Explainer: the history behind the Kerry milk price dispute

On Friday, an independent arbitrator finally announced his decision over a dispute between Kerry Group plc and Kerry Co-op over milk pricing.

The arbitrator sided with Kerry Co-op in his ruling that Kerry Group had agreed a contract to pay the leading milk price in Ireland, which meant a price ahead of the four west Cork co-ops.

The decision will have major ramifications going forward for milk prices in Kerry.

However, the origins of this dispute between Kerry Group plc and its farmer milk suppliers goes all the way back to 2011.

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At the time, Kerry Co-op (which is owned by farmers) owned 20% of the shares in Kerry Group plc, the global taste and nutrition business listed on the Irish stock market.

The board of Kerry Co-op was proposing to reduce the co-op’s shareholding in Kerry Group plc below 20% and spin-out the Kerry Group shares to its farmer members.

Since 1993, Kerry Co-op had spun-out shares to its members on five occasions, resulting in a financial windfall for the members of Kerry Co-op.

Sixth spin-out

However, for a sixth spin-out to take place in 2011, farmer members of Kerry Co-op needed to vote with a 75% majority to reduce the co-op’s shareholding in Kerry Group plc below 20%.

In order to solicit support for the vote, Stan McCarthy, the CEO of Kerry Group at the time but also the CEO of Kerry Co-op, made a commitment to Kerry farmers around milk price.

Kerry Co-op says the words agreed were that Kerry Group plc would pay “the leading milk price”, while McCarthy has always maintained that his commitment was around “a leading milk price”.

In the lead-up to the vote in 2011, Kerry Group plc paid a top-up on its milk price for the previous few months to bring their price to the leading milk price in Ireland at the time.

Farmer members of Kerry Co-op voted overwhelmingly in favour of reducing the co-op’s shareholding in Kerry Group plc below 20%.

Dispute

However, the first signs of dispute between Kerry farmers and Kerry Group plc began to emerge in 2015, which was a difficult year for milk prices.

At the time, Kerry milk suppliers felt Kerry Group plc was not honouring its commitment as per the milk supply contract agreed in 2011 to pay the leading milk price in Ireland.

Dairy farmer suppliers claimed that Kerry Group’s milk price for 2015 was 1.4c/litre lower than the prices paid by the four west Cork co-ops and that a 13th payment was needed to make up the shortfall.

In contrast, management at Kerry Group plc argued that the four west Cork co-ops must be excluded from milk price calculations as the co-ops themselves do not actually process milk, but merely supply it to Carbery.

Stan McCarthy resigned as CEO of Kerry Co-op at this time due to the ongoing dispute.

Impasse

In a bid to solve the impasse, representatives of Kerry co-op and Kerry Group plc entered mediation talks in June 2016 about a possible top-up payment on the 2015 milk price.

However, these talks ended in failure, with both sides quite far apart.

As such, a formal process of arbitration with an independent chair and binding decisions was triggered in July 2016.

The arbitration hearings lasted more than two years, with both sides presenting evidence to the independent arbitrator.

In September 2018, oral hearings began at the arbitration process.

McCarthy’s testimony was a key part of the arbitration hearings, along with negotiators for Kerry Co-op and ICMSA, as McCarthy’s disputed statement around “leading milk price” was made at a meeting between ICMSA and Kerry management in Dublin back in 2011.

Top-up offer

In November 2017, it emerged that Kerry Group plc had offered 1.75c/litre payment to its 3,200 milk suppliers for all milk collected in 2017, with the aim of drawing a line under the ongoing 13th payment issue.

However, Kerry Co-op rejected the top-up payment, as it would mean foregoing the results of the arbitration hearings for milk supplied in 2017.

The arbitration process finally concluded in November 2018 – more than two years after it first began.

The arbitrator has spent the last 11 months considering the evidence, before finally releasing his findings to both sides on Friday this week.

Since the arbitration process began in 2016, Kerry Co-op has spent almost €1.2m in legal and consultant fees in making its case to the independent arbitrator.

This looks like money well spent given today’s ruling in favour of Kerry farmers.

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Kerry farmers win milk price arbitration battle