Four dairy companies addressed the theme ‘managing the extremes of dairy market volatility’ at this year’s Dairy Industry Newsletter conference.
All had a common strategy for reducing exposure to market volatility, but differed in how they extended this to cover their farmer suppliers.
Ornua Foods, Arla Foods, Müller Milk & Ingredients, and Glanbia Ingredients were all focussed on creating opportunities to improve and protect the value of milk.
Strategies to minimise the impacts of the highs and lows of commodity cycles were identified as:
• Investing in brands and value added products to improve margins
• Diversifying into a range of products and markets
• Investing to increase scale and improve efficiencies.
The two large Irish co-operatives were unique however in their approach to extend volatility management to the farm level.
Both Ornua and Glanbia have developed tools to help farmers through periods of low pricing. Ornua is investing in dairy trading strategies in order to increase the stability of milk pricing and extend fixed milk price systems.
MilkFlex
Glanbia Cooperative Society recently announced details of a new €100m fund known as “MilkFlex” in partnership with other lending institutions such as Rabobank.
Glanbia milk suppliers can apply for loans of between €25k and €300k with a loan term of 8-10 years.
The loans can be used for investment in on-farm productive assets such as livestock and farm infrastructure improvements.
A key feature of this fund is the flexibility in the repayment schedule of loans linked to movements in Glanbia Ingredient’s Ireland (GII) manufacturing milk price.
For instance, if the milk price falls below 28 cents per litre (cpl) for three consecutive months, loan repayments will be reduced.
Repayments will be suspended for a period if the milk price falls below 26cpl for three consecutive months or when the outbreak of a notifiable disease significantly reduces the milk output versus the previous year.
GII’s milk price for February is just 24cpl. Likewise, if GII’s price goes above 34cpl for three consecutive months, loan repayments will increase.
