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Glanbia
Glanbia ranked sixth in the latest Irish Farmers Journal /KPMG annual milk price review. Chair Henry Corbally is happy with the price delivered.
“Yes I’m happy with progress. We have a business to run that has a lot of different components. I think our positioning in the annual milk price review is testament to the progress we are making.”
Glanbia has the largest Irish milk pool (over 1.8bn litres manufacturing) and survey results of suppliers suggest there is another 30% supply lift to come between 2017 and 2020 – that’s another 500m to 600m litres.
“We have a comprehensive supplier census completed. We have no exact figure on what the investment in processing capacity is going to be (€250m to €300m) or exactly how much milk is coming but we have to plan to process this for our members. We have a number of product lines, whether protein, cheese, butter or powders, and markets will dictate where we invest.”
On the marketing side, Corbally said “we work with Ornua and see them as complementary to our own marketing arm.”
Carbery
Carbery chair Dermot O’Leary is upbeat about milk price performance that Carbery has delivered for the last number of years.
“The first half of last year (2016) was difficult but the second half helped lift the average. On top of that, all four individual co-ops had funds from the previous year that they were able to pay out. Yes, there are some returns from other businesses (outside of the core dairy business) that are delivered back, but on average that is probably less than 1c/litre per year over a number of years.”
Investment in further processing capacity at Ballineen is being planned. “We have adequate capacity for 2017, 2018 and 2019, but by 2020 we need to have something done to allow us expand our product range.”
If Carbery delivers a 6% increase in milk supply this year, it will mean that the total supply will have grown 25% on top of 2014 supply.
The board of Carbery is different from other milk processors in that management and farmers sit on the board making decisions about existing and future investments. Board members consist of the chair and chief executive of each of the four individual co-ops, with the vice-chair from Drinagh also sitting on the board. The Carbery chair position is a two-year term. There is no set term on the Carbery board as each of the four co-ops has its own individual terms.
In terms of marketing, Carbery is very much a supporter of Ornua and O’Leary does not see that changing in the short term. “We have a very close working arrangement with Ornua and I hope that can continue. Aside from that, we have our own businesses like Synergy (flavours business) that Ornua is not part of.”
Kerry
On milk price, Kerry ranked joint eighth position in the most recent Irish Farmers Journal/KPMG milk price review. There are ongoing negotiations between the co-op and the plc regarding milk price top-ups.
A Kerry Group survey of suppliers shows a consistent 4% to 5% increase in milk volume predicted for the first five years post-quota removal and this has been backed up with actual supply figures.
According to Kerry Group, over €140m has been invested in upgrading and installing new equipment over the last five years so at the moment there is sufficient processing capacity to continue to take member supplier volumes.
In terms of governance, Kerry is very different in structure to all other Irish milk processors. Kerry Group plc collects the milk, pays for the milk and owns the processing equipment.
Two members of the Kerry Group plc board are dairy farmers but neither sit on the board of Kerry Co-op. Kerry Co-operative Creameries Limited has a 28-member board who effectively assume a representative role chaired by Mundy Hayes.
At present, the co-op board has no secretary or chief executive. In January 2017, Pat Murphy from Kerry Agribusiness in Charleville took responsibility for farmer member relation issues from John O’Callaghan.
In December 2015, Martin Crowe, Gerard Culligan and Tim O’Connell were elected to the Kerry Co-op board. Given they are now on the plc board, both Con Murphy and Gerard Culligan have stood down from the co-op board and two new board members Jim McInerney and Patrick O’Connor were appointed. Other changes during the year saw James Doyle, Patrick Breen, John Cremin and Denis O’Connell retire and they have been replaced by Sean Brosnan, Billy Horgan, Conleth McMahon and Thomas Murphy.
Kerry is not a member of Ornua.
Arrabawn
On Arrabawn’s milk price, Co Galway dairy farmer and chair Sean Monahan is happy with the price the co-op is paying.
The volume of milk processed continues to grow at Arrabawn, and Monahan said: “Effectively we have already met our volume growth targets for 2020.”
There were three new directors appointed to the board of Arrabawn at the last meeting. The three new members are Eoin Doorley, Noel Armitage and Richard Collins and they now join 15 other dairy farmers on the board, bringing the total number to 18 members. Four years is the term but this can be renewed and the age limit is 65 years of age.
Arrabawn will be investing further next year, according to Monahan.
“Yes. We will be turning a sod next year. Our survey information from suppliers tells us we will be increasing volumes 9% to 10% next year. We take in a good bit of milk from neighbouring processors and we would like to keep that coming in but our primary responsibility is to our own suppliers. The planning permission process is ongoing and the investment will be at our Nenagh site. Potentially we would be going to a greenfield site after that.”
