FMP campaign highlights conflict of interest

The Brian O’Mahony Column

It can be argued that the interests of a publicly quoted company and its farmer suppliers may not always be compatible even if a majority of those farmers are also shareholders of the Plc.

What the move on Glanbia Plc has done is to highlight the inherent conflict between the milk suppliers and the company where high milk prices undermine the profit performance of the group and lower prices hit farm incomes.

It is not a formula that facilitates easy relationships when milk prices are falling, and even with the best will in the world, it is impossible for processors to pay prices they have no chance of recovering in the market place due to relentless competition in overseas markets.

In some ways, the drive by the FMP group, who account for about one-third of Glanbia's milk pool, highlights that conflict of interest. Chairman of the dissident FMC group, Eamonn Bray, wants to take Glanbia back under farmer control to achieve better milk prices. In a rambling interview recently he spoke of creating a new type of entity where farmer interests would be paramount.

But that's what a co-op is about isn't it? The only thing that would be new in the re-privatisation of Glanbia would be the return of the group to total co-op status. Bearing in mind it was these same farmers who voted to go public in the first instance, they are within their rights to attempt a reverse move if they believe it to be in the best interests of themselves and the business.

As I understand their motives, the key objective is to achieve a better price for farmers for their basic raw material milk. In buying back the entire company, however, the FMP want to block any further developments in the dairy sector by the group and was determined to keep it focused solely on the Irish market.

It would also cost more to buy back the business than FMP originally thought and the plan looked inept form the start.

Figures put together by one of the leading stockbrokers underplayed the extent of the cash required to buy the company back and the cost of funding. If sanctioned, the move would tie up 300m, the estimated amount at today's market price required to take the business private.

That way was commercially daft given the money could be put to much better use in developing an international food strategy for the group. The other point in all of this is that Glanbia is well on the road to developing an international ingredients strategy.

And Mr Bray's notion that all further overseas development should be halted shows little understanding of the implications of introducing such a reactionary policy. Have farmers forgotten that the dairy sector went Plc in order to grow and expand and to develop the untapped potential of the food sector?

The FMC stance is reactionary in the extreme, though well intentioned at its most basic level.

If the milk suppliers are really serious, what they should be trying to attempt is the acquisition of the dairy processing end of the business. It could then use that to build a more strategic base with other processors such as Dairygold currently underoing its own radical transformation.

Without doubt a case can be made that farmers need direct control of primary production of their milk.

Neither is there any doubt that as shareholders and suppliers of raw material to Glanbia, dairy farmers are caught in a conflict of interest.

On the one hand, they need the best price for their milk while on the other hand, Glanbia needs to pay the lowest price possible for milk in order to enhance profit margins.

That's the theory at any rate. Closer scrutiny of the Glanbia milk price shows it is up there with Kerry, one of the best payers for milk in the market, so FMB seems to be on pretty hollow ground using that argument.