AN important new phase has started for the publicly quoted, farmer controlled, food groups. By allowing their control to go below the crucial 51 per cent mark, they may be leaving themselves open to unwanted takeover bids. But maintaining the status quo is worse; it stunts growth prospects.

IAWS has already started the process and Kerry Group which started the initial debate will, over the next few months, be conducting a series of meetings which may well lead to the changes being made.

The Irish Co operative Organisation Society (ICOS), the umbrella group for the co ops, adopted a very sensible stance at its 101st annual general meeting, last Thursday. "The ICOS view is that while the matter of changing the 51 per cent rule is an internal one for each co op, any co op considering amending the rule should fully debate the implications of such moves" is how Mr Michael O'Dwyer, the ICOS president, put it.

"The board may also consider other safeguards to ensure that producer interests are protected," he said. However, he probably went a bit too far by suggesting that one possible safeguard may be the transfer of an element of the plc business back to the co operative. That should be resisted. It could involve structural changes and would undoubtedly be messy.

The pressure to change the rule is coming from two sides. First, any expanding group should have the flexibility to pay for acquisitions through the issue of new shares if that is the best route.

Second, the co op shareholders should be able to unlock their investment in the co op and have this transferred into shares that can be traded on the stockmarket.

Take IAWS. The co op owns 66.7 million shares, representing 55 per cent of the diluted share capital. If it were to increase its issued share capital by just 12 per cent, the co op shareholders' control would go below the 50 per cent mark.

A £22 million acquisition would do that. But the control will go down to below 50 per cent by a different route. IAWS, on Friday, said it is asking the shareholders to allow the co op shareholders transfer some of their shares into plc shares.

A £22 million acquisition would do that. But the control will go down to below 50 per cent by a different route. IAWS, on Friday, said it is asking the shareholders to allow the co op shareholders transfer some of their shares into plc shares.

Take Kerry. Its co op shareholders control 52.2 per cent of the plc. An increase in the issued share capital of just 5 per cent would bring the co op shareholders control below 50 per cent. An acquisition of £48 million, payable in shares, would do that. However, a further 12 per cent of the equity is held by co op members as individuals and employees who would presumably be loyal to the board.

It is not generally remembered, but Kerry started the ball trolling in 1993 when the co op shareholders reduced their shareholding in the plc from 58 per cent to 54 per cent. They, alike their counterparts in IAWS, wanted to have the option of realising part of their investment which has become more valuable.

The changes in Kerry, over the past ten years, tell it all. The founding shareholders got their original shares at 35p. They were floated at 52p and are now around 590p. As part of the coop they were unable to realise their investment. As shareholders in the plc they can.

The pressures on the 51 per cent rule reflects the dramatically changed profile of the food group over the years.

The Kerry Group which started the ball rolling for the co ops has seen a total change in both its product and geographical profile.

In 1985 when it decided to go the plc route, all its operating profit was generated in Ireland. In 1995 only 30 per cent profit was generated domestically. Dairy operations in Ireland had accounted for 50 per cent of operating profits. This has fallen to around 12 per cent.

In the past 10 years turnover has risen from £211 million to £1.2 billion and operating profit has soared from £8.1 million to £85.7 million.

Up to now, the co op controlled publicly quoted food companies have not been constrained by the 51 per cent rule. But they have now reached the stage when that rule is restrictive. Restrictive because it does not give the plcs the flexibility to finance acquisitions by the issue of new shares, and restrictive because the rules lock in the farmer shareholders when they should be allowed to cash in if they want to.

By unlocking this rule, these companies and their founding shareholders, will be preparing themselves for the next stage in their development.

They may want to maintain a new controlling ceiling of 39 per cent to 40 per cent. But that is likely to be breached, in time.