Milk Price- Please read Mod note in post #1

Good report Ed. Lots of interesting bits.
I think you are wrong on senior management taking a 10% cut. Only Jim Woulfe and the Board are taking that cut. Woulfe said there would be a 'talent drain' if they did not offer a competitive salary. LOL.

That Jim Woulfe Benevolent Fund amounts to 00.00875 cent per litre.
If you supply 600,000 litres it amounts to €1 per week. That is what you are worth to him.

I knew there would be more sh**e at the DG AGM than in Roscrea.

There is a new 2 year agreement with Glanbia on winter milk.

pedigree 6

Arrabawn AGM on today, planned for today this year.
Dairygold AGM on today, planned for today this year.
Grass and Muck on today, planned for today 2 years ago.

Not having a go but where were all the shouty angry farmers today.

Reminds me of the scene in the film Amazing Grace when William Wilberforce is trying to get the bill to abolish slavery through the House of Lords and he schedules the vote for the day when the derby is on in ascot and all the lords are at the races and the vote goes in his favour and the bill passes.

Well planned job.
Funny because it probably is true.:o
See yous next year.

I think you get how they think Pedigree.

Some farmers At DG AGM were worried about the 100M with a long stop date of Dec 2017. Management said, it was fine!!!.
Like financing extra land purchase with cash flow and overdraft.
Bank has them by the short and curlies if they wish to push.

It isn't the Board or the Management or indeed the shareholders will decide the future of DG. Its their consortium of 5 lenders.
Will they feel more at ease with Glanbia? Its their call.

I think a lot of farmers at the AGM must have coulrophobia.

pedigree 6

wats the craic wrote: »

i been hearding glanbia are soon ready to pounce on dairygold to buy ye out within 12 months to 18 months , was told this by a board member of glanbia a couple of weeks ago . ye will be rightly screwed if true .

Do what they did in wexford. Run the company down for 2- 3 years.
Then glanbia will come in and save/buy the company as there will be no alternative and have it backed by the IFA as well.
Farmers happy, workers happy, everyone happy.;)

jaymla627

pedigree 6 wrote: »

Do what they did in wexford. Run the company down for 2- 3 years.
Then glanbia will come in and save/buy the company as there will be no alternative and have it backed by the IFA as well.
Farmers happy, workers happy, everyone happy.;)

Only difference this time is Glanbia will probably make money out of the deal by the time all the kerry gold suppliers have "shared-up" to avail of their much lauded co-op support payments, probably have the details and all the numbers crunched already

pedigree 6 wrote: »

Do what they did in wexford. Run the company down for 2- 3 years.
Then glanbia will come in and save/buy the company as there will be no alternative and have it backed by the IFA as well.
Farmers happy, workers happy, everyone happy.;)

I know some very happy farmers who moved to strathroy

Water John wrote: »

Good report Ed. Lots of interesting bits.
I think you are wrong on senior management taking a 10% cut. Only Jim Woulfe and the Board are taking that cut. Woulfe said there would be a 'talent drain' if they did not offer a competitive salary. LOL.

That Jim Woulfe Benevolent Fund amounts to 00.00875 cent per litre.
If you supply 600,000 litres it amounts to €1 per week. That is what you are worth to him.

I knew there would be more sh**e at the DG AGM than in Roscrea.

There is a new 2 year agreement with Glanbia on winter milk.

That's what I get for wearing dark glasses.

wats the craic

Farmer Ed wrote: »

I know some very happy farmers who moved to strathroy

me included . wat my elderly mother said about jim bergin and co , could not be repeated in public lol .

kevthegaff

If glanbia take over DG I can't see any positives, next up will be arrabawn:-(

wats the craic

pedigree 6 wrote: »

Do what they did in wexford. Run the company down for 2- 3 years.
Then glanbia will come in and save/buy the company as there will be no alternative and have it backed by the IFA as well.
Farmers happy, workers happy, everyone happy.;)

the problem in wexford the manegment had no history in running a company on their own and a couple of had agenda of merging with glanbia at all costs . they always relied on the parent company to make the hard dedicions . prob was the most stressfull time of farming life with all the ****e and talking ****e behind my back , they are very quiet now doe ...

mf240

Glanbia are going to feed all the Chinese babies and butter ever last slice of Nigerian bread.

