The number of Glanbia farmer suppliers who applied for the company’s retirement scheme exceeded expectations, according to the company’s chief ingredients and agri officer, Seán Molloy.
But, he told Agriland, from a value-for-money perspective as far as the company is concerned, and from a farmer-benefit perspective, the once-off scheme made sense.
A total of 250 farmers are set to retire from milking as part of the voluntary, five-year retirement scheme, which will run from 2022-2026, inclusive. It is expected to cost around €2.2 million per year, or €11 million over the course of the five years. And it will free up 1.5-2 million litres of processing capacity per week during peak time.
The scheme will be funded through a contribution of 0.075c/L (VAT exclusive) on all milk supplies from existing suppliers.
It was envisaged that 180-200 farmers would eventually be accepted onto the scheme but the final number has reached 250, Agriland has learned.
The level of interest and uptake has been significant and, although it is very early days, it begs the question – is it a one-time only offer or is this something that could become a feature of Glanbia’s future?
“I’ll never say never because that is too big a word,” Molloy told Agriland.
“When we launched this one, it was presented as a once-off opportunity in the context of what we were doing with peak-milk supply.”
“We were trying to find a way to free up milk capacity on a voluntary basis. So, if farmers want to leave, we can accommodate them to exit. And, if there are farmers that want to grow then, effectively, you are making a small contribution to get your freedom of capacity.”
But this was all done against the backdrop of a €140-million cheese plant that suffered long delays as a result of numerous legal challenges.
“So, in the context of us not being able to build a plant, that was why we did it. Not for any other motivation,” he said.
“Our peak-milk management policy is there as a temporary policy to take us to the point where we have our plant up and running in 2024.
“Now, thankfully, that we have the freedom to build that – after the various different appeals that we had to go through – that is what we are going to do.
“Would we ever do it [retirement scheme] again in the future? I can’t say never but it is not on the cards in the foreseeable,” he said.
Glanbia retirement – absolutely voluntary
When asked if one of the aims of the retirement scheme was to, perhaps, encourage a certain type of farmer to retire, the chief ingredients and agri officer said:
“The answer to that is absolutely no. In putting forward the idea of the scheme, the driving instructions that I gave to my team on the ground who would be engaging with farmers were very clear.
“First of all, that it is absolutely voluntary. Secondly, no hands were put on any shoulders to say that you should join the scheme.
“It was open to everybody. The same information was provided to all of our 5,000 farmers. Under no circumstances would anybody have been approached or encouraged to retire.
“Yet at the same time, clearly from the numbers, it actually rung a bell with a lot of farmers who were at a particular point in time.
“Maybe it was their age; perhaps they didn’t have a successor; perhaps they looked at the value that was available to them under the scheme and, combined with the value of doing something alternative with the farm – such as leasing – it looked very appealing,” he said.
A minimum payment of €5,000 per annum is available and a maximum payment of €15,000 per annum is available, amounting to a maximum of €75,000 over the five years of the scheme. According to a Glanbia spokesperson, based on the successful applicants, the retiring farmers will receive between €9-10,000/year.
The annual volume of milk that will be taken out of Glanbia’s system as a result of the scheme is 75 million litres of milk per year, and between 1.5-2 million litres per week during peak-milk supply.
“That is very material. If you look at it another way, as a value-for-money exercise, the cost of building that capacity would have been a multiple of the cost of the [retirement] scheme.
Decommissioning
The scheme demands certain conditions and chief among them is the commitment from the retiring farmer that they will decommission their milking parlour.
The five-year retirement payment requires a six-year decommissioning commitment.
“But it means you could still rent your land to a dairy farmers, you could still contract-rear dairy heifers, you can produce grass or silage for a dairy farmer, you can do all of those activities but what you can’t do is milk cows in your milking parlour, nor can you allow anyone else to milk cows in your milking parlour.”
However, in recognition of the fact that circumstances change, once the six years are up, farmers can re-apply to become Glanbia suppliers once again
“We are conscious that in six years’ time, a farmer might well have a son or a daughter home from college who might want to get into dairying. The idea of closing that off forever would have been a big ask. So, what we said was, you can’t do it [produce milk] it for six years but at the end of six years, you can reapply to supply milk to Glanbia.”