‘Rebel’ suppliers to receive their marching orders from Dairygold
Former Dairygold suppliers, many of whom switched allegiance and went to Arrabawn last year, began meeting with their former co-op last week.
The dairy farmers left Dairygold as they were unhappy about the milk supply agreement that was brought in by Dairygold in 2013 and refused to sign it.
And now, facing expulsion from the co-op, they want the value of their shares back.
However, it looks like they will be expelled from the co-op and may have to wait until they are at least 65 years old before they will get back the money they invested in the co-op over years.
Abbie McCarthy farms near Macroom and met with the Board of Dairygold last week.
“I was intimidated having to go in and meet the board on my own. All I want is to leave the co-op and have the value of my shares returned to me.”
From the time Dairygold launched its milk supply agreement in 2012, it was met with hostility from a significant number of its dairy farmer suppliers.
According to Dairygold, the milk supply agreements were necessary for future financial stability and planning.
At the time, its Chief Executive Jim Woulfe said Dairygold wanted commitment from suppliers as it was upgrading its processing facilities to deal with the additional volumes expected after milk quotas went in 2015.
“It’s a two way street and we want commitment from suppliers because we need to make a significant investment in processing steel.”
Dairygold also said that it was introducing the seven-year contracts as it expected milk prices to be very volatile and wanted suppliers to think and plan ahead.
Suppliers, Woulfe said, had nothing to fear from the contract.
Yet many suppliers did fear them. But, they had nowhere to go. Gentlemen’s rules among Irish dairy processors at the time meant that they did not cross the ‘border’ into another processors’ territory, so no door was open to the unhappy suppliers.
Abbie’s brother Ned McCarthy, who farms near Kilnamartyra, says the milk supply agreement offered him nothing except uncertainty.
“You were signing a blank cheque, it’s binding on the farmer that he has to play ball with not just with Dairygold but its possible successors – if Dairygold was sold.
“Yet, the whole thing is at the discretion of the board and they can change the rules if they want.”
Meanwhile, Noel Walsh and his wife Colette say they never wanted to leave Dairygold, but feel they have been treated so badly they had no choice but to leave.
Noel says that the milk supply agreement put forward by Dairygold offered them nothing as suppliers.
“Under co-op rules, the co-op must collect all a suppliers milk and suppliers must provide all their milk to that co-op. That’s what Dairygold agreed to do with the milk supply agreement – so we were gaining nothing under the agreement,” according to Noel.
Michael Geaney said he couldn’t sign because it required him to forecast his milk supply two years into the future and the implications if you didn’t meet that forecast was too severe.
“It contains a clause that if you undersupplied your forecasted volumes by 10% (or 20,000L) or oversupplied by 20% (or 40,000L) you would be liable to penalties of 1c/L.”
Mallow Meeting I
The milk supply agreement was sent to Dairygold suppliers in October 2012. By January approximately 35% of suppliers had signed it.
Over 1,000 dairy farmers turned up at a meeting in Mallow, on January 16, 2013, which was organised by those opposed to the agreements.
The meeting heard from a solicitor arranged by the organisers, and was addressed by Jim Woulfe and a representative from the legal firm representing Dairygold.
Reports from the meeting state that the vast majority of those present wanted Dairygold to reassess the milk supply agreements, but it issued a statement the following day saying it would not withdraw the contract.
Mallow Meeting II
After this meeting, Dairygold circulated information about the consequences of what would happen if its post quota plan was not passed, including that Dairygold would be an underperforming business paying a significantly lower milk price.
It also said that it meant there would be no strategy in place for the post quota era, while it would also cause a lack of market opportunities and reputational damage with its customers.
Despite opposition, the special general meeting went ahead in Mallow on April 11, 2013, with shareholders presented with the option to vote “for or against expansion”.
The motion to endorse Dairygold’s plans, through the milk supply agreement, was passed on the day with 1,539 shareholders voting in favour, while 378 voted against it.
A month later, those still refusing to sign – approximately 5% of Dairygold suppliers – received a letter from Dairygold saying it was extending the deadline for them to sign to May 31, 2013.
The letter also stated that a bonus payment of .35c/L was conditional of signing the milk supply agreement and completing the milk volume forecast.
A small number of suppliers who had not signed the agreement were, by chance, offered an out when a neighbouring co-op reached out to them to increase its supply based.
However, a cohort remained defiant and continued their steadfast opposition to Dairygold’s plans.
In 2014, despite talk of a possible merger between Dairygold and Arrabawn it never materialised, but Dairygold didn’t put its ambitions to expand on hold.
It approached a number of Arrabawn suppliers to see if they would consider supplying the Cork co-op.
The move prompted Arrabawn’s Chief Executive Conor Ryan to say that it would seek to secure new suppliers on a pro rata basis if it lost any to Dairygold or Glanbia.
