Co-op contract debate deflects from issues of amalgamation and returning best price
Without a contract, neither the mart nor the milk processor has an obligation to purchase the produce.
Many farmers recall bringing unsold calves back from the mart in the 1970s cattle crisis.
Many years later, that remains etched in the memory of those who experienced it; it was a major wake-up call to those farmers.
On Apr 1, 2015, the removal of EU milk quotas will enable all dairy farmers to consider expanding milk production.
The milk processors have surveyed their dairy-farmer suppliers, and plan to invest in ‘stainless steel’ or milk-processing capacity to cater for the expected 50% surge in milk supply. Milk processors are no different from their dairy-farmer suppliers.
Some milk processors are cash-rich, with existing capacity ready to process this extra milk into butter, cheese, powder or individual branded products.
Others have little cash, and little borrowing or processing capacity, and are forced to go to their shareholder suppliers to raise the cash to build this new processing capacity.
Hence, the arrival of milk- supply contracts.
The 27 dairy co-operatives are at various stages of development with their milk contracts.
Dairygold have created most of the headlines, because of the extra financial burden it proposes to impose on its suppliers.
It is in the vulnerable position of being a large milk processor in the heartland of expansion country, and does not have the financial muscle to build the extra capacity without a call on dairy farmer cash.
It has been forced to go first; others are now delaying, to see the outcome of the Dairygold negotiations.
It is easy to see why it is frustrating for a Dairygold supplier to pay 0.5 cent/litre, on every litre over 75,000 litres, into a revolving fund — when a neighbour supplying Carbery, North Cork, Kerry or Glanbia does not.
The co-ops in the west and north, Connacht Gold and Lakeland, do not expect the same level of expansion, because milk quota has been more freely available to their dairy-farmer suppliers in the past, and much of the expansion ambition has been satisfied.
All co-ops will most likely impose a minimum shareholding requirement for the supply of additional milk.
When a dairy-farmer supplier is presented with a milk contract by his or her milk supplier, what are they signing up to?
There are many positive aspects to milk-supply contracts for the dairy-farmer supplier to consider.
*One can increase milk supply and boost net profitability in the home-farm business.
*A possible price guarantee for the period of the contract, allowing tangible business plans to be made.
*The co-op shares may increase in value, thereby improving net worth.
*The co-op shares can be cashed-in to fund retirement.
*The co-op may be sold or merged, resulting in a bonus payment.
These are all very positive attributes for an ambitious dairy farmer with expansion plans, when compared to the restrictive milk-quota era.
The negative aspects are as follows:
*When your co-op is under-performing in milk price, thereby reducing your potential net profit on the farm.
*Other co-ops may have better contracts, and you are frustrated and unable to join them.
*You may need help from your co-op, financial or otherwise, but your signed contact prevents such help.
*You need to purchase extra shares, and you don’t have the cash available.
*You are a new dairy entrant with big expansion plans, and you have few existing shares.
*Your parents have the co-op shares, and you — the supplier — do not. There are capital tax implications for buying or gifting the shares.
*You have signed a legal agreement.
Dairy farmers must be prepared to invest in their milk-purchasing co-op, when it is charged with running a profitable processing business so that the dairy farmer supplier is paid a good price for milk as a reward for his or her efforts.
In summary, there will be a lot of parish-pump politics and excuses to reopen old sores, before milk contracts are signed, sealed, and the extra milk delivered, in the various Irish co-ops.
Milk contracts will be signed, and few, if any, dairy farmers will move to another co-op, because the rules of the various societies apparently obligate the dairy-farmer supplier to have a supplier contract in the first place.
The debate is deflecting from the really important issues of co-op amalgamation and of returning the best possible price to dairy-farmer shareholders and suppliers.
*Michael Brady is the founder of The Brady Group, agricultural and estate agency consultancy for landowners: www.bradygroup.ie.
