Temporary 30% price cut for excess milk at Glanbia

The aim is to manage peak milk supplies from 2022

Suppliers with a peak supply profile higher than the Glanbia Ireland average will see their allocated peak supply adjusted down. File Picture.  

Glanbia Ireland, the country’s largest milk processor, has announced a temporary mechanism to manage peak milk supplies, from next year.

All milk supplied above allocated peak supply volume will incur a milk price deduction of 30%.

Glanbia Ireland Chairman John Murphy said the peak supply policy is a temporary measure necessitated by delayed plans for a €140m cheese plant at Belview Port in south Kilkenny. 

An Taisce has been granted leave to seek a judicial review of planning permissions for the plant granted by Kilkenny County council and upheld by An Bord Pleanála.

In April, May and June, 2022, Glanbia farms that had less than 550,000 litres of annual milk supply in 2018, 2019 or 2020 may grow peak supply months volume 5%.

Farms with annual milk supply of over 550,000 litres may grow their peak supply months volume 2.5%.

Growth for recent entrants (less than three years) will be facilitated up to the 550,000 litres threshold, after which they align to a compound growth rate of 2.5% in peak months.

Suppliers with a peak supply profile higher than the Glanbia Ireland average will see their allocated peak supply adjusted down.

There is no restriction on milk supply growth in other months.

All volumes above allocated peak volume will incur a price deduction of 30%, or the cost associated with the disposal of the milk, whichever is higher. 

Net of costs, any funds collected in the 30% price deduction will be redistributed, and paid in the milk price outside of peak months.

To address challenges this policy may create for some suppliers, the Glanbia Ireland board has agreed enhanced seasonality bonuses to incentivise non-peak production; a once-off retirement scheme with a five-year incentive for suppliers who choose to exit milk production (no later than January 1, 2022); and a “reserve pool” of additional peak volume for “exceptional cases” (for example, due to a notifiable herd disease outbreak in the base period).

The reserve pool, which will include milk from retiring farmers, will also be open to applications from qualifying expanding suppliers.

In 2022, the unconditional seasonality bonus for creamery milk will be 4c for January, 3c for February, and 4c for December (inclusive of VAT).

The retirement scheme will be funded by a contribution of 0.075cpl from all milk supplies from 2022 to 2027.

For the duration of peak supply management, applications from new entrants to milk production will only be considered from Glanbia Co-op members.

Chief Agribusiness Growth Officer Sean Molloy said the overall objective is to ensure all milk delivered can be processed during peak season in 2022 and 2023.

However, farmer organisations reacted angrily, with IFA President Tim Cullinan saying it is the first step towards a milk quota for Glanbia suppliers, and will cost farm families money. 

“Farmers are now being asked to produce more milk at times of the year when production costs are higher. 

The vindictive court action by An Taisce has impacted Glanbia’s plans, but the company has a responsibility to its suppliers. While An Taisce might think they are impacting on big business, it’s farm families who will be impacted.”

IFA National Dairy Chairman Stephen Arthur, a Glanbia supplier, said Glanbia must ensure farmers with development plans and significant financial commitments are facilitated. “They must be properly compensated,” he said.

ICMSA President Pat McCormack said it is hugely disappointing that an Irish processor finds itself in a situation outside of its control, whereby it must restrict family farms from reaching their sustainable potential. 

He said Government must put in place a policy that allows dairy to develop sustainably, without being tied up in legal disputes.

Meanwhile, on the milk price front, Dairygold Co-op this week increased its price for February by 1.7c per litre to 34c at 3.3% protein and 3.6% butterfat, inclusive of bonuses and VAT. 

In addition, the February early calving bonus of 2c will be paid on milk supplied in February, subject to milk quality criteria. 

The February farm gate milk price is 40.8c at the average February milk solids achieved by Dairygold milk suppliers. 

A Dairygold spokesperson said global milk supply and dairy demand became better balanced in recent weeks, with strong Asian demand for dairy commodities, and “some green shoots beginning to emerge” from the food service sector.

Last week, Glanbia added 1c per litre for February creamery milk, with a spokesperson saying dairy market sentiment in recent weeks has been boosted by factors such as lower than forecast milk supply in key production regions, and strong Asian demand. 

Glanbia Ireland Chairman John Murphy said: “Other factors include continued Government support measures and optimism linked to the tentative easing of Covid restrictions in some countries. 

It is also welcome to see the US and Europe announce a four-month suspension of all tariffs linked to the Airbus and Boeing dispute.” Glanbia will pay 36.1c (including VAT) for milk at 3.6% butterfat and 3.3% protein.

Included are a Glanbia Ireland base of 32.68c, a seasonality bonus of 3c, and a 0.42c ‘Share of GI Profit’ payment. 

Also announced is phase 17 of the Glanbia Fixed Milk Price scheme, with a base price of 32c from March 1, 2021, to December 31, 2023.

Lakeland Dairies said last week it has also added 1c to the base price for milk supplied in February. With an out-of-season bonus of 5c and a special unconditional bonus of 1c, the price comes to 33.34c. 

A spokesperson said: “As the European peak season is commencing, there is currently strength in the global market with the dynamic between the supply of milk being produced and the demand for dairy products from customers largely in balance at present. Covid-19 continues to influence buyer sentiment as the potential reopening of economies across the world remains under consideration."

The price increases at Glanbia and Lakeland, two of the biggest processors in Ireland, got the blessing of ICMSA dairy chair Ger Quain, saying increases brought Glanbia into line with market returns and expectations, and the Lakeland increase means all their suppliers will get at least 34.34c (at 3.3% protein and 3.6% butterfat).

Mr Quain said ICMSA had asked all milk purchasers to pay at least 34c for February milk.

Despite Tuesday’s GDT auction price falling 3.8%, sources in New Zealand predicted firm global dairy prices due to demand outstripping supply over the next few months, albeit with some volatility, until New Zealand production picks up in August.