The move by Dairygold to seek new suppliers had muddied the waters of the Gentleman’s agreement between processors not to encroach into each other’s territory.
Inadvertently, it presented the rebel suppliers with an ‘out’ they never had before and they picked up the phone to Arrabawn. “We picked up the phone and asked them would they take our milk,” says Michael Geaney, “and they said yes”.
Within weeks approximately 35 dairy farmers had left Dairygold for Arrabawn, while around 20 Arrabawn suppliers went to Dairygold.
Share-up or ship out
Patrick O’Shea, who farms near Kilcorney, Millstreet was a third-generation milk supplier to Dairygold before he went to Arrabawn last year.
Under the new milk supply agreement, which he didn’t sign, he had to ‘share-up’ and increase the number of shares he held in Dairygold, if he wanted to say supplying the same amount of milk.
“Supplying Dairygold under the milk supply agreement you must have 4,000 shares for every 100,000L you want to supply. If you don’t have those shares, you have to share-up. So, between the share-up and Dairygold’s revolving fund, it was costing me 1c/L from when the milk supply agreement was brought into effect on March 31, 2013, even though I didn’t sign the contract.
“The rules had been changed as part of the milk supply agreement, which I never signed, but I still had to abide by the new rules. They just deducted it from my milk cheque every month.
“I used to have enough shares, but then had to increase at €1/share. They were taking about €4,600 a year between sharing up and the revolving fund. This was coming out of my farm’s profits, it was not tax deductible.
“But, now it looks like those shares, that I didn’t want, cannot be cashed in until I am at least 65.” He’s 41, so he could be waiting at least 24 years to cash in his shares.
Back to the Future
The immediate upside of moving to Arrabawn, Patrick says, was that he does not have to buy any more shares, so was immediately up 1c on every litre.
When Patrick left, he says, he was one of 12 suppliers his parish of Kilcorney, near Millstreet, to make the move to Arrabawn. “Between us we took about 4m litres of milk to Arrabawn.”
According to the six suppliers I met, they received 26.08c/L for their milk in January, plus a 2c/L bonus for winter milk – based on producing over 11,000L or more than 4% of their peak in the winter months.
Show Us the Money
However, it’s not a case of all’s well that end’s well. When the suppliers left Dairygold, they were in effect signing their own expulsion from the co-op. Under co-op rules they will more than likely be expelled because they no longer supply the co-op.
Abbie wrote to them in November 2015 and when she received no response, she sent them a registered letter on December 15. It too was ignored.
“In these letters I asked that money deducted from my milk cheque was not to be converted to shares at the end of the year.
“In 2014 Dairygold deducted €1,474 for share-up and €1,102 for revolving fund and I could do nothing about it only grin and bear it.”
Dairygold did not respond to her letters, but it did write to her with her share certificate on December 31, 2015, stating that she has €8,000 worth of shares with the co-op. Shares she doesn’t want.
She then received another letter on February 1 from Dairygold, as did the others I met, saying she is in breach of her obligations in relation to supplying Arrabawn without the approval of the Board.
This week and next the board of Dairygold is meeting with these former suppliers. The suppliers say they are happy to be expelled from the co-op – afterall these are the rules of the co-op.
Ned says: “We want to be removed and our shares paid back to us.”
John Twomey says that Dairygold’s rules allow the board to repay what is owed to members as long as the payment would not jeopardise the financial stability of the society.
“Would it jeopardise the financial stability of Dairygold to pay us what it owes us?”
The Arrabawn milk suppliers who went to Dairygold last year were given the value of their shares back, albeit over four years for those with a lot of shares.
However, past form suggests that Dairygold is unlikely to do this. In 2013, 12 Dairygold suppliers left for another co-op and were issued with a loan note for their shares – a loan note that cannot be cashed in until they are 65. The suppliers who met with the board last week say the board said it may return their share value in five years time.
John Twomey, who farms near Millstreet, is not happy about this. “We want the value of the shares back, not a loan note that can’t be cashed in for years. We want a clean break.”
But it’s not up to him, or any of the former suppliers. The Dairygold co-op rule book states that member expulsion and how shares are returned is at the discretion of the board.
Colette Walsh says she doesn’t expect the Dairygold board to treat her any better than she experienced before Christmas.
“I went into Fermoy to buy sprays before Christmas. As you would, I put the sprays, which were worth €550 or so down on our account, but it was refused. That’s when we found out that our credit cut down to €500, while standing in the shop. I left the sprays behind me on the counter.”
Dairygold has confirmed that it has commenced a process under the Rules of the Society relating to a small number of its former milk suppliers and says it will consider any comments, submissions or observations they may choose to make.
The spokesman said that no decision has yet been made and each individual case will be considered in the light of the comments, submissions or observations put forward by them.
Dairygold also said it would not comment any further on the details of the individual cases.