Spare a thought for the lads in Glanbia’s PR department. If they aren’t getting it in the neck from farmers about the latest scheme to lock in loyalty through feed purchases, they’re fighting a backlash from the country’s usually mild-mannered meal millers.
By: Darragh McCullough
In the case of the latter, you can understand why the merchants of the Irish agri-business world are up in arms. They thought they were made up when ballooning post-quota milk production resulted in rocketing feed demand.
Despite all the guff about producing milk from grass, I don’t know any farmer that can do it without having a few tonnes of meal in reserve.
When you factor in an extra 400,000 cows over the last couple of years there’s suddenly a lot of extra mouths to feed.
And it’s not just the additional cows that need feeding.
All those boney Friesian bull calves are chomping their way through mountains of feed as farmers try to turn them into respectable burgers.
No wonder the country’s private feed millers have sunk at least €20m into shiny new facilities over the last few years. Quinns of Baltinglass is the latest to announce an upgrade to bring another 50,000 tonnes of ration to the market.
This comes hot on the heels of Grennans investing serious loot into a plant capable of churning out 180,000t, Liffey Mills sticking in another 50,000t line and Bretts giving its storage facilities a serious revamp. Those figures might also explain why the merchants are so upset with Glanbia’s most recent fixed milk price scheme.
It had the added twist of offering dairy farmers a €30/t discount on feed bought from their mills, but only if the farmer committed to buying all their feed from Glanbia for the next five years.
Following a hue and cry from its supplier base, Glanbia backed down and included an opt-out after two years.
Every farmer I talked to roundly dismissed the meal offer as an attempt by the co-op to counteract the improving competition, and possibly the growth of increasingly professional farmer buyer groups.
Despite this, Glanbia claims that its feed allocation of 25,000t for the scheme was over-subscribed, and is now closed to further offers.
The offer spurred some innovative responses -particularly from Grennans with its counter-offer of 31.5c/l to its customers for a fixed-price contract for up to 20pc of their milk going to Glanbia. It tops the Glanbia offer by 0.5c/l.
That move was a tad too brave for the liking of other merchants.
They cited the task of trying to claw money back from farmers if the price falls below 31.5c/l as being less than appetising.
However, the alternative of sitting on their hands is also unappealing for millers.
They believe that Glanbia is simply using a €70m war chest of cash left over from the spin-out of co-op shares to cross-subsidise both the price the co-op is paying farmers for their grain and milk, and the price that those same farmers are paying for their meal inputs.
They point to the €14/t ‘top-up’ that Glanbia shareholders get on their grain deliveries.
This is up from €5/t two years ago. Dairy farmers also got a co-op ‘sponsored’ top-up of 1c per litre during the worst of the price collapse last year.
There are other feed rebates available to drystock farming shareholders which, according to the processor, is all coming out of Glanbia Ireland ‘resources’.
Glanbia claimed that the €30/t rebate was simply what it is able to offer its farmers on the back of marketing and production efficiencies achieved in recent years.
If it was a one-trick feed-merchant-pony that wouldn’t stack up since industry norms for costs in either marketing or production are not much more than €20/t.
But Glanbia has many more strings to its bow. So a €30/t is small beer in the greater scheme of things.
A spokesman for the processor was adamant that none of the money left over from the share spin-out is being used here.
But maybe that’s beside the point. Even if only some of the rebates that are being used to subsidise the price that Glanbia is paying or charging farmers, it raises the age-old problem of why ‘dry’ shareholders’ funds should be used to prop up active shareholders’ prices. Or even worse, why shareholders’ funds are being used to undercut the competition.
This would be my real concern if I was a co-op shareholder. It’s all too easy for management at Glanbia to be able to dip into these spin-out leftovers to cover up poor trading decisions or to simply buy market share.
Nobody is any the wiser and management looks good because ‘the company is going from strength to strength’.
For future spin-outs -which will surely come – co-op shareholders should be much more cautious about agreeing to leave millions of their equity in the hands of company bosses whose remit is to maximise the bottom line.
As for the merchant millers that dot the regions? If they are waiting for the money to dry up they have a long wait in front of them. Glanbia is a wealthy entity and that wealth will be dribbled out to shareholders over the coming decades just as Kerry has done over the last 30 years.
Instead they will just have to accept that co-ops will always use their strength in numbers and wealth to limit competition and keep their members happy. It’s not personal, it’s just business. Time for the merchant princes to get brave or get out.