Glanbia Ingredients Ireland Limited (GIIL) has announced that its Milk Supply Agreement (MSL) with suppliers will run for five years, with an initial three-year contract period running from January 2015 to December 2017. As part of the agreement, any supplier looking to transfer their milk supply from GIIL must provide two years notice from January 2018.

GIIL says the Milk Supply Agreements come following detailed consultation with its suppliers. Chairman, Liam Herlihy, said the MSA responds directly to feedback received from suppliers and will, he said, hopefully form the basis of a long-term, sustainable partnership into the post quota era.

According to GIIL, underpinning the MSA is the philosophy of rewarding supplier loyalty and signing up to an agreement will make suppliers eligible for GIIL schemes – including any future index linked Fixed Milk Price Schemes or other price volatility schemes into the future. In addition, GIIL is to establish a €2.5m Loyalty Fund related to the signing of the MSA. This fund will be based on milk volume supplied in 2013 and will approximate to 1cpl on June 2014 milk supply. The fund will be paid in full in July to those suppliers who have signed the MSA.

According to GIIL, the MSA complements GIIL’s decision to remove in its entirety, the proposed capital contribution of 2cpl on supplier’s growth which would have amounted to €60m over five years.

“In a post quota environment, where milk volumes are anticipated to expand rapidly, it is in the interest of all stakeholders that we have as much certainty as possible for our suppliers and our global customers in terms of the volumes of milk produced on farms, as well as how it will be assembled, processed, marketed and sold. This Milk Supply Agreement recognises and enshrines the long-term commitment that GIIL and all its suppliers are making to each other and the great opportunity we are presented with to maximise value for all stakeholders. By 2015, GIIL will have invested a total of €300m in its existing and new facilities on behalf of its suppliers,” said the CEO of GIIL, Jim Bergin today.

GIIL will send the MSA to suppliers in the coming week. Suppliers are requested to complete and return the MSA by the end of June 2014. GIIL will hold a number of farmer briefings on the MSA to ensure full engagement and understanding.

“This is fundamentally a statement of our confidence in the business and we are very pleased that, after 18 months in operation, we have not only the financing capability and the flexibility afforded by this new ownership structure, but also a healthy bedrock of positive engagement to support our milk suppliers in our shared growth aspirations,” concluded Liam Herlihy, Chairman of GIIL.

Dairygold’s milk supply agreements were agreed with members at last year’s April Special General Meeting. It also proposes a five-year term, up to 2019, with a two-year notice period. Some 97 per cent of Dairygold members have signed the milk supply agreement.