansion for GIIL’s suppliers.

Responding to this, GIIL is investing over €180 million in processing infrastructure. This will benefit all suppliers. By committing to a MSA, you are protecting GIIL’s investment, for the benefit of the business and its loyal base of milk suppliers.

As a member of Glanbia Co-op, I understand GIIL have to accept my milk under Rule 100, even if I do not sign a MSA. Is this the case and if so, why should I sign a MSA?

Under Rule 100, you will be entitled to continue to supply milk to GIIL, even if you do not sign a MSA. While GIIL will continue to accept milk from all Co-op members, suppliers who do not sign the MSA will not qualify to participate in schemes and associated bonuses, including future phases of the index-linked fixed milk price scheme and any future late/early lactation bonus scheme.

I am an existing supplier of GIIL and a member of Glanbia Co-op. However, as I am currently considering supplying milk to a third party for a period of time to see how this works out, I do not want to sign a MSA. Am I correct in thinking that under the rules of Glanbia Co-op (Rule 100), I can decide to return to GIIL at any time in the future without any implications or restrictions?

No. Apart from the fact that this approach runs contrary to the spirit under which GIIL and Glanbia Co-op operate, and that such an approach has potential to negatively impact the GIIL business model, with associated consequences for all suppliers, there are a number of restrictions which will impact on this decision. In the first instance, you will, at the discretion of the business, be required to provide up to six months’ notice of your intention to re-supply GIIL. This notice period will take into account such factors as available processing capacity and prevailing market conditions at the point of your application. Furthermore, at the discretion of the business, upon re-joining GIIL you will be re-joining as a manufacturing milk supplier — even if at the point of exit you were a liquid/winter milk supplier.

The Board of GIIL has also reserved the right to set out a further policy position in relation to management of this potential scenario. Such a policy framework could at a future date place further restrictions on behaviours that run contrary to the overall interest of the vast bulk of GIIL suppliers.

I understand that GIIL has established a €2.5m loyalty fund related to the signing of the MSA? How do I qualify and what will it be worth to me?

To qualify, a supplier must return the signed MSA by June 30, 2014. On the basis that all milk suppliers sign the MSA, this fund will be worth the equivalent of about 1 cent per litre on a supplier’s June milk supply volume.

The distribution of this fund will be based on the supplier’s milk supplied in 2013.

The complete fund of €2.5m will be shared between all suppliers who sign and return the MSA before June 30.

As a member of Glanbia Co-op, if I sign the MSA, how long am I tied into supplying milk to GIIL? Has GIIL sought the views of milk suppliers with respect to the duration of the MSA?

By signing the MSA you effectively commit to supply all of your milk (see other questions re dual suppliers) to GIIL for five years (2015 to 2019). Once the initial three-year period is up (January 2018), a supplier can cease supplying milk to GIIL with two years’ notice.

While GIIL initially set out a desire for a longer MSA duration (seven years), having undertaken an extensive engagement with suppliers and obtained very constructive feedback, it was decided that a five-year commitment represented the best balance between the wishes of suppliers and the needs of the business.

At five years, the duration is significantly shorter than equivalent requirements demanded by GIIL’s peers in the Irish dairy industry.

Also, it is worth noting that, as a member of Glanbia Co-op, under the terms of the MSA, GIIL is committed to accepting your milk for an indefinite period – essentially for as long as you wish to supply.

I am currently a non-member supplier of GIIL. What commitment will GIIL give me, as part of the MSA. Will I be entitled to participate in all GIIL schemes and bonuses in the same way as Glanbia Co-op members?

GIIL has a number of suppliers who are not members of Glanbia Co-op. In a large number of cases, these individuals have been suppliers to GIIL for many years. Such suppliers make an equally important contribution to GIIL as member suppliers. Under the terms of the MSA, GIIL is committing to accept milk from non-members for a minimum of ten years, from 2015 up to 2024. In the event that GIIL wishes to cease collecting milk from non-members, it is obliged to provide five years’ notice to such individuals. In any event, this notice cannot be given before 2020.

In the MSA, non-member suppliers will be entitled to participate in all GIIL bonuses and schemes in a similar fashion to Co-op members.