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Glanbia Ireland’s new loyalty scheme for milk and dairy feed prices is an international first in terms of its guaranteed price for a five-year term and the optional linkage to a feed discount.
This is an evolution of previous schemes with the core aim of “encouraging, recognising and rewarding loyalty”, according to Glanbia. The scheme has two elements (milk and feed) with feed optional, although in reality because priority will be given to dairy feed purchasers, participants in the scheme will be part of the two elements.
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Since 2011, Glanbia has offered 10 fixed milk price schemes which saw more than 2,000 milk suppliers receive fixed prices on 2bn litres. Today, around 20% of Glanbia’s milk pool is under fixed milk price schemes. Around 50% of Glanbia suppliers have an average of 30% of their milk in these type of schemes.
What is the milk price over the five years?
Glanbia Ireland will pay a fixed milk price of 31c/l including VAT (29.33c/l excluding VAT) at 3.6% butterfat and 3.3% protein for five years. Participation is voluntary and open to all Glanbia Republic of Ireland suppliers who have a milk supply agreement.
How much milk can be allocated?
Suppliers need to commit a minimum 10% of 2016 supply. There is no maximum. However, if the scheme is oversubscribed the volume will be adjusted down pro-rata.
Do farmers need to select both elements (feed and milk)?
Should the scheme be oversubscribed, suppliers selecting both will get priority allocation of milk volumes.
Will the milk price adjust for inflation?
There is no mechanism to adjust the fixed milk price (up or down) for farm input cost movements, or movements in the market price (as was the case in previous schemes).
Is there a charge to take part?
There is a 0.1c/l charge for taking part in the scheme, which Glanbia says is to cover the cost of developing this type of scheme. A farmer with 100 cows yielding 500,000 litres who commits 10% of volumes will be charged €250 over the five years.
What if the scheme is oversubscribed?
If this happens, suppliers who have purchased the greatest level of dairy feeds relative to their dairy scale (ie purchasing percentage) over the last three years (2015-2017) will get priority. For example, two farmers, each with 100 cows yielding 500,000 litres – if one buys 50t and the other buys 70t, the latter will be given priority.
What allocation can a farmer expect?
If the scheme is oversubscribed, a farmer could typically expect to be allocated around 20% of annual supply.
Is there anything for young farmers?
5% of volumes will be ringfenced for a combination of new entrants and young farmers.
When will the scheme commence?
It will start on 1 January 2018 and run to 31 December 2022.
How has Glanbia been able to offer this scheme?
Glanbia has secured long-term commercial arrangements with key customers and therefore the business is not exposed to any milk price risk.
Does this affect the Glanbia co-op supports?
This is separate to the Glanbia co-op supports. Dairy farmers who are members of the co-op and participate in this scheme will also receive any co-op milk price supports and feed (€7/t in 2017) and fertiliser rebates should the co-op give them in the future.
If farmers don’t apply, will it affect them?
Suppliers who take part in this scheme will be given priority to any future schemes for 75% of the volume of milk they are allocated under this scheme.
What is the feed loyalty bonus?
Glanbia is offering a rebate of €30/t on feed purchased. It works out at between 2c/l and 3c/l on every litre of milk in the scheme depending on the amount of milk committed and the level of feed purchased each year. See worked example below.
Do I need to commit to the feed element of the scheme?
It is optional. However, milk volumes will be allocated first to suppliers who have selected both milk and feed.
How much feed does a farmer need to buy off Glanbia?
A farmer in the scheme will be required to purchase all their dairy feed over the five-year period.
How will Glanbia quantify the level of feed?
Glanbia will estimate the level of annual feed requirement per participating supplier. Feed volumes will be estimated based on historical purchases, production system, number of cows, etc.
What if a farmer buys feed off other merchants?
A farmer who has bought 100% of their dairy feed off Glanbia over the last three years (2015-2017) will be given priority. A farmer who bought an amount elsewhere may not get into this scheme if it is oversubscribed.
Glanbia says it intends to run similar schemes and farmers can correct the levels of feed purchased in the meantime.
What feeds are included?
Glanbia Ireland’s range of dairy compound feeds and coarse rations. Straights are excluded.
How will Glanbia calculate a farmer’s feed usage?
Compliance will be mainly based on trust. A test will be undertaken each year to ensure suppliers are operating within the spirit of the scheme. This test will benchmark feed volumes versus production model and historical usage. Sanctions will be applied for non-compliance.
How do I know I am buying my meal competitively?
Glanbia says that the price charged for feed will reflect normal commercial/market prices.
When will the feed rebate be paid?
It will be paid before the end of March each year on prior year purchases.
How much feed is being allocated to the scheme?
Initially 25,000t is being allocated. This will grow over the five years in line with the tonnage used and milk output of participating suppliers.
Worked example
A farmer with 100 cows supplying 500,000 litres and purchasing 75t of meal and is allocated 20% or 100,000 litres of milk.
This farmer will receive a base price of 31c/l, and a feed rebate of €2,250 (€30 x 75t). This works out at 2.25c/l on the volume of milk committed or 0.45c/l across all milk.
31c/l for up to five years from Glanbia and Kerry
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