Co-ops opt for SWS cash
But it seems that traditional co-op structures may be the biggest obstacles to the progress of the most talented people who work in them.
The sale before Christmas of SWS has raised a recurring question: can “pure” co-operatives — or, as in the case of SWS, companies they own — ever become truly successful household name companies?
Co-ops come in for a lot of criticism for being an inferior company ownership form, capital-constrained and dogged by inefficient decision-making processes.
Owned by five co-ops, SWS was seen as one of Ireland’s most successful rural-based companies. According to Ion Equity, the company which bought it, it has a number of excellent businesses with strong growth prospects. The sale price is believed to be €110m.
Set up in 1957 as a cattle artificial insemination service by the Bandon, Barryroe, Dairygold, Drinagh and Lisavaird Co-ops, SWS started expanding in the 1990s, when CAP reform convinced management to diversify away from dependence on agriculture.
By 2005, it had become a major employer, with 500 jobs, mostly in its native west Cork, where it kick-started wind energy, forestry, waste and biomass utilisation, corporate services and business process outsourcing, tourism, and rural development.
SWS generated a profit of €5.1m last year on a turnover of €30.7m.
A few miles down the road, west Cork’s other major co-op owned business, Carbery, needed turnover of €181.1m to generate similar profits, and employed only about 300 people.
Nevertheless, the five co-ops which owned SWS could see no other avenue but to sell it lock, stock and barrel. Their reasoning is believed to be that they couldn’t raise the money needed to accelerate its growth.
Ion Equity has said it will invest €150m in SWS, and SWS management is believed to be ready to invest a considerable proportion of the €22m it got from Ion Equity for its 20% stake in SWS.
Such decisions are now out of the hands of farmers; their co-ops have about €88m of Ion Equity cash to play with, but they have lost out on the future potential of SWS, and its major contribution to rural Ireland is no longer under their control.
The original SWS co-op is expected to remain in place, and continue to operate a number of farmer services.
It is ironic that IAWS Co-op, reborn as One51, was the underbidder for SWS.
Similar to SWS, IAWS used to be a federated co-op, with an even more complex ownership, in the hands of some 40 Irish and British agricultural co-ops.
It broke free of the shackles of co-operation around 1990, achieving full listing in the Irish and London stock exchanges. Now IAWS PLC is Europe’s best-performing food stock, continuing to forge ahead, with the recent €445m purchase of US bakery group Otis Spunkmeyer.
According to the Financial Times, it has been transformed “from a sleepy agricultural co-operative into a leading specialist breads manufacturer”.
But its agricultural cousins continued to benefit, with IAWS Co-op having originally held close to 100% of the IAWS plc shares, and passed the valuable dividends and major capital growth of these shares back to their owner co-ops.
Now IAWS Co-op too is turning its back on co-op status, apparently aiming to fulfil ambitions through a stock exchange listing.
Its country cousins, the traditional co-ops, also need to ponder the future.
As the world changes, co-operative ways of doing business which originated more than 100 years ago haven’t a hope. Co-ops have changed with the times, as their production-based strategies had to become market-led. Money had to be found to adapt to changes in consumer behaviour, technological development, and globalisation.
Some have adapting to modern times better than others. They have all had to cope with the unavoidable demands of the markets, or run into trouble. Basically, a big problem for co-ops has been producing food for which there is no market — because more businesslike, non-production based companies did better marketing.
As a result, sales by co-ops fell, and their members often responded by starving them of the extra funding needed to develop new, more successful business strategies.
But the top flight leadership to take agricultural co-ops through these changes has been evident in companies like Kerry Group and Glanbia, now both big enough to survive in the globalised world. But they had to become “hybrid” listed co-ops — accessing external capital while retaining co-op objectives.
Kerry Group was one of the first co-ops worldwide to go public, in 1986, and has been fantastically successful, and has kept co-op members fairly happy, even though their milk business is now only about 5% of the group’s turnover.
Things haven’t gone so smoothly at Glanbia PLC, which farmers tried to get de-listed and returned to full member control, in 2003. This was rejected by the board, which was hit by a no-confidence vote in 2005, but refused to step down.
This was another typical example of the co-operation-business conflict. It’s hard enough for any company to succeed in this age of globalisation, but if the structure makes it harder to make the correct decisions and strategies, a company is doubly handicapped.
