Winter of discontent facing dairy co-ops

The big drop in European dairy market prices has sent shockwaves through the dairy sector. While the drop in the market has come as a surprise, the drop in milk prices has come as an even bigger shock to dairy farmers.

In the past, sudden changes in the market have been smoothed over by the co-ops ‘supporting’ milk price during the transition to lower prices. While the co-ops say they are still supporting milk price at current market returns, the price cuts are savage, particularly for Tirlán and Dairygold suppliers.

Losing the bones of 7c/l in milk price in just two months is enormous, and farmers are asking why co-ops are not doing more to cushion the drop in price?

It begs the question, has the change in the market uncovered some cracks in Ireland’s co-ops? Aside from market conditions, there are other things happening in the co-ops that appear to be setting the sector up for a winter of discontent.

Cost of credit

For Dairygold Co-op and other co-ops, the cost of credit is putting a squeeze on cash flow. The level of debt held by an Irish dairy co-op typically follows the milk supply curve, peaking in late summer and tailing off before the year end as product is sold and stores are emptied.

Debt is split into two camps; structural and working capital. With high milk prices throughout most of 2025, co-ops have had to increase their working capital requirements in order to have enough cash available to pay extra for milk on top of the other costs such as wages, energy and so on.

Across the 1.4bn litres processed by Dairygold, every extra 1c/l in milk price costs the business €14m per year. There was a 7c/l difference in milk price between May 2024 and May 2025. If this was replicated across the entire milk pool, that’s an extra €100m in working capital requirements that needs to be financed.

Dairygold’s total debt has increased significantly in recent years, but not by as much as its borrowing costs have increased. In 2020, the co-op had a net debt of €119m and interest costs of €6.9m. In 2021, debt reduced to €108m and interest costs reduced to €6.4m.

Higher interest rates since 2022 have had an impact on Dairygold and other co-ops. In 2022, net debt at Dairygold increased to €132m and interest costs increased to €9.5m. In 2023, net debt increased to €144m and interest costs more than doubled to over €20m. In 2024, the net debt increased further to €157m while the interest costs increased to €22m.

While the amount of debt in Dairygold has increased by 45% since 2021, the amount of interest paid has increased by 245%. Across a 1.4bn litre milk pool, interest costs were the equivalent of 0.5c/l in 2021, whereas it was the equivalent of 1.6c/l in 2024.

In simple terms, the percentage of interest cost relative to net debt in 2021 was 5.9% but the same metric in 2024 was 14%. This is not to say that these figures are the rates being charged, as the net debt figure excludes working capital employed during the year.

It’s also important to note that one of the main sources of working capital for co-ops like Dairygold is reverse invoice discounting, which is facilitated by Ornua. For 2023 and 2024, Ornua provided €481.5m in working capital to the co-ops. A spokesperson for Ornua told the Irish Farmers Journal this week that the same level of working capital is available this year. Perhaps that is insufficient?

Cheese issues

Despite having relatively low debt and having some of the most modern processing facilities in the world, Tirlán has been in division three of the Irish Farmers Journal monthly milk league for four out of the last five months.

Rumours of friction between it and Royal A-Ware, its partners in the Kilkenny Cheese plant are rife.

While the cheese output from the plant is said to have increased in 2025, word on the ground is that there continues to be teething problems at the plant. Milk lorry drivers complain of being held up for hours at the plant while problems are being fixed before they can offload their milk.

The Irish Farmers Journal understands that Tirlán have taken over full management of the facility from Royal A-Ware. The poor price for the Dutch-style cheese being produced at the plant is unlikely to be helping relations.

Selling the cheese is the responsibility of A-Ware, who announced changes to its management team in July. The position of CEO is now being chaired by two people; the existing CEO Jan Anker, whose family are one of the owners of A-ware, and Antonio Rodriguez, who was the chief finance officer.

According to accounts published by Royal A-Ware, the Kilkenny Cheese business made a profit after tax and including other income of €3.3m in 2024 and this was split between Tirlán and A-Ware. Based on the circa €220m invested in the plant, this would correspond to a 1.5% return on capital for 2024.

One of the challenges for Tirlán in the Kilkenny Cheese joint venture is that it is obliged to supply the plant with milk. In the plants that it owns outright, the co-op can, within reason determine where and how much milk is directed to different product lines.

However, Tirlán is mandated to supply Kilkenny Cheese with around 450m litres of milk annually, which is about 15% of its total milk pool.

North Cork Creameries

Last Friday, the board of North Cork Creameries announced that CEO Pat Sheahan was leaving the company. The Irish Farmers Journal understands that North Cork’s milk plant at Kanturk is only operating at about one-third capacity since the latest breach in its waste water discharge licence was uncovered by the EPA in August.

Significant investment in a new wastewater treatment plant is required if the plant is to resume full processing capacity. While the co-op is debt free, it made an operating profit last year of just €1.34m or 0.6% of turnover, while the industry norm is a margin of 2% to 3% of turnover. For example, Dairygold’s operating profit was 2.6% of turnover for 2024.

Last year North Cork took in 238m litres of milk, but just 82m litres or 34% of this milk was from their own suppliers, with the majority coming from third parties such as Strathroy, Boherbue and Limerick Liquid Milk Producers. It also processes milk on behalf of the larger processors during the winter months when bigger plants are shut down.

The question is, where is this milk going to go next spring, presuming a new wastewater treatment plant is not built by then? Both Dairygold and Kerry have spare processing capacity and we understand that they are both already eyeing up the North Cork milk pool.

If a merger or buyout of the creamery were to be agreed at board level, it would likely need to be voted through by the shareholders of North Cork. With two, if not three co-ops interested in the milk pool, that could be an interesting campaign. As of the September milk league, there is a difference of €5,052 excluding VAT in total milk payments between Kerry and Dairygold.

Aurivo/Dale Farm

Suppliers to both Dale Farm and Aurivo are still waiting to hear more from their respective boards over discussions around synergies between the two co-ops. Both sets of boards are tight-lipped on where the discussions will go. If a proposal to merge the two co-ops was to be presented, it would require the support of over 75% of Aurivo shareholders.

At that point, issues around representation at board level and future business objectives would be key discussion points between both sets of shareholders.

The future of the dairy co-ops is a topic that will be discussed at Dairy Day on 15 November in Limerick.

Six co-op chairs will be in attendance on the day; Pat Clancy, Dairygold; John Murphy, Tirlán; James Tangney, Kerry Dairy Ireland; Vincent O’Donovan, Carbery; Edward Carr, Arrabawn Tipperary and president of ICOS and Raymond Barlow from Aurivo.

Between them, these six chairs are responsible for almost 90% of Ireland’s milk pool and Dairy Day 2025 will be the first time that all six will speak in public on the future of the co-op movement in Ireland in a panel which I will be chairing.