Co-op to allay fears over new contracts
Dairygold has committed itself to a €120m investment in a “world-class dairy processing facility” in Cork which will allow the company to process all the milk its 3,000 suppliers can produce once the existing quota system is lifted in 2015.
However, in addition to the cost of the expansion, Dairygold needs €50m for “working capital”.
Therefore, it is introducing a new “milk supply and purchase agreement” which will require the suppliers to contribute 0.5c per litre of milk towards a “revolving fund” over the course of seven years.
The first 75,000 litres each year will be exempt. When the Dairygold “quoted milk price” falls below 27c per litre, the contributions will not be deducted.
Contributions will be repaid in the eighth year after receipt; contributions made during 2013 will be repaid in 2020; 2014 payments in 2021; and so on.
Farmers argue that 27c per litre minimum is too low a baseline and, at that price or slightly above production costs, means they will not make money and could make a loss.
If suppliers do not sign up by March, they will face a penalty of 2c per litre for production from May 2013 payments onwards.
Farmers are also concerned that they could lose up to €30,000 if they pull out of the scheme early and without the two years’ notice specified in the Dairygold contracts.
However, the co-op says the suppliers will get their money back in all instances, except if they leave the society to supply another purchaser without providing adequate notice.
Farmers also fear that Dairygold is using figures accumulated in the first quarter of 2012 as its basis for expansion predictions. Those figures pointed to a 63.5% increase in production post-quota.
Suppliers such as Mitchelstown farmer Eugene Sheehan believe the increase in output may be as little as 20%.
Dairygold insisted it intended to run the survey again in the first quarter of 2013 and if milk volumes are significantly different, “the scale and timing of the society’s investment in processing capacity will be amended accordingly”.
Another major step Dairygold is taking, which is causing alarm to farmers, is a minimum shareholding of 4,000 shares per 100,000 litres of milk.
Mr Sheahan claimed that a farmer producing 450,000 litres of milk annually, who might only own 2,000 shares, would have to buy another 16,000 shares.
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.”