Henchy’s iceberg warning
But the resulting drop in demand for its agri-trading goods is only the tip of an iceberg threatening to sink the co-op ship, management told the Labour Relations Commission (LRC) this week, during negotiations on making 500 staff redundant before the end of the year.
"Either 500 people leave the company now with a generous severance package or a much greater number of staff will lose their jobs with nothing but statutory terms in a short few years", said Chief Executive Jerry Henchy in an opening statement to the LRC.
"If action is not taken now, annual losses will reach 26m in 2007. That is the first part of the challenge facing us. We need to cut costs sufficiently to stem these losses".
He said the group's cost cutting plans will bring profitability to 1.4% of turnover, but 5% is needed 4% for re-investment and rebuilding reserves, and 1% for research and development of new products.
Mr Henchy warned that every area of the organisation will experience pain, in the fixing, outsourcing, shutting or selling of businesses, requiring 500 job losses now and more in the future.
Cost savings from the proposed 50m redundancy package are designed to restore profitability in the medium term.
Mr Henchy blamed falling commodity prices for the core dairy business's losses of 13m last year, and projected losses rising from 3m for next year. Prices had slumped so much that Irish cheddar was selling to UK retailers last March below the cost of the farm milk required to manufacture it.
Mr Henchy predicted more and more downward pressure on prices, with increased competition from the Southern Hemisphere and EU accession countries, particularly Poland, even as the CAP Mid Term Review results in a 25% drop in butter prices and a 15% drop in skim milk powder prices from 2004.
"Despite our success in building strong national brands such as Galtee, Mitchelstown, Calvita and Shaw's, we are facing constant downward price pressure from the major multiples", he told the LRC.
He said huge retail chains are calling the shots, with their power being enhanced further by a shift in consumer preferences.
Own label food products had reached market shares of 20% in Ireland and nearly 40% in the UK, and it was crucial for Dairygold to target and achieve sales into the UK own label sector. "Brand promotion is beyond us in cost and marketing terms, as it is beyond the resource of any single Irish dairy processor", explained Mr Henchy.
But Dairygold are not sufficiently competitive to sell more into the own label marketplace; instead they are faced with the prospect of selling less and less, he warned.
"We have to come in at a lower or at least a competitive price if we are to win the battle for these vitally important contracts. And we simply can't do that with our current cost base", said the co-op boss.
