GIIL proposals to test loyalty

IS THE old ‘gentleman’s agreement’ between dairy processors on milk suppliers coming to at an end?

The dairies would have you believe that such an agreement never existed in the first place but milk suppliers that have tried to move from one processor to another would tell you a very different story.

Be that as it may, the proposal by Glanbia Ingredients Ireland Limited (GIIL) that no minimum shareholding in the Glanbia Co-op will be required by suppliers in the future has certainly put the cat among the pigeons.

Taken with their recent move to scrap the idea of imposing a 2c/l levy on all ‘new milk’ post-2015, the move has certainly made it very attractive for anyone planning a major expansion in their dairy operation to look seriously at moving to GIIL.

The current expansion levies in place at some of the co-ops will cost farmers between 2c/l and 5c/l on additional milk supplied after quotas go in 2015.

For a farmer aiming to increase his or her herd by 20 cows – which is fairly modest level of expansion in the current circumstances – the cost of such a levy on new milk will be around €2,000 a year.

IMPACT

One would think that these costs could have an impact on farmers’ intentions vis-à-vis their deciding to stay with their current processor or to move. But to judge by the statements issued by the dairies this week, there will be very few farmers moving.

However, maybe it is still too early to tell.

Dairygold pointed out that 97pc of their suppliers have already signed supply contracts with the co-op, while GIIL’s latest statement highlighted the close processing arrangements that it enjoyed with other players in the sector.

However, things could change very quickly. There are some who would argue that it was Strathroy’s entry into the Wexford Creamery saga that forced GIIL’s move on contracts.

However, to all this talk of change was added a note of caution by Pat McCormack of the ICMSA.

The association’s deputy president observed that it would take more than what he described as “welcoming signals” from processors to convince existing milk suppliers to switch from their current dairies.

Mr McCormack said that in his experience milk suppliers were now weighing up their options on a short-, medium- and long-term basis, as well as referring to the record for guidance on who has paid leading milk price and on what terms and conditions.

He said milk suppliers would listen with interest to offers and would similarly welcome favourable tweaking of terms and conditions of existing contracts, but he observed that farmers felt a very strong bond of loyalty to their co-ops, with whom they may have had ties going back decades or even generations.

Time will tell just how tight those ties really are.