It’s never a good place to be for a co-op to have more processing capacity than the supplying shareholders need. Recent history has taught us that, just look at Tipperary Co-Op and LacPatrick. Both co-ops made big investments in milk-processing facilities without the milk pool to support it and both paid the price as they no longer exist.

North Cork Creameries also has a lot more processing capacity than its members need. The co-op has capacity to process about 300m litres annually, but shareholders can only supply less than 100m litres.

However, with solid external supply contracts in place, the issue that has North Cork in trouble is not a lack of milk, it is the lack of processing capacity at its waste water treatment plant.

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To simplify the problems facing the co-op is not to diminish them. The assets of the co-op are the dairy plant, but that’s worthless if it doesn’t have a waste water treatment plant to accompany it.

The co-op has tried and seemingly failed to get bank finance to fund the investment needed in the treatment plant. So now it has a milk pool but no place to process it. An agreement was in place for some of the milk to go to Carbery, but that deal has fallen through.

The Irish Farmers Journal understands that Carbery and neighbouring co-ops are continuing to take the milk that should be going to Kanturk, but at a much-reduced milk price.

For how long more the co-op can keep trading without substantial income, but with most of the costs remains to be seen.

Options

Even if finance wasn’t a problem, it will take some time to get the waste water treatment plant at Kanturk up and running. So the immediate responsibility for new CEO Stephen Daly and reinstated chair Thomas O’Donoghue is to find a home for the milk at the best price for suppliers.

Will this be a direct milk sale arrangement like the deal with Carbery, or is a more involved merger on the cards?

Reading between the lines, the latter option doesn’t seem to be the intention of the board, at least at this point. As the map above shows, there are lots of options open to North Cork if it was to seek a merger opportunity with a larger player.

The Kerry Dairy Ireland (KDI) cheese plant at Newmarket is only down the road from Kanturk, while the KDI plant at Charleville is about 30km away from Kanturk.

Almost half of the North Cork Creameries milk pool is located around Moyvane in north Kerry. These are former suppliers to Newtownsandes co-op. This milk pool is within 10km of the KDI Listowel plant.

Incidentally, Newtownsandes co-op brought over €3.3m in cash to North Cork after the co-ops merged in 2018.

Other options also exist. The huge Dairygold powder plant at Mallow is just 20km away from Kanturk and the Dairygold facilities in Mitchelstown are 50km away. Further afield, the Carbery plant at Ballineen is 70km away from Kanturk, while the Arratipp processing plant in Tipperary Town is 85km away.

The region is well serviced with dairy-processing sites. Nearby Boherbue Co-op sends most of its small milk pool to the Mondelez chocolate crumb plant in Rathmore, Co Kerry.

Dairygold Co-op has a major contract supplying the big Danone infant milk formula plant at Macroom with truckloads of skim and demineralised whey from Mitchelstown every day.

Essentially, it means that there are lots of options open to North Cork Creameries if the board chooses to restart collaboration talks with neighbouring co-ops.

With the Kanturk plant effectively shut down, the assets of the co-op are now its milk pool. The longer the uncertainty continues, the greater the risk of suppliers voluntarily deciding to leave. This will erode the value in its one remaining asset.