Marketing and finance the main challenge for Irish co-ops – ICOS CEO

Risk management also key to minimise milk price volatility – ICOS President

PORTLAOISE, Co. Laois – “The challenges faced by the boards and membership of all our dairy co-operatives is to maintain strategic control of their marketing channels for their members. At the same time they must ensure their business is adequately financed and positioned in the marketplace to compete effectively and to take full advantage of the increased product range Irish co-operatives will soon be marketing on global markets,” said ICOS CEO Seamus O’Donohoe at the ICOS AGM in Portlaoise this morning.

“From the perspective of farmers retaining control, as a first step, achieving scale through consolidation and amalgamation of co-operatives domestically is the optimal strategy. Beyond this stage, if the co-operative business model is to have a future in a globalised world, co-operatives will have to explore new ways of developing international strategic alliances with other co-operatives.”

“Irrespective of the particular strategic arrangement that a board comes to on behalf of its members, members should ask themselves three questions; (1) How is the relationship between the member and the co-operative going to be structured?  (2) How will ownership and financing by members be structured?  (3) How will governance and voting control be structured?  ICOS is assisting and supporting member co-operatives as they explore these issues and prepare for the future.”

“The co-operative model must not be a static model and indeed is being constantly challenged to innovate and adapt to ensure that it maintains its relevance and capability to compete with other business models.  This challenge to innovate and adapt was never more pertinent than now as we face into an era of much greater reliance on market demand and supply patterns for food with a reduced dependence on intervention and other support systems.”

“In promoting the co-operative model, we are challenging the status quo by promoting the idea that if farmers want to have some degree of leverage in the marketplace, they must seek to establish a level of ownership and control of the supply chain and the food chain,” said Seamus O’Donohoe.

Processing Capacity and Milk Pricing

ICOS President Bertie O’Leary said, “The ending of quotas in April 2015 is projected to create a surge in milk supply in the next decade.   Security of processing capacity and market outlets will be a key priority for farmers where there is unrestricted supply.  While some might see squeezing the last cent per litre from processors as the key goal, this ignores the far greater importance for the supplier that he has a secure outlet with the capacity both to process and market all his milk.

“In a co-operative, if the schedule of raw product delivery can be reliably planned, then a constant and reliable flow of product allows processing facilities to operate at a minimum cost, yielding better returns. There is an added value to be achieved by loyal milk suppliers in committing to supply an agreed volume of milk, of the required quality and at a given time, to their co-operative. This helps in planning the scale of plants and related investment needed.

“With the likelihood of increasing volatility post quota, it is perhaps also time for co-operatives to re-examine their pricing models to ensure better risk management and income stabilisation.

“Outside of Ireland, a number of the larger dairy processing co-operatives have a policy of paying an indicative monthly milk price assessed objectively against a basket of peer dairy processing co-operatives.  This is then supplemented with a ‘thirteenth month’ payment at year end as an agreed proportion of the profits generated by the co-op in that year.

“Irish co-operative performance – including the milk price paid to farmers – has to be assessed on a like for like basis with peer companies selling and competing in the same international markets.”

Livestock Marts

“In the context of less sheltered markets, which the next generation of farmers will have to contend with, the need for strong co-operative structures will be more vital than ever.   The introduction of the new Property Services Regulation Act in April of 2012 has resulted in Marts being burdened with significant additional regulation.  ICOS supports further consolidation and rationalisation of our co-operatives, both in the livestock mart and dairy sectors and particularly where this enhances competitiveness and benefits for farmers”, said Bertie O’Leary.

The Irish Co-operative Organisation Society – ICOS represents 130 co-operative businesses and organisations in Ireland – including the livestock marts and the dairy processing co-operatives – with some 150,000 individual members, 12,000 employees in Ireland (a further 24,000 abroad) and combined turnover of €10 billion. Irish agricultural exports contribute over €9 billion to the Irish economy annually and the sector accounts for 8% of national employment.

Ends

Tim Kinsella, MKC Communications, 086 813 7512