Meanwhile paddy Irish farmer won't Have time to piss, trying to look after a couple of hundred cows on his own for peanuts. Glanbia are offering free heart screening to suppliers now but it's our fcuking heads need examining!

kevthegaff wrote: »

If glanbia take over DG I can't see any positives, next up will be arrabawn:-(

is there any other option

Well there was a master plan down south about 25 years ago when Dairygold was formed. There was a pot of dosh and room for four seats on the Board of DG for the 4 West Cork Coops areas. ICOS delighted.
They are all still dreaming. People have choices.

its hard to figure things out,fellas who are not members are going to agm but not going to their own agm and other fellas who are members are not going to agms.im lost

alps

keep going wrote: »

is there any other option

Of course there is.....just say NO..

These guys aren't used to No..They don't know how to deal with No...They get confused by No...

They're just too used to hearing Yes...

alps wrote: »

Of course there is.....just say NO..

These guys aren't used to No..They don't know how to deal with No...They get confused by No...

They're just too used to hearing Yes...

and carry on as we are? everyone happy,the current structure is almost 30 years old in alot of respects.what about a few new ideas.should farmers leave processing alltogether and just have marketing arm,buy back plcs control of processing.break down the coops ionto seperate businesses and pull out of retailing agri supplies.amalgamate some but not all.can not the west cork be repeated on larger scale where milk processing is separate to goops business.do we need to pay the right people more.should we be actively looking to partner outside our country.should certain businesses stop trying to be all things to its shareholders.would some businesses be better off as part of a large foreign multinational.,is the coop model dead in this self centered and self absorbed times.how should p[rocessing be financed,should farmers play any part in that.what sort of time frame should be adopted for investments.if you were to start from scatch what would you do.

alps

Oh boy...Some amount of questions there..All very relevant..Would love to have a go at them but not tonight..

What I would say is that, if you were yo replicate a model, for me it would be Friesland Campina...control of product from farm to fork. Profits made anywhere in yhe chain are channeled back towards the shareholder farmer.
System that encompasses the advantages of our coop/plc systems with the shareholder (bondholders)benefiting. Dividends and payouts only to existing suppliers directly proportional to their supply. An entry and exit mechanism for bonholders, and a tax effecient way of building a pension fund for the farmers....

Not a misprint...A pension fund for the farmers...

keep going wrote:

and carry on as we are? everyone happy,the current structure is almost 30 years old in alot of respects.what about a few new ideas.should farmers leave processing alltogether and just have marketing arm,buy back plcs control of processing.break down the coops ionto seperate businesses and pull out of retailing agri supplies.amalgamate some but not all.can not the west cork be repeated on larger scale where milk processing is separate to goops business.do we need to pay the right people more.should we be actively looking to partner outside our country.should certain businesses stop trying to be all things to its shareholders.would some businesses be better off as part of a large foreign multinational.,is the coop model dead in this self centered and self absorbed times.how should p[rocessing be financed,should farmers play any part in that.what sort of time frame should be adopted for investments.if you were to start from scatch what would you do.

Blank canvas?

Split collection from processing, let any farmer invest and contract in whatever processing at whatever risk suits him but let the coops collect the milk and take it there.

Not one powerful processor but multiple processors and multiple coops so everyone can supply milk to the greatest possible number of different buyers.

That way the processors must compete for milk which keeps them honest. if they don't have to do that (as now) they have no incentive to reduce costs or, because they can pass then on to the captive supplier base via the milk price.

You need a host of inventive processors big small and tiny supplied from all over the nation by lots of efficient coops carrying the milk. At its heart a co-op is just a way of sharing a milk lorry.

If farmers want to invest in and commit to particular processors let them do that as an investment decision and by supply contract, not have it forced on them by an accident of geography. Let no farmer be a slave to the powder trade just because his only lorry goes in that direction.

kowtow wrote: »

Blank canvas?

Split collection from processing, let any farmer invest and contract in whatever processing at whatever risk suits him but let the coops collect the milk and take it there.

Not one powerful processor but multiple processors and multiple coops so everyone can supply milk to the greatest possible number of different buyers.

That way the processors must compete for milk which keeps them honest. if they don't have to do that (as now) they have no incentive to reduce costs or, because they can pass then on to the captive supplier base via the milk price.

You need a host of inventive processors big small and tiny supplied from all over the nation by lots of efficient coops carrying the milk. At its heart a co-op is just a way of sharing a milk lorry.