On marketing, Monahan said Arrabawn supports Ornua. “Ornua has the expertise and I think selling outside of Ireland as a unit is important. Inside of Ireland, no I don’t think it is as important.”
Tipperary Co-op
Dick Donovan stepped down as chair at the Tipperary Co-op AGM in June and his successor will be appointed shortly. With no successor yet appointed, he was willing to answer the questions posed. At Tipp Co-op, there is a four-year term for board positions but all board members are eligible for re-election and there is no limit on how long the chair can be in the position.
On the price Tipp Co-op paid and is paying for milk, Donovan was happy.
“The bonuses we can deliver make all the difference. I am confident that Tipperary Co-op is a strong business successfully managing the expansion opportunities that post-quota milk production is offering our farmer members.”
On growing supply, he said there is a new supplier survey ongoing but the results of the last survey suggest milk supply will grow 7% this year (2017) and 5% per year for 2018 to 2020. Tipp Co-op buys in as much milk from other processors as it gets from its own suppliers.
Tipperary is looking to invest in more processing capacity and planning permission has been sought for a new dryer. The cost will be in the region of €20m to €30m.
“Tipperary Co-op continues to invest – this has been focused on new and upgraded processing facilities, business efficiency improvements as well as marketing and product portfolio development. In 2016, we saw the continued expansion of our successful overseas business, especially our French subsidiary Tippagral SA, which grew sales of our Emmental cheese to the European market.
“Meanwhile, our Tipperary-based processed cheese subsidiary Fairgreen Ingredients Ltd is helping to identify new product and market opportunities for our farmers’ milk.”
Lakeland
Lakeland Dairies’ expansion has seen it take on the Fane Valley milk pool which now sees it process close to 1.2bn litres of milk annually. However, like LacPatrick, the co-op continues to hover at the bottom of the annual milk price review.
The co-op’s chair is Alo Duffy and he thinks farmers and processors can both drive greater efficiencies to improve milk price.
“I’m happy enough with the price, especially when you take milk solids into account. From a co-op point of view, we have a programme there with Teagasc to help drive efficiencies on farm. There’s always more farmers and the co-op can do.”
While taking on the Fane Valley pool, expansion will continue to come from within the existing supplier base too. Duffy said the co-op is forecasting a “20% growth in the milk pool between now and 2020”.
The co-op currently has a five-year milk supply agreement which will be followed by a one-year rolling contract.
Despite the strong forecast milk pool expansion, there are no immediate plans to invest in more processing capacity. The co-op has invested in the past seven years.
“No, I don’t think there’ll be much need for us to invest or to turn sod for now. We have invested in two state-of-the-art dryers in Baileborough, Co Cavan, and, at peak, we have spare capacity of about 20%.”
In terms of board representation, there are 15 members on the board where members can sit for two four year-terms. Duffy said he would prefer to see this extended to three four-terms, “to give greater stability and provide more experience.”
Lakeland, while it sits on the board of Ornua, does not place much significance in the selling power of Ornua. Duffy said Lakeland has strong and existing customers who want to deal direct rather than through a separate entity.
“What Ornua does either inside or outside Ireland doesn’t have a huge relevance for us. In terms of inside Ireland, we export 98% of the produce we make.
“Then for outside Ireland … we deal direct with our own customers and they want to deal direct with us so they can see where the milk comes from, right from the farmer.”
LacPatrick
LacPatrick is the new name for the merger of Town of Monaghan and Ballyrashane co-ops, but the same old reputation continues to follow the new entity – it is a bad payer.
Outgoing chair Hugo Maguire said improvements can be made to help their supplier drive milk price.
“We are doing our very best on milk price. From a co-op point of view, it’s about having long-term contracts with as many diverse customers as possible to insulate yourself. From a farmer point of view, solids are the main thing holding back price. There were AI companies pushing the wrong type of cow around this region for too long.”
Maguire said LacPatrick is forecasting somewhere between a 5% and 7% expansion of its milk pool, with expansion coming from Republic of Ireland suppliers.
New chief executive Gabriel D’Arcy, Maguire and his board have undertaken two significant projects since the merger.
One is the construction of a €40m dryer at it Artigarvan, Co Tyrone, which, according to Maguire, is in its final stages of commission. The second is sweeping new corporate governance changes. These rule changes passed by 91% approval last month and will see the board shrink from 25 to 16 members.
