Irish dairy co-op/plc partnerships facing new challenge

At first glance, the split corporate structures adopted by many of the Irish dairy co-ops over the years look unusual. The push-me-pull-you structure, which has seen cross shareholdings between plcs and the original co-ops, is something of an Irish solution to an Irish problem, allowing the plcs to attract new investors to fund overseas expansion. Meanwhile the farmers keep a stake in the enterprise, while also developing their own business.

The board structures and conflicting agendas involved might have been seen as a recipe for trouble – and the sector has not been without its controversies. But the overall story has been one of significant returns to farmers, most notably in the Kerry Group. This week the latest payment was assured, with Glanbia’s farmers set to pocket an average of €17,000 per head as the co-op reduced its shareholding in Glanbia plc. Part of the transaction involved a share placing by Goodbody and Davy of plc with international investors.

After the sale, the farmers still hold more than a third of the plc, valued at some €1.5 billion, as well as owning 60 per cent of the domestic processing business and having a pile of cash. Meanwhile the plc continues to expand abroad in nutrition and food ingredients. A similar model was pursued by Kerry, in particular. Other co-ops who have not undertaken the same split, such as Dairygold, have not had the same farmer payouts fuelled by overseas plc success, though remain successful businesses in their own right. Other factors come into play too including the milk price paid to farmers.

After the abolition of the milk levy, a new game will now be played and it remains to be seen which structure will succeed in future. Typically, as in the case with Glanbia, the co-ops retain majority ownership of the milk processing plants, with their plcs having less skin in the domestic game.

The farmers will thus reap the main rewards of success from expansion fuelled by the ending of the levy, but are also exposed to risk caused by swinging milk prices and uncertain markets. The acid test of the international competitiveness of our grass-based dairy system lies ahead, but at least the industry is starting from a strong financial position.