If farmers want to invest in and commit to particular processors let them do that as an investment decision and by supply contract, not have it forced on them by an accident of geography. Let no farmer be a slave to the powder trade just because his only lorry goes in that direction.

in that model,who owns the processors and who owns the transporters

alps wrote: »

Oh boy...Some amount of questions there..All very relevant..Would love to have a go at them but not tonight..

What I would say is that, if you were yo replicate a model, for me it would be Friesland Campina...control of product from farm to fork. Profits made anywhere in yhe chain are channeled back towards the shareholder farmer.
System that encompasses the advantages of our coop/plc systems with the shareholder (bondholders)benefiting. Dividends and payouts only to existing suppliers directly proportional to their supply. An entry and exit mechanism for bonholders, and a tax effecient way of building a pension fund for the farmers....

Not a misprint...A pension fund for the farmers...

to be fair i dont expect anybody to have all the answers nor do i,just feel we should think a few ideas out.tell us more how the balance of profit is maintained in friesland.

keep going wrote: »

to be fair i dont expect anybody to have all the answers nor do i,just feel we should think a few ideas out.tell us more how the balance of profit is maintained in friesland.

I think we need to take a closer look at the west cork model first. Then we need to look at the modern set of co op rules as put together on behalf of the wexford milk suppliers. I feel most likely if it was to be looked at objectively we would scrap the ICOS. When was the last time their president didn't come from one of the big two co ops?
All they have done over the past year is constantly call on co ops to cut the price of milk. What on earth do we need them for?

Buford T. Justice XIX

kowtow wrote: »

Blank canvas?

Split collection from processing, let any farmer invest and contract in whatever processing at whatever risk suits him but let the coops collect the milk and take it there.

Not one powerful processor but multiple processors and multiple coops so everyone can supply milk to the greatest possible number of different buyers.

That way the processors must compete for milk which keeps them honest. if they don't have to do that (as now) they have no incentive to reduce costs or, because they can pass then on to the captive supplier base via the milk price.

You need a host of inventive processors big small and tiny supplied from all over the nation by lots of efficient coops carrying the milk. At its heart a co-op is just a way of sharing a milk lorry.

If farmers want to invest in and commit to particular processors let them do that as an investment decision and by supply contract, not have it forced on them by an accident of geography. Let no farmer be a slave to the powder trade just because his only lorry goes in that direction.

For me, that looks too similar to what existed when the Dairy Disposal Board was set up to move away from farmers not having any say over processing.

And that time and the times of the DDB were very bad times for dairy farmers.

keep going wrote: »

in that model,who owns the processors and who owns the transporters

First and most important principle, farmer co-ops own the transporters. The overriding principle of a co-op should be to get the farmers milk to the market, ie. to the processor able to pay best for it at the time, subject to the approval of the farmer. In other words the co-op takes the milk to market because sharing an expensive time sensitive milk lorry with your neighbours is quite obviously the common sense thing to do.

Processors can be owned by anybody who wants to process. In the first instance of course most co-op suppliers already own part of a processor, so perhaps you would split these out. Existing suppliers would end up with distribution shares, processing shares, and milk supply agreements would then need to be addressed.

Distributors could certainly keep agri-supply, inputs etc. I would have thought. Is there any obvious reason why a large scale international dairy commodity business is the best entity to weigh dry and compound straights or sell fertiliser, or a cup of coffee, or green diesel, or a bunch of filter socks?

I don't see why a farmer should need to own a processor to supply it, but there is no reason at all why he shouldn't choose to support a particular processor by investing in it (as he does today) - he might choose to support more than one. And of course he can support a processor by contracting with it for his milk supply (or perhaps an equivalent volume of a certain quality) - at a fixed price, at a variable price, for a term or on whatever he can agree. Maybe he wants to basically supply powder at the floating market price, have a fixed price liquid contract with another supplier, and supply 30,000 litres a year for free to a small scale cheese-maker in return for shares while they get started and into market, whatever - provide a rich efficient distribution network and let entrepreneurial creativity do the rest.

There's obviously an issue of logistics - where the actual milk from an actual farm goes. Some processors will need to know this (particularly the artisan ones) and others won't care as long as the quality can be certified. It ought to be possible for co-ops to exchange powder milk in the way electricity companies do - and simply deliver the net balance to each other to minimise costs. In other words, if I want to supply 100,000 litres to powder the milk might come from Whelan's tank, because when push came to shove less lorry journeys were involved. That much is not rocket science.

