Co-op to pay bonus on February milk to spread supply more evenly

Tipperary Co-op is to pay its suppliers a 3c per litre bonus on February milk from 2014 onwards in a bid to shift some production out of the peak summer months.

Co-op to pay  bonus on February milk to    spread   supply more evenly

The bonus is one of a number of measures aiming to spread milk supply into off-peak “shoulder” months.

Based on supplier responses, Tipperary expects to process 25%-35% extra milk in 2015, and anything up to 50% by 2020. It already has the processing capacity in place.

However, the co-op intends to broaden its production focus for this new milk away from raw product and into new cheeses and other value-added areas. It has invested around €3.5m on product development over the past two years, including €700,000 upgrading its Tippagral cheese facility in France.

It is working with the Irish Dairy Board on a new cheese for the German market, to be released under the Kerrygold brand. This will follow the specialist cheese company the co-op launched in Italy late last year, also with IDB and Teagasc support.

This new strategy was discussed at the co-op’s AGM, where it also unveiled pre-tax profits for 2012 were up 22% on 2011 to €1.28m, but based on a turnover that was down 6% to €138.8m on 2011.

This profit gain was made against a background of the co-op delivering strong support to milk suppliers in difficult weather conditions, and despite falling sales in some areas and rising operating costs.

“We dried a lot more whey last summer than in a regular year, and there is a labour and capital cost associated with that,” said Tipperary Co-op general manager Ted O’Connor, explaining the lower than anticipated profits. “Farmers were in dire straits, and we felt the co-op could afford to do what it could to take a longer term view of the year, and to keep our suppliers in business.

“We also spent around €3.5m in the last year to get ourselves geared up to handle extra milk supplies in 2015. We have the processing capacity, but we decided that we wanted to add value, which meant investing in research and new product development.”

Tipperary’s suppliers have backed the new February bonus concept. In consultation groups, suppliers said this approach would work better than a penalty. With 2015 some distance away, the board didn’t want any “mental blocks” creating a supplier resistance to expansion.

Suppliers have also approved Tipperary’s new share standard, which links the milk supply of shareholders with the number of shares they hold in the society. Suppliers have also welcomed Tipp’s new ‘A+B-C’ milk payment scheme, intended to reward efficient management of solids, proteins, and fats in milk supplied.

“This is a system that best rewards efficient milk production techniques and at the same time acts as an incentive for the adoption of best practice at farm level,” said co-op chairman Matthew Quinlan.

The co-op’s borrowings were down to €3.6m in Dec 2012, varying in recent years from zero in some years to €13.7m at the end of 2010.

The co-op has been growing via acquisitions such as French cuisine company Perrine, overseas sales of Tippagral and Emmental cheeses, plus increased milk and whey processing.

To deliver efficiencies in its Irish operations, the co-op has also invested in a ‘Lean’ manufacturing programme through a system of people and process development. This programme was delivered by Cork-based change management firm Leading Edge Group. The initiative was supported by Enterprise Ireland.

The co-op also developed a policy on sustainability in conjunction with the IDB and individual customers. It intends to roll out this sustainability programme to production at farm level.

“Our facilities are being upgraded to meet customer requirements and this also involves a programme of targeted reduction in waste, energy and water usage,” Mr O’Connor said.

“Embracing the green image is a natural expression of our production and processing regime and is a huge advantage in the promotion of Irish Dairy products in the global marketplace.”

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