Nenagh-based Arrabawn Co-op could be set to enter merger talks with a neighbouring processor, according to reliable Irish Farmers Journal sources.

When asked yesterday if the co-op had received a formal invitation to enter merger talks, Arrabawn chief executive Conor Ryan would only say: “We are in regular contact with other processors and the door is always open should they wish to take it further with us.”

Reliable sources in Arrabawn are adamant that Dairygold submitted a formal proposal to the Arrabawn board earlier this year and is awaiting a response. The farmers suggest that this was an invitation to open discussions on a full co-op merger in preference to a skirmish for individual milk suppliers.

The driving force for change is a planned exodus by a number of disgruntled Arrabawn suppliers. It is understood that around 40 of the co-op’s 980 milk suppliers are involved, with a milk pool reputed to be over 30m litres.

Three months’ notice is required prior to departure – Arrabawn stated yesterday that, while they are in talks with individual suppliers, “no transfer request has been received to date”.

When Dairygold was asked yesterday if the co-op had approached Arrabawn, a spokesman would only say: “Over the past three years Dairygold has been engaged in active dialogue with milk processing neighbours in the pursuit of opportunities to optimise dairy processing and to maximise the milk price. We will continue to do so.”

Milk supply

As reported by the Irish Farmers Journal in May, the group of Arrabawn suppliers wrote to Dairygold and Glanbia, expressing an interest in transferring their milk supply. Dairygold wrote back individually to the suppliers and is said to have engaged with them positively.

Glanbia Ingredients Ireland Ltd (GIIL) are also understood to have spoken to some Arrabawn suppliers in recent weeks and shown interest in accepting the transfers. A Glanbia spokesperson declined to comment yesterday, but it is understood that GIIL are working on shareholding structures to accept new milk supply pools. This could potentially lead to a GIIL proposal for some or all of the Arrabawn milk pool.

It is understood that an internal review, scheduled for completion in September, is currently under way at Arrabawn.

In last year’s KPMG Milk Price Review, where they were ranked 11th of 13, Arrabawn’s manufacturing price was 3c/litre behind top performer Barryroe. They have always been in the bottom four of the KPMG Milk Price Review– although in recent months they have been ranked in the top four of the monthly milk league.

One of the catalysts driving change is that Arrabawn has set up a new share structure where those expanding in milk production will have a higher requirement to share up. Growing milk supply by more than 20% would cost a farmer 5c/litre. In Glanbia, there is no charge on expansion, while in Dairygold, the cost of a range of measures would be no more than than 1c/l.

Arrabawn made an operating profit of €2.8m last year on turnover of €220m. Net debt was low, at €10.1m. The dairy division, at €150m last year, accounted for 68% of sales. The balance of turnover, €70m, was achieved in the feed division, where Conor Ryan has grown sales to 150,000t.

Liquid milk processed in the modern plant at Kilconnell in Co Galway accounted for 50 million litres of the total milk pool of 260 million litres.

Arrabawn’s CEO Conor Ryan told shareholders at this year’s agm: “Last year we spent a long time talking to a co-op but did not manage to get it over the line, but relations have been maintained. We continue to look at all options.”

The Irish Farmers Journal’s information is that those 2013 talks were with Aurivo.