Dairygold deal splits opinion

Dairygold has begun a drive to convince key suppliers in its core North Cork hinterland that signing up to the co-op’s new milk-supply agreement is in their best interests.

The co-op plans to host meetings with farmers, including one-to-one consultations with some individuals.

On the basis of what local suppliers to the co-op told the Irish Examiner yesterday, Dairygold’s board may have a tough job.

Mitchelstown dairy farmer Eugene Sheehan said the co-op would find it hard to convince farmers with an annual output above 100,000 gallons (450,000 litres) that their best interests are served by signing a seven-year contract that, he said, doesn’t have any clear indication of price.

Mr Sheehan said: “The biggest concern is the length of the contract. It is too long and there is no commitment on price. That view was shared by most of the crowd of more than 200 farmers gathered at a meeting in Mallow last week.

“We are also unhappy with the revolving fund, which will take a certain amount per litre from every farmer, and you can’t claim that against tax.

“We need clarity on the tax, whether the five-year loan notes are calculated as simple or as complex interest over those years, and the price per litre to be paid before signing up to a seven-year contract.”

To be fair to Dairygold, they have been taken by surprise by the hundreds of co-op members attending the meetings resisting the new milk-supply contracts — the next of which takes place in the Firgrove Hotel, Mitchelstown, at 8pm next Thursday.

The co-op has hosted numerous meetings, with its members explaining its plans for expansion, its new loan notes, the financing facilities agreed at attractive rates with partners, such as Danske Bank, and its plans to operate a €120m world-class processing facility.

The company yesterday completed an in-depth Q&A document that it said would answer all of the questions being raised by its milk suppliers.

Over recent months, the Dairygold publication Farm News has been detailing the communication process with farmers, outlining its expansion plans. All seemed to be going well.

hen, last week, while the company was rolling out its five-year loan notes — with 4.19%pa interest; e.g. generating €719 on €3,000 over a five-year term — Dairygold said that those farmers who did not sign the supply agreements by the end of March could (“as a last resort”) face a 2c-per-litre non-contract penalty.

Greater clarity on the nature of this fine might be forthcoming at the meetings Dairygold plans to host in the region.

Nonetheless, if the answers to these questions were straightforward, the company now has a clearer picture of how some of their suppliers have an issue with the deal they’re being offered.

If these members’ response is, as Dairygold is suggesting, really just a misunderstanding, then at least the dialogue has now begun in earnest.

In regards to Dairygold’s move to have members adopt a minimum shareholding of 4,000 shares per 1,000 litres of milk, a company spokesman said: “We estimate over 60% have adequate shares. Those with under 4,000 shares per 100,000 litres will be required to increase their shareholding, over time, to that level, at a rate of 0.5c per litre of milk supplied in each year. It also means that milk suppliers will increase their ownership of the society, over time, as milk supply grows.”

Meanwhile, Tom Brown, in Midleton, one of the largest dairy farmers in the country, with around 1,000 cows, said that he does not like being presented with what he views as the threat of a 2c-per-litre fine unless he signs up to the supply contract.

Mr Brown said: “This agreement is too restrictive. Signing up to one processor for seven years is anti-competitive. As a supplier, you are tied into a contract where there is no mention of price.

“Then, they mention the 2c penalty. When you make the comparison between what Dairygold are doing and what Kerry have done, it doesn’t add up.

“With Kerry, there was a recognition of people who had invested heavily in quotas. They give you the right to that level of supply, plus an extra 20%.

“Dairygold are suggesting that you start again as a brand new supplier. It is very unfair.

“They are effectively taking away the processing rights out of the hands of the people who have been there for years.”

Mr Brown has also challenged Dairygold’s processing deal with Glanbia — taking in excess milk in peak supply periods which, he said, meant Dairygold suppliers were being asked to pay the construction costs to process Glanbia milk.

This deal ends in 2015.

* Farming editor Stephen Cadogan returns next week.


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