Contracts of Supply are now being actively considered by most milk purchasers, co-ops and plcs alike. This is a major issue for all dairy farmers and will precisely determine the commercial relationship between farmer and milk purchaser in the future, and particularly in the period as and from 1 April 2015.
Ciaran Dolan, General Secretary of ICMSA, pointed out that t here is nothing mysterious about a contract. He said that a ll farmers have been supplying milk to their co-op or plc on foot of a contract. Th e contract was, in the case of co-ops, also moulded and determined by co-op rules, and in the case where the co-op was succeeded by a plc purchaser, by custom and practice in the norms of the industry.
" I am surprised at how rapidly the industry is adopting a systematic and formalised contract arrangement. The rights of farmers to come together in balancing up their side against a powerful purchaser is to be enshrined in the legislation currently going through the European Parliament and the Farm Council in Brussels. This has not been addressed in any significant way in Ireland to-date , but it is most definitely a concern that we have. Formal contracts of supply are, on one level, a response to the ending of the formal quota system. But we should be on our guard that the contracts might not supply adequate protection for the rights of farmers generally, and also that the contracts could be used to impose obligations on farmers and make substantial change in the normal terms and conditions of business. There is one area in which a close study of the Terms and Conditions is especially vital and it is this: up to this point, where a co-op has substantial spare capacity, the issue of a formal contract will be marginal – if it arises at all. That looks likely to change radically and there will be a limitation on the amount that can be supplied by a farmer – either by reference to current supply, or to supply at a future date, or indeed the quota on 31 March 2015. This has implications over the next four years for individuals who are currently substantially over-quota in terms of their exposure to Superlevy liability. Will they have a right to sell their current volume of milk after that date? Will there be a capital contribution required or will the price be the same? "
" These are the major and practical issues which have been either not addressed at all or skimmed over in the euphoria in the possibility of a 4 0 per cent increase in milk output: a strategy which has the new Minister as its latest recruit. With regard to the principles which should govern this, I make no apologies in saying that the starting place for further discussion should be current supplier plus their current quota with an appropriate percentage increase to reflect the current spare capacity of their co-op. Increasing processing capacity may be limited by availability and terms of capital. It goes without saying that a substantial increase in milk output will pose major challenges for our marketing capacity ", said Mr Dolan.
The ICMSA General Secretary said the proposed seasonality penalties, bonuses and other measures in relation to pig supply require detailed scrutiny and examination. But he expressed strong reservations a bout the contract proposal from Glanbia – which is the most developed to date.
" The formula, in effect, presents a farmer with 12 mini-quotas, one for each month of the year. Analysis by ICMSA shows that, on the basis of the current seasonality scheme being proposed by Glanbia, an individual who is supplying 4 per cent of his annual supply in the month of May over his profile could be fined an amount equal to 20 per cent of the value of May or June Milk. These are developments which we ignore at out peril and could be a 'back door' attempt at imposing charges for increased capacity. They could actually do major damage to our competitiveness in terms of producing milk from grass ", he said. " As price volatility begins to become part of the problems we face and as we gear up for expansion, the questions about who pays for what and who has rights will come to the fore. We must be mindful that the formal contract is not a convenient packaging whereby greater obligations and restrictions will be placed on farmers with no corresponding return or gain ", he concluded.
Ends. 8 July 2011.
Ciaran Dolan, 087-2322010
General Secretary, ICMSA