Lakeland’s €13m loss typifies volatile sector
It is a long way from the heady days when Larry Goodman’s Food Industries was trying to buy Lough Egish and Killashandra before the two combined to offer, as they saw it a better alternative to the Goodman group.
Shortly after when Goodman hit a financial wall and had to be rescued by emergency legislation through hastily convened Dáil, the decision to reject the advances of Mr Goodman look to have been well founded.
It took the advances of Goodman however to force the two to merge their operations and to put Lakeland in place, a move that made a lot of sense.
In ways the likes of Lakeland represent all that is gold and all that is bad in these relatively small enterprises.
This is not the best of land and Cavan/Monaghan never offered the best prospects to those who found themselves reliant on the stoney grey soil of the region to make a living.
However much has gone on in the meantime to try to gear the region to the demands of the changing EU environment where subsidies are on the way out.
In that context the group chief executive, Michael Hanley, said the world dairy markets declined lower profit margins as the Fischler cuts in EU market supports continued to have a savage effect throughout 2006.
That forced the co-op to support milk prices quite heavily over the period and the end result was a loss of €7.5m at the operating level.
The group also incurred rationalisation costs of over €11m, but added that the cost cutting should see a return to profit by the group this year.
Lakeland wasn’t alone in having to support its farmers last year. Dairygold lost over €4m from its bottom line as it was forced to give its farmers a substantial dig out to compensate for the poor milk price.
Glanbia has also been supporting milk prices to its farmers and recently initiated a €41m pay back to its farmer shareholders over three years that has since been put on hold thanks to better dairy prices globally in the current year.
Overall, the outlook has brightened spirits in the North East and Hanley noted the strategic restructuring plan in place which is operating as planned which involves the closure of milk drying operations at Lough Egish.
As part of that restructuring, Lakeland has had two dairy projects grant aided involving state backing of €11m. Both projects will improve efficiency and add value to the group’s output.
Perhaps of more interest was the rejection of a cheese processing project at Lough Egish that was put forward by a consortium of processors including Lakeland.
That would have been an ideal project for the northern region and it also tied in closely with the need to encourage joint ventures and consolidation within the industry, according to Hanley.
Without knowing the reasons for the rejection of that initiative it is easy to sympathise with the Lakeland boss who it should be pointed out has been handed €11m to fund other projects.
But his point about the need for joint ventures is in fact critical. If the dairy hinterland of the north-east and north-west is to have a solid commercial future then it will require more joint ventures or even mergers to sustain dairy farming in these regions.
In that sense it is also fair to say that those areas were slower to look at change than they were further south. Avonmore had no difficulty merging with Waterford Foods, Dairygold formed from the merger of significant dairy operation in north Cork and are the stronger for it.