And of course there is the big issue - what happens to the milk nobody wants? The answer is, the same as happens today, someone will buy it for the minimum price and turn it into powder for intervention or God knows what - and that is what is happening today, no matter how much it is disguised by loyalty payments, support payments, or any other return of shareholders funds.

Edit:

And when excess milk has to be virtually given away, more farmers will choose to support some little artisan, or an innovative vodka, or a science based protein start up, and some will fail and some will succeed and each time around we will have a more exciting, higher premium, dairy processing market so sell into. Our milk supply will grow because we have the products for it, not the other way around. Ask yourself, if amazon or google or apple were doing dairy processing in Ireland, would they really do it the way it is done today?

Buford T. Justice V wrote: »

For me, that looks too similar to what existed when the Dairy Disposal Board was set up to move away from farmers not having any say over processing.

And that time and the times of the DDB were very bad times for dairy farmers.

See my more detailed answer above. Farmers should certainly invest in and own processors just as they do today, they just shouldn't be tied by geography or to a single processor who gets fat and inefficient by exploiting their de facto monopoly on the milk lorry,

We need processors to compete, and to be able to enter at any scale, invent, create and keep each other honest (i.e. keep their own costs down) if we are to make anything of Irish milk other than powder.

alps

keep going wrote: »

to be fair i dont expect anybody to have all the answers nor do i,just feel we should think a few ideas out.tell us more how the balance of profit is maintained in friesland.

It's been 5 years since I've been through this operation so fir give me if there are some inaccuracies, but the just of it will be accurate. Heading on a fact find mission (ahemm) in June and will get up to speed with the detail.

Suppliers are required to hold a specific amount of bonds relative to the amount of milk they supply. They can build up these bonds over a time but will only be paid dividend on the bonds they hold, therefore there is an urgency to get up to the required amount.
The coop pays a "market leading price" as some here may be familiar with. The coop profits are then split at the end of the year with 50% staying with the coop and 50% going to the farmers. The 50% to the farmers is split 20% as a 13th milk payment on what you supplied and 30% as a bonus onto your bonds, relative to bond/supply figures. If you only hold half the required bonds that you require for your milk supply then you will only get half of this 30% payment.
There is no point in holding bonds in excess of your milk supply requirement, as you will only get the bonus relative to your supply.
My impression is that there are tax insentives to this bond fund. It may be tax allowable on purchase as was the quota, and the bonus added to the pot tax free through your working life. This fund grows as your pension fund, which is available to draw down on retirement. Of course when you stop supplying, you will no longer get bonuses. Bonuses are kept for suppliers.

The coop has the use of the 50% of profits for reinvestment, expansion etc. It's a quantifiable figure that management know they will have the use of without opposition from yhe suppliers, and the suppliers can see that the profits derived from their endeavour, make their way back to the farm gate, and not off to non producing shareholders.

Again, will brush up on the data in the summer...

Some excellent positive thoughts and ideas there Kowtow.
In the eyes of our present lords, I'd say your ideas are dangerous.

The renewable energy market is a good analogy. You can accept being tied with a guaranteed price range or be free to play the market yourself.
The only reason people have long term Power Purchase Agreement, which have a long term fixed price is to obtain the capital finance to build the generator.

This particular aspect does not apply to dairying so, either a price range guaranteed or one has licience to play the market and also supply specific clients.
The key part of your suggestions is the mix of options. these then are in constant flux.

Sad to see 130 out of 3,000 turn up at DG AGM. Worse was the beaten down nature of those present.

I'm going to add an imaginary worked example of what happens on day one, because some people arent as comfortable with balance sheets / shares / etc. rather than just milk price:

Supplier Fred currently sends 1 Million litres to OldCoop at 27c per litre. He's not quite sure but he suspects that 2c a litre of that is some kind of support, frankly hes grateful for it if a bit worried for the future.

OldCoop splits into LorryCoop and ProcessingCoop. He gets distribution shares (should be worth near to nothing, just working capital for transport fee) in LorryCoop and processing shares & a supply agreement from ProcessingCoop for the balance. Now time to look at milk supply agreements.

