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As it stands, the Kerry Co-op board is effectively at the mercy of Kerry Group on milk price. Yes, there is a bridge between Kerry Co-op and Kerry Group, but, given the wider legal wrangling between the entities, any road between them is filled with potholes and road works.
Recent share spin-outs and promises of milk prices have come and gone. The last five years have seen a legal battle end in arbitration costing the co-op €2m and ultimately ended up with the arbitrator suggesting both parties go back to talks.
Board meeting
I understand after yesterday’s board meeting there are still some on the Kerry Co-op board who want to go back to arbitration. The one result of arbitration we have seen is a special 3c/l paid out to milk suppliers this year as a back payment ‘top-up’ for the last five years. Some called this a win for the co-op, and it was. Some expected a higher reward – we haven’t seen it yet.
The future arrangement on setting milk price lies deep in this debate between the parties about future operating structures.
Much of the milk price mood music from Kerry Group over the last 20 years has been around the spin-offs from the plc into farmer pockets – share dividends, share sales, etc which without doubt have made some Kerry shareholders very happy and wealthy. However, the dairy farmer in Kerry in many instances is more dependant on milk price than any other income stream.
My sources tell me the core of the current debate is to ensure ‘the’ leading milk price is achieved for Kerry milk suppliers. How exactly that will go is not yet known and is what the negotiators are working out.
It’s fair to say given the total shareholding of the co-op, the farmers are not a major hindrance to Kerry Group. However, they do generate a lot of noise
I’m sure Kerry Group employees will be wondering how this will work out. If Kerry Agribusiness is to be part of a new structure that goes with the milk and co-op side of the house, can it be standalone and sustainable? Margins in agri-trading are tight, but, the services for farmers are essential and in parts of Kerry the alternative suppliers are non-existent. The agribusiness has been at the heart of Kerry Group for the last 25 years so it’s well integrated. My sources tell me any structure would see the Kerry Co-op and plc working closer than ever together.
What will it mean for farmers relationship with the plc? It’s fair to say given the total shareholding of the co-op, the farmers are not a major hindrance to Kerry Group. However, they do generate a lot of noise and any plc is looking to keep noise to a minimum. The plc could terminate the agreement with Kerry Co-op and vice versa with five years notice. In theory, the milk pool could be sold to a foreign investor. I think neither party would want this.
What has to happen?
The board of Kerry Co-op are due to meet again in late June. In the meantime, the committee tasked with sorting out the ‘leading milk price’ will continue talks with Kerry Group. Kerry Co-op needs to agree on a foundation and a plan for how any structure will deliver margins that show the business as sustainable. Kerry Group would likely have to make a disclosure to the stock exchange about talks. The board of Kerry Co-op need to agree. An extraordinary general meeting of shareholders would be called to sign off on any changing structure.
In terms of what it will mean for farmers, the quick answer is we don’t know as we don’t know the specifics of the deal on the table. COVID-19 Ireland is a difficult time for horse trading – looking a person straight in the eye over Zoom is not the same as across the board room table with the weight of tradition behind you.
Then again, maybe it’s a good time to make change and look forward than continuously looking back.
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