Q. I’m a new entrant this year, milking 130 cows and plan to go to 200 next year. How did Glanbia decide to accept me with no issue or concern at all last summer?
A. The new 450m litre continental cheese facility at Belview was granted planning permission by Kilkenny County Council in November 2019. It was scheduled to come on stream in 2022 to satisfy farmers’ milk growth forecasts. Unfortunately it has been delayed by the Irish planning system.
Milk supply agreements (MSA)
Q. For those with milk supply contracts with no limits in place, if Glanbia is unwilling to take extra milk are the milk contracts null and void and if I can supply another processor will that be allowed? Have Glanbia broken the terms of the MSA? Will there be any accountability on their side?
A. MSA agreements entered into will be honoured in full. Glanbia is also listening carefully to feedback from our suppliers on this issue.
Q. Three months seems like a very long peak? Farmers are of the opinion that there should be ample processing capacity for a number of weeks either end of April or June?
A. The peak period is April, May and June, during which Glanbia processes almost 40% of annual milk volumes. Given the strong growth in peak supply over recent years there is limited surplus capacity at peak on the island of Ireland.
Q. Why was the current scenario only presented now?
A. These actions were necessitated by the delay caused by an ongoing challenge to our plans for the cheese plant at Belview. A judicial review of An Bord Pleanála’s decision was only confirmed in November 2020.
In recent months we have endeavoured to secure additional capacity with other processors. We have also worked on ways to increase capacity at existing plants. We have introduced the Peak Supply Management Policy now to allow our suppliers make on-farm decisions which will align milk supply with available capacity.
The new policy will allow milk supply growth of 2.5% and 5% at peak in 2022 and 2023. Whilst this rate of growth aligns with the ambition of the majority of our suppliers, unfortunately this is not at the level to satisfy the ambitions of all of our suppliers. There is no limit on growth in volumes outside of peak.
Q. How much milk is anticipated to come from the retirement fund?
The retirement scheme is completely voluntary and it is an individual decision for consideration by our suppliers. Milk surrendered by retiring farmers will be allocated to the reserve pool. We believe the scheme will be attractive to a cohort of suppliers, but we will have to wait and see what volumes are offered.
Q. Is there a danger to the rest of the industry of milk produced at peak times having no home, and could that undermine the rest of the market?
A. No. The objective of the Peak Supply Management Policy is to align milk volumes supplied with the available processing capacity. We are asking suppliers to plan now and manage peak volumes from 2022. A significant volume of any peak milk will be sent to a number of Irish processors under contract arrangements. The aim will be to continue to maximise the return from every litre processed.
Q. All projects of this nature [Belview plant construction] will face some delays – Dairygold’s last project had a planning delay. A professional organisation should always have contingencies for such scenarios in the form of alternative plans. There should have been plans in place for delays and failure to get planning, long before An Taisce got involved. Why were contingencies not in place?
A. Our planned cheese plant is a major project that will diversify our product mix. We have done what we can to work with other processors and to expand capacity at existing plants. This will facilitate growth this year and for future years.
It is not plausible or practical to suggest that an alternative processing option of the scale of our planned investment would be on stand-by for an event of this nature.
Q. Does this announcement represent a failure of Glanbia representative structures?
What is the purpose of the area and regional committees and the council, if not to debate such a drastic change?
Is it time for Glanbia Ireland to be 100% owned by the co-op?
A. Glanbia representative structures have worked exceptionally well and they continue to do so. The only failure lies within the timelines of the Irish planning process. Our board has clear governance structures and there is a shareholders’ agreement between both owners that is working well. We have just completed meetings with our 11 regional committees and the board will now reflect on their feedback.
Profit after tax commitments (PAT)
Q. The 3.2% margin after tax needs to be revised. No other processor operates with such a high margin. If this involves renegotiating covenants, then it should be done. Interest rates have improved since those deals were done.
Would such a move allow more money for reinvestment and processing capacity?
A. The 3.2% margin after tax is fundamental to our operation and to ensure continued investment in the business. A number of large scale co-operatively-owned international dairy processors operate at similar margins.
The value of Glanbia Ireland continues to grow – farmers and their families as 60% owners are benefitting from that value appreciation and are also reaping rewards through dividends paid directly to milk suppliers each month.
The 3.2% margin has no relevance to the fact that Glanbia is now prevented from putting a plant in place to process our suppliers’ milk.
Q. If there is a reserve fund for those that have expanded, how is it going to work without being totally oversubscribed?
A. The reserve pool will deal with suppliers who have been materially impacted by the Peak Supply Management Policy. The allocation of peak volumes from the reserve pool will be made on a case-by-case basis. An independent body will oversee the allocation of volumes from the reserve pool.
Case study: winter milkers
Q. “The current autumn calving bonus covers November, December, January and February. I bought 70 acres beside the grazing block – just finalised the land deal in February. I have an autumn calving contract for 100,000 litres per month, but in 2020 I supplied 120,000 litres per month so my understanding is I won’t qualify for the bonus the spring suppliers get on that 20,000 above my contract. I’ll get it on any supply over 120,000 so if I supply 130,000 litres in 2022 I’ll still get my autumn bonus on 100,000 litres, but only the new spring bonus on the extra 10,000 litres rather than the 30,000 litres – is that correct?”
