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Over the last month, I attended the two Glanbia AGMs – the publicly quoted company, the plc and the co-op which essentially does the basic processing of the ever increasing supply of milk as well as the internal Irish agri business enterprises of fertiliser, animal feed and general stores business.
The cross shareholdings of 31.5% of the co-op in the plc means, assuming profits continue to grow, that there is a constant flow of profits from the plc, which is broadly the international business to the co-op.
At the co-op AGM, I was struck at how the questions zoned in on the 3.2% profit on turnover that is written into the shareholder agreement between the co-op and the plc
The dividend is in the main distributed by way of top-ups based on the volume of trade done by co-op shareholders with the society.
At the co-op AGM, I was struck at how the questions zoned in on the 3.2% profit on turnover that is written into the shareholder agreement between the co-op and the plc.
This, it was pointed out, was one of the covenants with the group’s bankers as a condition for obtaining credit, which of course is used primarily to build the new necessary processing facilities.
But from a farmer’s viewpoint, the core question has to be what is the total return for the product supplied from the farm to the processor?
What has not been tested is the sustainability of the plc business model in Irish farming
The fact that there is a flow of cash based on dividends from the plc’s added value activities to supplement the price of the product is a real strength of the business model that has been put in place. What has not been tested is the sustainability of the plc business model in Irish farming. On the other hand, the existence of large profitable co-ops such as Dairygold, Lakeland and Carbery continues.These all have real family farmer member commitments but does the presence of outside stockmarket investors help in the generation of growth and extra profits in the case of Kerry and Glanbia?
Commitment
What is clear is that an undiluted plc will have as its prime commitment the return to its shareholders and these are fundamentally different from its raw material supplies.
Agri plcs have had a mixed history in Ireland
The core co-op attempts to pay the highest possible price to its consistent suppliers with ongoing solvency and capcity to reinvest.
Agri plcs have had a mixed history in Ireland. Stockmarket investors place heavy emphasis on the potential for growth. But of the four original dairy enterprises, Golden Vale was taken over by Kerry and Waterford and Avonmore merged to form Glanbia.
Stability
The only other remaining one is FBD, which has returned to stability and profitability though it will be interesting to see how it can grow market share and profits in the coming years.
The Glanbia model is unique so far as I can see in the world – it attempts to bring the benefits of a growth-driven plc to its farmer suppliers.
It deserves to succeed but it will be interesting in 10 years time to compare the total returns to farmers with the successful pure co-ops.
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