The end of milk processing by Fivemiletown Co-op is the latest in a long line of closures of dairy operations in Northern Ireland since the deregulation of milk marketing in 1995, which ushered in a much more competitive scenario.

Prior to that, many small businesses survived under the old monopoly system of milk trading through the statutory Milk Marketing Board for NI which, for many years, had the monopoly on ex-farm milk purchases and made milk available to the processors at prices negotiated in ‘‘joint committee’’ with the dairy processing representatives – taking into account the market value of the end product and allowing for a margin of profit.

Before Fivemiletown’s exit from cheese manufacturing, the nearby operation of Augher Co-op closed in 2013. Its cheesemaking sustained reported losses of over £1.3m in the 15 months to the end of March 2012.

Back in April 2008, a decision was taken to end mozzarella cheese manufacture in a relatively new plant operated by West Ulster Farmers co-op in Irvinestown.

West Ulster and Augher had committed themselves to purchasing milk through United Dairy Farmers, while Fivemiletown took the bold step of arranging direct purchase of ex-farm milk from the members of the society and also buying milk at the monthly auction run by United.

Ultimately, difficulties in getting access to the auction and the ending of the auction were problematic for Fivemiletown – but the recent deal with Glanbia indicates that the availability of a milk pool of around 25m to 27m litres per year remained an asset to the co-op.

Augher and West Ulster had no milk pool but had other assets to cover their losses in dairy processing.

Augher Co-op sold a substantial farm for around £3m. The creamery site of around six acres at Augher is understood to be for sale.

West Ulster has been selling off its holding of shares in Aryzta plc in recent years and distributing the proceeds to members of the society.

Prior to Fivemiletown, Augher and West Ulster Farmers exit from milk processing, there was the closure of Fermanagh Creameries at Lisnaskea – another cheese business – shortly after it had been bought from Unigate plc by Dairy Crest plc. The milk pool there was acquired by Glanbia.

Others who have gone out of the milk processing business locally since deregulation of the market in NI include the small Deerpark Co-op in Co Antrim and the giant Nestlé business at Omagh (where the factory was sold to Lakeland Dairies and subsequently closed).

Liquid milk

There was also the closure of Killyman Co-op Creamery and the liquid milk businesses of Creamline and Belfast Co-op (after they were taken over by Golden Vale plc during its period of acquisitions in NI).

Golden Vale had also acquired the operations of Leckpatrick but was ultimately taken over by Kerry Group plc, which sold the Leckpatrick Artigarvan business to Town of Monaghan Co-op.

Northern Foods plc quit the NI dairy scene and sold its Dale Farm liquid milk business at Ballymena to United Dairy Farmers Group, which has since invested heavily in it and closed down Bangor Dairies and Tassagh Creamery.

The trend has been for large public limited companies to quit primary processing of milk in NI, leaving it to co-ops north and south of the border to continue this relatively low margin business and the smaller co-ops have struggled to survive.

Squeeze

Most ceased processing and packaging (including bottling and doorstep delivery) of milk for retail sales as the squeeze was put on that business by supermarket activities.

Various farm-based producer-pasteurisers also quit, with the notable exception of the Cunningham family’s Strathroy Dairy at Omagh, which has grown its business substantially.

Others who have survived include Farm View Dairy at Castlereagh, Draynes at Lisburn and Jack Mitchell near Castlederg. Bucking the trend, a new dairy was built by Linwoods as part of its much bigger business in bakery and health foods based at Monaghan Road, Armagh.

As we reported last year, shareholders in the co-operative society West Ulster Farmers Limited have been receiving significant payments in recent years, generated from the gradual sale of investments held by the co-op – mostly their valuable shareholding in Aryzta plc.

Profits from the disposal of some of these shares in 2011, 2012 and 2013 allowed for the distribution of almost £0.6m each year. This was paid out as interest on shares in the society, including an interim payment of 100% (£1 on each share each year), plus a final interest payment of 20% each year. That may seem a huge rate of interest – but even more was on the way after a resolution was passed on 23 April last year to make an interim payment of 200%.

Accounts for the society for the year to the end of April 2013 indicate that the profit for the year was close to £1.38m, of which £1.28m came from sale of investments. At 30 April 2013, cash at the bank and in hand stood at £1.8m and the society still held 67,546 shares in Aryzta with a market value of €3.18m. That means they sold 60,000 shares, as their holding was down from 107,546 Aryzta shares held at 30 April 2012. These shares were in the balance sheet at nil cost.

Improvement

The year to April 2013 also saw an improvement in the value of West Ulster’s 831,943 shares in One51 plc, on which there was a partial reversal of £96,888 against an impairment charge of £244,644 that had been provided during the previous year. The impairment charge was to allow for those shares having dropped below their historical cost. At 30 April 2013, the market value of the shares in One51 plc was £266,480 (€316,138) and the historical cost was £414,256. According to the accounts, there has been no tax payable by West Ulster Farmers on the profits made from the sale of the Aryzta shares in recent years as they have utilised tax losses carried forward.

Future tax charges may be reduced by the availability of £972,411 of tax losses remaining at the end of April 2013.

The business had substantial losses prior to the decision by the society to cease manufacturing cheese in April 2008. Since then, its factory equipment has been sold or scrapped and is written off in the balance sheet.

The net book value of land and buildings in the balance sheet at 30 April 2013 was £124,213, believed to be well below its market value. Following the year end, the society sold a plot of land.

The directors report that the principal activity now is the management of remaining investments, with a view to maximising shareholder value. They also report that all aspects of the business are under constant review.

For 2014, the interim payment that has been issued to shareholders is three times the original cost price of the shares held in the society.

As reported recently, Town of Monaghan’s pre-tax profit in 2013 was almost €10.5m, including the sale of around €5m worth of shares in Arytza plc. This still left the company with quoted shares valued at €26.27m at the end of 2013.

The quoted shares are in the balance sheet at cost of €0.494m, so they are scarcely reflected in the €34.38m net current assets of Town of Monaghan.

Aryzta shares are the main part of the investments held by Town of Monaghan.

A dividend of around €0.2m and €1m profit from the sale of shares in 2012 offset part of the operating loss in that year, when the company used those assets to bolster its milk price paid to producers, when reporting a pre-tax loss of €3.1m in 2012.