“The board, as it stands, is essentially two boards, with Town of Monaghan and Ballyrashane sitting together. After the merger, we felt we needed to keep the two together rather than having a situation of people wondering who was in and who was out.”
The new facility in Artigarvan means that adding to processing capacity is not on the agenda.
LacPatrick, since the Town of Monaghan days, has had an uneasy relationship with Ornua. Maguire said he does not want to see Ornua take on increased aspects of marketing of Irish produce on the home market.
“I think it’s wrong completely for Ornua to be marketing Irish butter in Ireland. That’s essentially what they are at now with the new plant down in Cork.”
Aurivo
For Co Leitrim-based farmer and chair of Aurvio Pat Duffy, he wears two hats when it comes to milk price.
“Am I happy with the milk price as a co-op chairman? I am. Am I happy with the current milk price as a farmer? Just about. To keep farming in any sort of a sustainable way, you need that type of milk price.”
He added that the co-op continues to work with farmers to help improve milk price.
Aurivo collects milk, both in the Republic of Ireland and Northern Ireland (NI), which is a vast catchment area. In NI, there is little scope for major expansion on individual farms, but Duffy thinks that farms in Connacht are gearing up for greater expansion.
“There’s more expansion coming. It’s not just the big herds in Cork – dairy herds are getting bigger. We’re seeing that in our own area too.”
Duffy, who became chair last year, said the three-year milk supply agreement helps plan with certainty. Aurvio board members serve four year terms but can be re-elected.
In terms of investments in processing capacity, it’s not on the agenda of the co-op after recently spending significant resources in upgrading one of its units.
“We have shown that we won’t stand behind the door when it comes to investing. It’s a case of improving what we have rather than building anything on new sites for the minute.
“We have invested heavily in upgrading the Ballaghaderreen facility (in Co Roscommon) and we have planning in for upgrading the Killygordan plant in Co Donegal.
“Investment costs are supported by the share standard. Our current share standard was suspended when the milk price dipped below 29c/l which we haven’t put it in place again in order to give farmers the chance to recover after the poor milk price year in 2015.
“We will have to put the share standard up and running again in the near future.”
Unlike LacPatrick and, to an extent Lakeland, Aurivo is firmly behind placing greater emphasis on the role of Ornua.
“It’s my belief that we, as an industry, need to do more on consolidation and co-operation between co-ops. We can drive efficiencies and deliver a better price to farmers if we work together.
“Most co-ops accept that and it’s not even a case of outright mergers.
“In the Kerrygold Park, we have one of the best vehicles for more co-operation between co-ops but we are one of the few that has committed to it in any meaningful way. Ornua has proven itself to deliver for farmers so why shouldn’t co-ops work more closely with it?
“At the end of the day, who owns Ornua? The farmer. Ornua’s best interest is delivering for the farmer.”
Dairygold
The burden of improving milk price is shared by both farmer and the processor, according to Dairygold’s chair James Lynch.
“I’m happy at the moment where milk price is at – it’s a lot better than where we were two months ago.
“Inside the farm gate, there are always ways of making money and improving your system. Then there’s the challenge for the processor to process the milk, put it in a dryer and add value to that milk to deliver for that matters.
“While I’m happy with our milk price performance, our board will pass on any further milk price increases that come from the market place.”
Dairygold has seen enormous growth in its milk pool. Overall supply is up 44% between 2010 and 2017 to stand at 1bn litres from its 3,000 suppliers.
Lynch said the fact that the co-op has milk supply agreements has helped plan. He urged all farmers to work together with a greater co-op ethos.
“Our current milk supply agreement runs up to 2021 and farmers can notify the co-op in 2019 of their intention to leave.
“What I would say there is that farmers need to realise the value of their co-op. We do need to work together.”
As a Dairygold board member, Lynch is coming to the end of his maximum of two five-year terms on the board. The board has two non-executive directors.
The co-op has plans to invest in processing capabilities. Lynch is adamant that milk price ultimately pays for all investments.
“We’re good and fine on capacity until 2021 – we’re comfortable in that regard but we have to see what our farmers want to do and we must be willing to match their ambition if they want to grow their milk supply.
“Make no mistake about it – investment is always paid through the milk price. You can say the money is used within a revolving fund or outside a revolving fund or where you source the money from but every farmer in the country is only kidding themselves if they think investment doesn’t come out of the milk price.”
In relation to Ornua’s involvement in the marketing of Irish dairy produce, Lynch said it has been a success.
“We have seen the success of Kerrygold and Ornua.
“All co-ops should be willing to examine what benefit providing more resources to Ornua on the marketing of our produce could have for their business. They have a proven track record in that regard.”
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