Plan to raise milk output 57% at core of strategy

Dairygold members’ plans to increase their milk output by 57% by 2020 are at the core of the co-op’s ambitious post-quota strategy.

The Cork-based co-op’s new demineralised whey facility at Castlefarm, Mitchelstown, will be operational within weeks. Phases two and three of its modular plans will be rolled out in Mallow as and when demand from the co-op’s clients matches projections.

Dairygold’s business is split between dairy (70%) and agri (30%). Its dairy processing focus is on cheese (38%) and casein/butter (33%), with the other third being infant milk formula and whole milk powder.

Some 71% of this core portfolio produces whey as a byproduct, which 10 years ago would have been fed to pigs. Dairygold now adds an extra €15m to its annual figures from sales of protein-rich whey, used as an ingredient in infant formula. This figure is set to snowball in the coming years.

Global demand for whey is set to grow by 2.5% from now to 2020. The co-op has clients throughout the UK, EU, Middle East, North Africa, Latin America and Asia. Further sales outlets are also anticipated.

“We are in a good position to process extra milk,” said Dairygold chief executive Jim Woulfe. “We are content with where we are, and we won’t be shy in terms of mergers and acquisitions where necessary.”

Some 97% of Dairygold’s members have signed milk supply contracts, a new concept for the sector that faced resistance until quelled by a strong membership vote at an emergency meeting last year. All signed-up suppliers have been paid a 0.5c per litre bonus, a collective €7.5m share-out for their 2013 milk supply. Dairygold is the only co-op offering this bonus.

However, the other co-ops have also introduced supply contracts within the past six months, again meeting with strong pockets of member resistance.

Dairygold says that just one member has moved his supply to Strathroy in Omagh, Co Tyrone, a processor which is thought to have hoovered up some 120 disaffected suppliers from co-ops in the Republic.

“We have had a lot of robust debate in putting our post-quota plan in place, but we are now the better for it,” said Mr Woulfe. “Financially, we are in a strong position and we have a clear commercial plan that our members understand and are fully behind.”

Dairygold is funding its growth plans with €60m in bank debt. Its members have contributed €5.2m to year one of a new revolving fund, effectively a loan which the co-op will repay at the end of the fund’s agreed seven-year term.

Dairygold’s suppliers don’t expect their record milk price of 38.1c per litre to survive the summer, but expect a price far above the 30.9cpl average for 2012. The co-op’s budget for 2014 projects a 37cpl average.

“Global trade auctions are showing a downward trend,” said chief financial officer Michael Harte. “We are not immune to realities of the market. We won’t put a time or date on when a correction in the milk price might occur. We’ll take it on a month by month basis.”

The co-op expects to be 25 million litres over quota when it reviews its milk supplies for the year-end to March 31. Its suppliers will be hit with €7m in super levy fines payable to the EU, money which the co-op has been deducting from their monthly milk cheques over the past 12 months.