IFA Dairy Committee Recommends Strengthening of Co-op Shareholding for 2015 Expansion

Speaking at the IFA Executive Council meeting this week, National Dairy Chairman Kevin Kiersey presented the Committee’s recommendations for co-ops to strengthen the link between milk supplies and shareholding.

The Committee’s proposals, which will be presented to industry in the New Year, are about ensuring that active shareholders in general, and milk producers in particular, own and control their industry and can share in its increased value post-2015. Mr Kiersey added that linking co-op shareholding to milk supplies could also define producers’ entitlements to supply milk to the co-op, while making the shares saleable within the co-op would also provide an entry and exit mechanism at reasonable cost.

He said, “The Committee believes each co-op has a duty to ascertain the expansion capacity of its supply base, and to provide, preferably jointly with other co-ops and the Irish Dairy Board, the processing and marketing capacity required to deal with it. We also believe that the expansion capacity must be fairly distributed among suppliers in a way which reflects their individual expansion capacity as well as the market opportunities available.”

“Some of the challenges for the post-2015 expansion can be overcome if co-ops provide opportunities and encouragement to their active shareholders, across all enterprises, over reasonable periods of time to increase their shareholding within the co-op. For dairy farmers, we therefore recommend that each co-op should find a level of shareholding linked to supply which is relevant to them, and encourage milk suppliers, over a reasonable period of time, to share up to that level. New entrants should also be encouraged to increase their shareholding progressively up to the very same level, cognisant of their ability to fund such shareholding.”

“This process must be given time, simply because dairy farmers will need to prioritise their resources for the massive on-farm investment required to deliver the extra milk. We have estimated that it could cost up to €1.5b in on-farm investment to supply 50% more milk.” he said

Co-ops must fully utilise existing capacity through maximum co-operation and joint processing agreements. They must come forward with a plan now on what expansion they are planning and how it will be funded. The priority for co-ops should be to fund the expansion through joint investments, existing co-op resources and bank and other finance. Any request for additional funding from farmers must be voluntary, and represent a profitable and tax efficient investment for farmers.”

“Co-op boards will have to make the final decisions on these issues, but we believe our proposed principles should help guide the industry towards greater cohesion and efficiency,” he concluded.