Dairygold to invest €120m in raising capacity

Dairygold is to invest €120m in the coming eight years upping its milk production capacity by 18.5m litres a week.

Currently, Dairygold processes 29m litres of milk per week, but is set to increase that by 4.3m litres by 2014 as part of its existing development plan.

The aim is to reach production levels of almost 52m litres per week by 2020.

The co-op said yesterday it has informed its 3,000 milk suppliers of its commitment to accept all the milk members will produce after the abolition of the milk quota system in 2015.

Dairygold’s suppliers have already forecasted a 63.5% increase in milk production levels — from 941m litres, currently, to 1.54bn litres — by 2020.

In order to facilitate such an increase, Dairygold is to invest €120m on upgrading its capacity.

The company is already upgrading its Mitchelstown-based plant; so much of the additional spend will go towards overhauling its well-established milk-drying facility in Mallow — a move which management claims will offer the business the flexibility its expansion programme requires.

The expansion work will allow — over a phased period — for the production of a number of new products such as whole milk powder, fat-filled milk powder and infant milk formula base.

The bulk — approximately €70m — of the new eight-year investment will come from bank lending, but €50m will come via co-op members through a number of loan payment schemes. The business is hoping to raise €15m from members over the next three years through an optional member’s loan note; but three other options — minimum shareholding, a revolving fund and a deferred payment mechanism — also exist.

Dairygold’s chairman, Bertie O’Leary said that the funding of the expansion will not hinder co-op members, but their assistance will be vital.

“As a farmer-owned business, the society needs its owners to assist in funding; expansion cannot be 100% bank funded. With a €120m investment programme in prospect and a requirement for an additional €50m in working capital, by 2020, the business requires an element of member funding to ensure it stays in control of its own finance policy and that it does not over-rely on bank funding,” he commented.

“The member funding formula will not place an undue burden on members, ensuring that the maximum payment retained in the society for longer than one year is less than 1% per litre of milk supplied and our funding arrangement provides members with an opportunity to build interest-yielding savings and value through shareholding,” Mr O’Leary added.

Dairygold’s chief executive Jim Woulfe added that the society took time to consult and debate membership on the funding issue to ensure a balanced and sustainable approach to future funding requirements was reached.

“All the mechanisms proposed are forms of a deferred payment. In essence, all contributions required to fund expansion will ultimately be repaid to the contributing milk supplier,” he added.