What can producer organisations do for Irish farmers in the future?

Acronyms have become increasingly popular in the Irish farming lexicon. With the rising number of schemes, programmes and groups, it’s undoubtedly a challenge to keep on top of it all - from ACRES to the WFCIS.

In the last 12 months, among the agricultural abbreviations that have come into vogue is PO – producer organisation. Certainly, the rise of those two letters has been linked with the Munster Dairy Producer Organisation (MDPO).

This group of Kerry milk suppliers made waves across 2024 for being formally recognised as a PO; ultimately planning to leave the co-op structure and negotiate their collective milk pool as a PO.

But, to get down to brass tacks, what exactly is a PO? And more importantly, what can they do for farmers?

Origins

Ciaran Dolan is well-known to many farmers. A barrister and formerly the general secretary of the Irish Creamery Milk Suppliers’ Association (ICMSA), Dolan is an approved PO facilitator.

He applies to the Department of Agriculture on behalf of such groups for official recognition status.

He explains PO status came about for EU farmers to keep them on the right side of competition law.

“Up to the actual EU law authorising POs, if two farmers coalesced and agreed not to sell milk, for example to a co-op or purchaser unless a certain price they had agreed themselves [was met], technically they had committed an offence under the competition act,” he says.

Delving into the origins of POs in an EU context, Dolan says that dating back to before the CAP, France had a strong tradition of local and inter-sector agreements when it came to selling agricultural produce. This was a major influencing factor in the EU bringing in a regulation in 2013 to give POs legal standing across the bloc.

“They [the French] would meet supermarkets and retailers, effectively not totally in-keeping with EU law.

“As one German lawyer said, normally the member state harmonises to EU law. The EU harmonised its law in conformity with the French.

“It said, if you put together a rulebook, if you follow what is set-down in EU regulations, then you enjoy a number of privileges.

“One of the main ones is that you are exempt from competition law; that you can collectively negotiate contracts, including price, that would otherwise be outside what is permitted under EU competition law,” he adds.

Irish context

Compared to other EU countries, Ireland has a relatively low number of POs. A spokesperson for the European Commission told the Irish Farmers Journal that there are 2,909 recognised POs across all member states.

Some 593 of these are French, followed by 541 in Italy and 529 in Estonia.

In contrast, the Department of Agriculture confirmed Ireland has 10 recognised POs across all agricultural sectors.

It is important to remember when discussing POs, however, that while the official status does allow farmers to collectively negotiate price, it does not go any further than that, Dolan points out.

“The PO is merely a licence to engage with a purchaser. It doesn’t compel a purchaser to dance with you. You have permission to dance, but you don’t have a captive partner,” he says.

So, with all that said, what is the future of POs in Ireland? Dolan says it certainly is an option for farmers.

“Will it develop in the future? I don’t know, it’s another avenue available to farmers. I think we should be conscious that the milk sector, given the development of co-ops, is different, but some farmers may be quite willing and wish to operate under a PO,” he says.

The barrister reckons there is definitely an opportunity for growth in organics, as well as the sheepmeat sector given the participation of many sheep farmers in purchasing groups already.

Specifically on dairy producer organisations, Dolan says extra processing capacity will influence the movement of milk going forward, which could be facilitated through POs – as we’ve seen with the MDPO thus far.

“It’s more of a commercial reality. Given the growing spare capacity, a number of purchasers have said they are in the market for extra milk from outside their normal shareholder/supplier base so long as that milk is not under contract.”

The barrister also thinks that, a decade post-quotas, it will now be far easier for farmers to change the processor they supply and with increased milk volume on a per-farm basis, collecting milk will be more economical.

“There has been an enormous increase in the scale of individual farmers’ production. Two or three farmers can now fill a tanker. Therefore, the economics of milk assembly have changed.

“The big force will be the ever-growing scale of production at farm level. Milk assembly is not as restricted as it was 20 years ago,” he explains.

In the end, Dolan is pragmatic about the impact POs could have on farmers. While they are not the be-all and end-all, POs are a beneficial tool available to farmers, he says.

“I think it’s a useful addition to the farmer’s position in the marketplace. It’s not by any means the solution to all problems, but it is there, and the sector, both farmers and purchaser, will adjust to it,” Dolan adds.

While dairy producer organisations (DPOs) are relatively new in coming on-stream in Ireland, in the UK they are more established.

And Irish farmers may be able to gain some valuable insights from their nearest neighbours. Davidstow Creamery Direct (DCD) was the first DPO in the UK, achieving official recognition in 2015.

However, its origins go back further under the name Dairy Crest Direct as a representative body for farmers.

At the time, this original group of farmers supplied Dairy Crest, which subsequently sold its liquid milk business to Müller, leaving one milk pool that supplied the Davidstow cheese factory. This was sold to Saputo.

DCD represents 300 farmers from this milk pool, primarily based in Devon and Cornwall. The group only supplies Davidstow.

The DPO is made up of a board of four directors and below that a forum representing the different areas from where farmers supply milk. It has one person employed part-time.

Each farmer pays a monthly subscription, which is deducted from their milk cheque. However, the group is financially independent of its processor.

DCD chair Richard Thomas explains the advantage of a DPO is that it allows farmers to negotiate the price without breaching competition rules.

The milk price for the group is negotiated between them and the processor each month.

This process is written in DCD’s milk supply contract. “We have written within our milk contract the negotiation process when we sit down with Saputo and negotiate a monthly milk price.

The requirement is to give farmers 30 days’ notice of any milk price. Whether it’s up or down,” Thomas says.

In England, unlike Ireland, milk price is mostly forward set. Thomas very honestly explains that while monthly negotiations take place, DCD suppliers are still “ultimately price takers”.

However, they have one important “bargaining chip”.

“If someone wants to leave Saputo and go somewhere else, they have to give 12 months’ notice.

If we disagree on a monthly milk price, then there is a one-month period where farmers can give notice to Saputo and leave in three months.

So there is the bargaining chip. We, DCD, have one card to play and that’s it,” he says.

Across the UK, it is much more common to move processors than in Ireland.

That said, the current outlook here may indicate that some farmers do want more flexibility.

Ireland’s current CAP strategic plan proposes that from 2023 to 2027 just under €1.5m should be made available to support the establishment of new POs.

The aim is to establish 45 new groups.

Newly formed POs can currently avail of some funding to get them off the ground. For example, €3,000 for advisory costs.

However, the CAP plan also suggests €10,000 for three years to cover administration costs, bringing the total proposed in the document to €33,000.

The Irish Farmers Journal understands that launching additional funding for POs is on new Minister for Agriculture Martin Heydon’s agenda. It is expected an announcement will be made in the coming weeks.

The exact level of funding that will be provided is unknown as of yet.

The European Commission has further flexibilities for POs in the pipeline that it says will increase their effectiveness for farmers.

A Commission spokesperson confirmed there are new proposals on exemptions to competition rules for unrecognised POs and a more streamlined application process for official recognition status.

“A new proposal of the Commission is giving the possibility for POs that are not formally recognised to benefit from specific derogations to competition rules, aiming to encourage producers to form and participate in POs.

“The Commission is also proposing to simplify the recognition process by allowing the recognition of cross-sectoral POs, enabling the PO to request one recognition while covering different sectors,” the spokesperson added.

In short