News this week that Glanbia is not going to enforce any peak milk restrictions has been greeted by farmers with welcome, annoyance and some frustration.
On the face of it, it’s a good news story, as it means that any farmer who produces more than his or her allocated amount for the peak milk months will not be penalised.
The initial plan was that they would be penalised with either a milk price cut of 30% on that additional milk or the cost of disposal of that additional milk, whichever was greatest.
This effectively meant that farmers could have been charged by Glanbia for taking the additional milk.
Since these new measures were introduced by Glanbia in mid-March 2021, in response to a delay in getting the proposed new cheese plant in Kilkenny built, there has been much consternation, wrangling and frustration by suppliers who, for the first time since quotas went in 2015, were seeing their output curtailed.
Equally, between the man hours of senior executives, personnel, consultants, PWC, printing, administration costs and so on, the new measures must have cost Glanbia hundreds of thousands of euro if not millions to put in place.
Milk supplies both for Glanbia and nationally have been back by between 2% and 3% for the year to date
Now 14 months later, the measures have been scrapped for 2022. The reason for this is that milk supplies both for Glanbia and nationally have been back by between 2% and 3% for the year to date.
There is no question that the measures were introduced - and indeed withdrawn - in good faith by the management and board of Glanbia Ireland.
Faced with the prospect of an additional 6% or 7% of milk volumes at peak in 2022 and with a green field where the new cheese plant should have been built, the company felt it had no choice but to act.
There is also no doubt that many farmers acted to reduce output also.
There are countless farmers in the Glanbia region who culled extra cows (cow cull up 23% nationally in January and February), fed extra milk to calves or who rejigged or mothballed expansion plans on the back of the new measures.
Again, they did this in good faith in order to avoid a big penalty to themselves and in order to avoid driving Glanbia into a crisis scenario, whereby it couldn’t process all the milk that it was getting.
There’s no doubt that these decisions had some part to the play in Glanbia being back in milk this year, but we can’t ignore the national picture either, with Dairygold, Kerry, Aurivo and other co-ops back in supply also.
Licking their wounds
The farmers who made the big decisions to reduce supply are now licking their wounds and thinking what could have been.
Milk prices have never been higher and despite the massive increase in costs, 2022 is looking like it’ll be a very profitable year for dairying.
Those who had expansion plans in train are now ruing the missed opportunity, as that milk could have been produced, processed and paid for in full at a healthy profit.
It would be hard to lay all of the blame for this on the door of Glanbia. In its defence, it reacted to the information it had, both in March 2021 and May 2022.
Some farmers are saying that it should have reacted quicker when it became apparent that supply would be back in 2022.
If the signal was given to drive on production earlier, farmers would respond and supply would increase
There is a certain element of this being a self-fulfilling prophesy, in that if the signal was given to drive on production earlier, farmers would respond and supply would increase.
There’s no doubt that at this stage in the year there’s not a lot farmers can do to produce more milk. They can’t change the weather we got in April, they can’t bring back to life the cows they culled and they can’t take back the extra milk they fed to calves.
Looking ahead, the economics of feeding extra concentrates to produce more milk is going to be tricky. At best, the response is around 0.7kg of milk for every 1kg of meal fed.
If, say, 3kg of meal is fed costing 40c/kg, the total meal cost is €1.20/cow/day.
If this meal causes the cows to milk an extra 2.1kg of milk per cow per day and that milk is worth 50c/kg, then that is bringing in €1.05/cow/day – less than the cost of the meal.
Certainly, weaning calves off milk as soon as possible and producing as much milk as possible from grazed grass this summer will be profitable ways of selling additional milk.
If I was to be critical of Glanbia, I would say that the announcement to scrap all penalties for 2022 should have been made at the time the first announcement was made to ease the restrictions.
At that time, it gave the signal to farmers to drive on, yet was still going to penalise farmers that produced more than their allocation (over and above €500 of a penalty for April).
It scrapped the provision of charging farmers for disposing of their milk, so it was aware that it would be able to process all the milk, for April at least.
Having the information that no penalties would apply two weeks ago could have made a difference to some farmers.
For me, the whole debacle brings up a bigger issue as to what farmers are going to do next year. Will those who decided to cut back this year do the same next year, knowing what has happened now?
If they don’t and if the weather is good and cows are milking well and there are more cows in the catchment, will the co-op, and ultimately those suppliers that produce more than their allocation, be in a crisis?
This wouldn’t be a good outcome for anyone and is a situation that will have to be closely managed by Glanbia.