Parting of ways far cry from early optimism

“A WIN-WIN situation for both sides” – that’s how Glanbia’s chief executive John Moloney described yesterday’s announcement that the company has entered into talks to sell its Irish dairy unit to majority shareholder, the Glanbia Co-operative Society.

However, the imminent parting of ways between the farmers’ co- operative and Glanbia is a far cry from the optimism that heralded the formation of Glanbia plc out of the merger between Avonmore and Waterford in the late 1990s.

Back then, dairy farmers were told that the advantages of a publicly quoted merged entity would far outweigh the drawbacks – increasing competitiveness, securing a good income for farmers and opening up avenues for funding.

The reality was somewhat different as the conflicting priorities of farmers and shareholders proved difficult to negotiate.

In recent years, there has been a growing sense among farmers that the company had sold out on the co-op, with institutional investors and concerns about share price and dividend payments dictating the price paid to suppliers.

On the other hand, Glanbia has had to be accountable to shareholders and explain why they have continued to commit to a loss-making business.

The announcement of the possible sale has been welcomed by both analysts and farmers’ representative groups, but the disposal raises questions about the viability of the co-operative as a corporate entity, and whether such an organisation can ever be successfully subsumed within a plc.

John Tyrrell, director general of the Irish Co-operative Organisation Society, is positive about the future of co-operatives in Ireland. He says there are about 200 co-operatives in Ireland, with dairy representing the vast majority in terms of economic value. However, the society is recommending further consolidation in line with international norms.

Glanbia Co-op said that the challenges facing the dairy sector, particularly the cessation of milk quotas, meant the acquisition of Glanbia’s dairy operations is the best option for suppliers.

Sources close to the co-op insist that if the deal goes through, dairy operations will be run as a commercial entity, although the co-op will have flexibility on price.