Glanbia to top up fixed-price milk contracts

Glanbia Ireland first launched its fixed-price contracts more than a decade ago.

Glanbia Ireland has become one of the first major dairy processors to launch a top-up scheme for farmers tied into fixed-price contracts.

Farmers were encouraged to lock in a portion of their milk supply to hedge against market volatility and support financial agreements with lenders, however, with input costs continuing to surge lobby bodies warn farmers are being squeezed in the middle. 

Glanbia Ireland first launched its fixed-price contracts more than a decade ago. Prices paid depend on when the contract was taken out, however, suppliers tied into one of the oldest continuing contracts - a five-year fixed-price contract launched in August 2017 would be paid 31 cents per litre including VAT.

It compares with the base price of 40.08 cents per litre including VAT for January's milk.

A spokeswoman said: “Glanbia Ireland is very conscious of the significant challenge that some suppliers are facing as a result of the volume of milk contracted under Fixed Milk Price Schemes.

“These schemes have operated for over a decade and have served suppliers well in addressing volatility in dairy markets.”

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Sean Molloy, Glanbia Ireland’s Chief Agri-business Growth Officer, said that as a consequence of recent world events, there is unprecedented volatility in milk pricing, farm input costs and availability.

“This dynamic is proving to be particularly challenging for milk suppliers that have a high proportion of their milk contracted under Fixed Milk Price Schemes,” he said.

“In an effort to help address the challenges faced by farmers with larger volumes contracted under Fixed Milk Price Schemes, the Board of Glanbia Ireland have agreed a number of voluntary options to help support participants.” 

The Fixed Milk Price Support Scheme will see:

• The price for all existing Fixed Milk Price Volumes above 35% of the supplier’s total supply in 2021, increased to a base of 40 cents per litre (VAT inclusive), plus constituents.
• On top of this 40 cents per litre, for relevant volumes milk suppliers will be paid a 0.5 cents per litre 'Sustainability Bonus' in 2022 and as well as seasonality payments – including any unconditional seasonality bonuses, and as relevant to particular suppliers, the Liquid Milk Premium and Autumn Calving Bonus.

However, in order to qualify for the 40 cents per litre Fixed Milk Price in 2022, suppliers will be required to commit the same volumes in 2023 and 2024 at a base milk price of 38 cents per litre (VAT inclusive), plus constituents and relevant bonuses or payments.

The spokeswoman explained: "So for example, a 750,000-litre supplier with 75% of their annual supply volume contracted will have 40% or 300,000 litres eligible for the milk price support scheme. This is the equivalent of €27,000 in milk price support.

"In order to qualify, the supplier will be required to contract the same volume (300,000 litres) at 38 cents per litre (incl VAT) in 2023 and 2024."

Based on the average milk constituents for 2021, the expected average milk price paid on volumes in Fixed Milk Price Schemes above the 35% threshold would be 45.55 cents per litre in 2022.