Risk management

At Glanbia Ingredients Ireland (GII), we recognise the challenges faced by both ingredient buyers and milk suppliers. That’s why we have developed and executed a unique approach to addressing milk price volatility at farm, processor and dairy ingredient buyer level. This approach was developed as the Glanbia Price Volatility Scheme (GPVS).

How it works

The GPVS focuses on linking customers and milk suppliers in a transparent and highly predictable, formulaic model. We achieve this through long-term supply and processing arrangements that include a defined pricing and margin structure. These arrangements, which extend over a three-year period, provide near-absolute price stability for all participants.

We launched the GPVS in 2011, achieving a true leadership position for GII as the world’s first dairy ingredient business to implement this kind of end-to-end supply chain solution to volatility. Currently GII has a range of leading global customers located across continental Europe, the UK, North America and the Middle East engaged in GPVS arrangements, covering the full range of dairy ingredients.

Since the launch of the GPVS, the scheme has been tailored and developed to meet the bespoke requirements of individual customers. GII is also partnering with leading industry players to further develop this leading-edge risk management approach. This now includes the capability to leverage instruments that will facilitate financial settlements in exchange for the delivery of physical product under the GPVS.

Stability for our customers and supply chain

Across the international markets for dairy ingredients, one of the key challenges facing all supply chain participants relates to the management of price volatility. In a European context, this has emerged as an even greater management concern since the removal in 2006 of market supports that operated under the Common Agricultural Policy (CAP).

Since that date, volatility in dairy markets has caused swings in returns of over 65% for some of the key traded commodities. Volatility in dairy ingredients and the associated impact on risk management strategies represents one of the top-tier challenges facing the international dairy industry, for all supply chain participants.

Volatility of this nature presents a substantial challenge to dairy ingredient buyers – particularly brand owners who are not in a position to recover the upside swings through the retail channel. Swings of this nature also increase the focus of buyers on security of supply issues. The impact of such dramatic price volatility is particularly important to dairy ingredient buyers operating in Plc structures, given the challenge associated with delivering on financial plans in a volatile environment and the associated impact on stock market valuations.

Predictability for our suppliers

At farm level, the volatility in returns as measured in the price paid for milk is a major planning challenge. Since 2006, volatility in dairy markets has resulted in the milk price paid to suppliers across Europe oscillating from under 20cpl to over 40cpl. Movements in returns of this magnitude represent a major issue for milk suppliers.

In addition to the change in CAP, price fluctuations since 2006 have been driven by a range of factors – including, but not limited to:

  • Weather events (e.g. droughts and cold snaps)
  • The global financial crisis
  • A growth in milk volumes
  • Russia’s ban on EU food imports

Through the GPVS and our other pricing models, GII can offer both our farmers and customers some protection from this volatility through a mutually beneficial level of predictability.