Active and recently retired milk suppliers (A & B shareholders) in Kerry voted unanimously on Monday to back the proposal to buy 70% of the milk processing business from Kerry plc.
The deal was sold to shareholders by Kerry Co-op after it was initially published just over a month ago. Monday’s special general meeting in Killarney was essentially the culmination of a series of meetings that Kerry Co-op set up and organised for shareholders.
It marks the end of a joint co-op/plc project that started in earnest over 12 months ago, but in reality is a project that has been discussed among Kerry shareholders for almost ten years.
The result means that Kerry Co-op, which was essentially the parent company for Kerry plc but has been an investment holding company for the last 38 years, now morphs back into an active milk processing co-op similar to Dairygold, Tirlán, Lakeland etc.
Kerry Group steps back from milk processing for the first time since 1986, and the farmers take back full control of milk collection, processing and payment.
I am writing this assuming that the Kerry plc vote that takes place today (Thursday) turns out to be a mere formality, as is expected, to allow the deal agreed by Kerry Co-op and Kerry plc to formally take place.
The move means a big change in the relationship between the existing Kerry management and milk suppliers. Effectively now the co-op, the owners and milk suppliers, are hiring management to carry out their duties for them as instructed by the board.
The co-op board will now set milk prices, and the divisive relationship between farmers and ‘plc’ management over milk price that has festered over the last 15 years in particular should change and must change.
Competitive price
The chairman of the new co-op entity has committed to pay a competitive leading milk price. Monthly milk price top-ups paid out every couple of months after negotiations and comparisons must become a thing of the past.
The co-op must put its best foot forward each month for its suppliers. An annual top-up on milk price will be accepted, but suppliers will be keen that the new co-op will make its monthly returns to the best of its ability.
After all, it is up to six weeks after the first of the product has been collected from milk suppliers when payment is made. Larry Goodman’s ABP, celebrating 70 years in business this week, prides itself on ‘pay on the day’.
The Kerry move on Monday means that only a small proportion of the milk produced in Ireland (Strathroy, Glenisk etc) is in private ownership.
Co-operatives now process over 95% of milk on the island of Ireland. Last week at the Royal Ulster Winter Fair in Balmoral we spoke to the CEOs of Lakeland Diaries and Dale Farm who, between them, purchase over 96% of the milk in Northern Ireland as co-operatives.
Both have made significant investments recently in milk processing. If we look across Europe, over 50% of the milk is purchased by private companies. In many of these cases the relationship between suppliers and the company is tense and difficult.
Discretion
Reinvestment is at the discretion of the owners, and if perhaps the owners are looking to exit the business, reinvestment will be at a minimum. Hence why the co-operative movement is a better model for a low margin business.
Just because it is a co-op, it doesn’t stop the business having investments in other businesses that can filter money back into the co-op for dividing out among shareholders.
The vote this week for the conversion of the shareholding to Kerry plc shares means shareholders now have the opportunity to sell these shares when they so wish.
History has shown us that many will hold onto the shares rather than cash them in straight away. Many keen observers expect the Kerry share price to rise given the benefits of this deal to the plc. Time will tell.
Bottomline, the Kerry Co-op story starts again right now. History counts for very little. The directors will be selected and the business management must perform to the best of its ability to get through the formative years.
Milk suppliers no doubt will be anxious, but they have a good head start on their colleagues and innovators that started in the Canon’s Field in 1974.
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