Dairygold targets loyalty bonus

Members of Dairygold Co-op contributing to the capital costs of dairy expansion can expect to enter some form of tax-friendly deferred loyalty bonus scheme.

The Cork-based co-op, which yesterday unveiled €22.6m operating profits for 2011 (see Business pages, main paper), plans to submit a planning application this summer for two separate driers capable of drying 15 tons of milk per hour — 7.5 tons per drier — at its Mallow site, handling 15 million litres of milk per week.

Dairygold supplier surveys indicate that milk production within the Society’s catchment area will increase by over 60%, from 2011 to 2020. While Dairygold has discussed shared ‘super co-op’ proposals for the post-2015 era with other milk processors, the Co-op board is happy it can meet its members’ needs until 2020 by “sweating” its three existing facilities.

Dairygold chief executive Jim Woulfe said: “Our key objective is to identify a strategy for the business which delivers the optimal solution for our milk suppliers and members, while maintaining the Society’s commitment to farmer ownership and control. Over the last year, we have investigated a range of possibilities, including stand-alone and collaborative opportunities.

“Dairygold has well invested processing sites in Mitchelstown, Mallow and Mogeely, with scope for expansion. Sweating these existing assets makes absolute sense for Dairygold, as they offer established utilities infrastructure of power, natural gas, effluent plants, water, etc.”

In terms of financing Dairygold’s expansion plans, one likely option is an eight-year deferred loyalty bonus scheme for members. This contribution would be taken off the milk price in tiered payments, thus delivering the optimum tax break for members.

Dairygold chief financial officer Michael Harte explained: “We are looking at how to make this model as tax-friendly as possible for our members. It will be tiered off a set milk price. The money will be put in in year one, and come back out in year eight.

“The farmer won’t have to pay tax until year eight, so there will be several benefits. We are looking at it to get the balance right in terms of income tax. This is seed capital for expansion, and we are looking at how best to get a tax break for our members.”

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