Kerry milk price pledge welcomed by farm groups

KERRY Group has given firm commitments on milk price and any capital investments required for future processing at strategy meetings with farmer groups in Dublin yesterday.

The IFA and the ICMSA particularly welcomed Kerry Group chief executive Stan McCarthy’s promise to pay farmers the market-leading price per litre for milk during the February to October high grass-growing season. This commitment is likely to be formalised by early 2012, if not before the end of this year.

For farmers in the group’s core Kingdom hinterland, this will give the confidence boost they have been seeking to plan for expansion in the 2015 post-quota era. It will also virtually guarantee that Kerry Co-op members will confirm the transfer of 25% of their shares to the plc, scheduled to be rubber stamped at a meeting in Tralee on August 16.

As ICMSA president, Jackie Cahill, explained: “The transparency in terms of the commitment on milk price has to be welcomed.

“Kerry Group has a long tradition in delivering on the promises it makes. For any young farmer in Kerry, this commitment will give them great comfort.

“The other factor is that this will give Kerry plc the guarantee of supply it needs for its own expansion plans. Kerry plc gets about 40% of its milk requirement from the Kerry area, so this agreement will also guarantee the group the supply they will need for the future. It is a contract that suits both sides.”

In terms of Kerry’s high season milk price guarantee, Mr Cahill said he hopes the new framework will be in place this year, or in early 2012 at the latest.

Kerry Group is promising to cater for any increased milk supply that comes in the post-quota era from 2015 onwards. The group is also promising to fund any capital costs required for increased processing, without any financial input from farmers.

With expansion predictions for the Kerry region set at around 20%, industry experts suggest that Kerry Group already has all the technology and equipment it needs for the likely level of expansion.

Kerry Group corporate affairs director, Frank Hayes, said: “At our first general meeting on July 21, co-op members were seeking clarification on milk price and our future commitment to make the necessary investment for output expansion after the end of the quota regime.

“We have committed to pay the market-leading milk price in the main grass-growing season from February to October. That will be paid on a like-for -like basis for milk and solids, and in terms of milk quality etc. That is enshrined in our milk contract. The milk contract comes into play after 2015, once the quotas expire. Kerry Group can already process up to 120% of the current total output. From 2015 on, if the output exceeds 120% we will make the necessary capital investment for the extra processing.”

Mr McCarthy’s proposals also got a positive response from a delegation led by IFA president John Bryan and made up of IFA representatives from Kerry, Limerick and Clare.

Mr Bryan also welcomed the commitment that the co-op board, made up of dairy farmers, would have direct and regular involvement with management in reviewing the Kerry milk price to ensure it is the leading milk price, relative to the milk constituents and the milk production curve.

The delegation welcomed the commitment that the co-op model will be retained indefinitely, regardless of the future shareholding of the co-op in the plc. The co-op will work to secure the maximum say and involvement of active milk producers in the role of the co-op in the future.

The delegation also welcomed the commitment that any further processing investment required will come from the plc, without any recourse to active dairy farmers. As a result, it seems a foregone conclusion that Kerry Co-op shareholders will formally agree to the transfer of 25% of their shares to the plc at a special meeting in Brandon Hotel, Tralee, on August 16.

This is the second scheduled meeting in which the co-op’s 4,400 ‘A’ grade shareholders are being asked to approve changes to its constitution allowing the plc to increase its shareholding.

The current rules prohibit the co-op members from holding less than 20%. The new regulations will lower that floor to 10%. The proposed share transfer will see the co-op members’ shares in Kerry Group diluted and the percentage of its ownership dip below 20%. These members hold 22.8%.

At the recent first meeting, 1,600 Kerry Co-op shareholders agreed by an 80% majority to changes which will net them a €290m windfall in a share exchange with Kerry Group.

In all, more than 75% of co-op members must approve the changes before the share transfer can take place.

That approval is expected to be confirmed at next Tuesday’s meeting in the Brandon Hotel, Tralee.

It’s also proposed that co-op representation on the Kerry Group plc board would be cut from seven to four. This will be voted upon separately at a third meeting in September.

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