A. Correct.
Read more
Watch back: webinar discussing Glanbia's new rules on milk supply
Q&A with Glanbia on its peak milk management plans
Q. I’m a new entrant this year, milking 130 cows and plan to go to 200 next year. How did Glanbia decide to accept me with no issue or concern at all last summer?
A. The new 450m litre continental cheese facility at Belview was granted planning permission by Kilkenny County Council in November 2019. It was scheduled to come on stream in 2022 to satisfy farmers’ milk growth forecasts. Unfortunately it has been delayed by the Irish planning system.
Milk supply agreements (MSA)
Q. For those with milk supply contracts with no limits in place, if Glanbia is unwilling to take extra milk are the milk contracts null and void and if I can supply another processor will that be allowed? Have Glanbia broken the terms of the MSA? Will there be any accountability on their side?
A. MSA agreements entered into will be honoured in full. Glanbia is also listening carefully to feedback from our suppliers on this issue.
Q. Three months seems like a very long peak? Farmers are of the opinion that there should be ample processing capacity for a number of weeks either end of April or June?
A. The peak period is April, May and June, during which Glanbia processes almost 40% of annual milk volumes. Given the strong growth in peak supply over recent years there is limited surplus capacity at peak on the island of Ireland.
Q. Why was the current scenario only presented now?
A. These actions were necessitated by the delay caused by an ongoing challenge to our plans for the cheese plant at Belview. A judicial review of An Bord Pleanála’s decision was only confirmed in November 2020.
In recent months we have endeavoured to secure additional capacity with other processors. We have also worked on ways to increase capacity at existing plants. We have introduced the Peak Supply Management Policy now to allow our suppliers make on-farm decisions which will align milk supply with available capacity.
The new policy will allow milk supply growth of 2.5% and 5% at peak in 2022 and 2023. Whilst this rate of growth aligns with the ambition of the majority of our suppliers, unfortunately this is not at the level to satisfy the ambitions of all of our suppliers. There is no limit on growth in volumes outside of peak.
Q. How much milk is anticipated to come from the retirement fund?
The retirement scheme is completely voluntary and it is an individual decision for consideration by our suppliers. Milk surrendered by retiring farmers will be allocated to the reserve pool. We believe the scheme will be attractive to a cohort of suppliers, but we will have to wait and see what volumes are offered.
Q. Is there a danger to the rest of the industry of milk produced at peak times having no home, and could that undermine the rest of the market?
A. No. The objective of the Peak Supply Management Policy is to align milk volumes supplied with the available processing capacity. We are asking suppliers to plan now and manage peak volumes from 2022. A significant volume of any peak milk will be sent to a number of Irish processors under contract arrangements. The aim will be to continue to maximise the return from every litre processed.
Q. All projects of this nature [Belview plant construction] will face some delays – Dairygold’s last project had a planning delay. A professional organisation should always have contingencies for such scenarios in the form of alternative plans. There should have been plans in place for delays and failure to get planning, long before An Taisce got involved. Why were contingencies not in place?
A. Our planned cheese plant is a major project that will diversify our product mix. We have done what we can to work with other processors and to expand capacity at existing plants. This will facilitate growth this year and for future years.
It is not plausible or practical to suggest that an alternative processing option of the scale of our planned investment would be on stand-by for an event of this nature.
Q. Does this announcement represent a failure of Glanbia representative structures?
What is the purpose of the area and regional committees and the council, if not to debate such a drastic change?
Is it time for Glanbia Ireland to be 100% owned by the co-op?
A. Glanbia representative structures have worked exceptionally well and they continue to do so. The only failure lies within the timelines of the Irish planning process. Our board has clear governance structures and there is a shareholders’ agreement between both owners that is working well. We have just completed meetings with our 11 regional committees and the board will now reflect on their feedback.
Profit after tax commitments (PAT)
Q. The 3.2% margin after tax needs to be revised. No other processor operates with such a high margin. If this involves renegotiating covenants, then it should be done. Interest rates have improved since those deals were done.
Would such a move allow more money for reinvestment and processing capacity?
A. The 3.2% margin after tax is fundamental to our operation and to ensure continued investment in the business. A number of large scale co-operatively-owned international dairy processors operate at similar margins.
The value of Glanbia Ireland continues to grow – farmers and their families as 60% owners are benefitting from that value appreciation and are also reaping rewards through dividends paid directly to milk suppliers each month.
The 3.2% margin has no relevance to the fact that Glanbia is now prevented from putting a plant in place to process our suppliers’ milk.
Q. If there is a reserve fund for those that have expanded, how is it going to work without being totally oversubscribed?
A. The reserve pool will deal with suppliers who have been materially impacted by the Peak Supply Management Policy. The allocation of peak volumes from the reserve pool will be made on a case-by-case basis. An independent body will oversee the allocation of volumes from the reserve pool.
Case study: winter milkers
Q. “The current autumn calving bonus covers November, December, January and February. I bought 70 acres beside the grazing block – just finalised the land deal in February. I have an autumn calving contract for 100,000 litres per month, but in 2020 I supplied 120,000 litres per month so my understanding is I won’t qualify for the bonus the spring suppliers get on that 20,000 above my contract. I’ll get it on any supply over 120,000 so if I supply 130,000 litres in 2022 I’ll still get my autumn bonus on 100,000 litres, but only the new spring bonus on the extra 10,000 litres rather than the 30,000 litres – is that correct?”
A. Correct.
Read more
Watch back: webinar discussing Glanbia's new rules on milk supply
Q&A with Glanbia on its peak milk management plans
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