ProcessingCoop (which he is a shareholder and a supplier of, milk delivered by transport coop) says - ok boys, we've actually only got markets for 900,000 litres at 27c, the rest is costing us 6c a litre which is coming out of your own shareholders funds and we we can't do any more, so we'll take 900,000 litres from you at 27c for the next 12 months, but your distributor will have to clear the rest at market or sell to someone else. Fred agrees to supply the 900k litres, and with the surplus elects to sell 80,000 litres at 21c for powder through his distributor. He'd rather give milk away at that price so for a bit of a punt he manages to get a premium contract at 40c for the other 20,000 litres with a local yoghurt guy whose rented some space from LorryCoop and got a grant from the Enterprise Board. The only drawback is the yoghurt guy can only pay him in shares & yoghurt but there is a beach nearby and it's tasty stuff, and if he can make a go of it he'll be good for 50k litres a year in the future.

Fred will lose 6c per litre on the 80k of his surplus powder that went to intervention, but he will get that back via dividend, or in shareholder capital from the OldCoop Processor, because they didn't have to lose the money selling powder on his behalf as they had been doing all along. So far he hasn't lost a penny.

And in theory he's made a bit more than he would have, because he sold 20k litres at 40c to the yoghurt guy.

Two years later he's added a couple of milk contracts (one with shares attached) in two other processors. One a big name baby food who now buy from all over the country, and one an exciting protein foods manufacturer. He manages to get fixed price contracts for 250k of his production at 29c - which makes him feel safe enough to expand production to 1.3 million litres as he now has two fixed price contracts and a transparent relationship with 4 processors through a single farmer owned distribution mechanism.

Of all the processors he supplies, his original (OldCoop) dissapoints him most. They say they'll take the extra milk he's going to produce but they've been a bit slow in getting rid of expensive directors and a bit stuck in their old ways. There's another converted co-op down the road who are running a bit leaner and will pay more and fix a larger amount if he wants it, so he told the new interim manager of OldCoop (ProcessingCoop) last week that if they want a shout at his extra litres (which they are crying out for, because they are losing quite a few of the go-ahead suppliers) they had better make sure they present some decent plans - with sensible costings - and reduced boards & executive pay at the suppliers meeting next month. If they don't, he'll send half his supply down the road. His Father and Grandfather both built that co-op - and they make some good products - so he wants to give it a chance, but they need to get their act together and stop wasting his money.

And so on..

Milked out

kowtow wrote: »

I'm going to add an imaginary worked example of what happens on day one, because some people arent as comfortable with balance sheets / shares / etc. rather than just milk price:

Supplier Fred currently sends 1 Million litres to OldCoop at 27c per litre. He's not quite sure but he suspects that 2c a litre of that is some kind of support, frankly hes grateful for it if a bit worried for the future.

OldCoop splits into LorryCoop and ProcessingCoop. He gets distribution shares (should be worth near to nothing, just working capital for transport fee) in LorryCoop and processing shares & a supply agreement from ProcessingCoop for the balance. Now time to look at milk supply agreements.

ProcessingCoop (which he is a shareholder and a supplier of, milk delivered by transport coop) says - ok boys, we've actually only got markets for 900,000 litres at 27c, the rest is costing us 6c a litre which is coming out of your own shareholders funds and we we can't do any more, so we'll take 900,000 litres from you at 27c for the next 12 months, but your distributor will have to clear the rest at market or sell to someone else. Fred agrees to supply the 900k litres, and with the surplus elects to sell 80,000 litres at 21c for powder through his distributor. He'd rather give milk away at that price so for a bit of a punt he manages to get a premium contract at 40c for the other 20,000 litres with a local yoghurt guy whose rented some space from LorryCoop and got a grant from the Enterprise Board. The only drawback is the yoghurt guy can only pay him in shares & yoghurt but there is a beach nearby and it's tasty stuff, and if he can make a go of it he'll be good for 50k litres a year in the future.

Fred will lose 6c per litre on the 80k of his surplus powder that went to intervention, but he will get that back via dividend, or in shareholder capital from the OldCoop Processor, because they didn't have to lose the money selling powder on his behalf as they had been doing all along. So far he hasn't lost a penny.

And in theory he's made a bit more than he would have, because he sold 20k litres at 40c to the yoghurt guy.

Two years later he's added a couple of milk contracts (one with shares attached) in two other processors. One a big name baby food who now buy from all over the country, and one an exciting protein foods manufacturer. He manages to get fixed price contracts for 250k of his production at 29c - which makes him feel safe enough to expand production to 1.3 million litres as he now has two fixed price contracts and a transparent relationship with 4 processors through a single farmer owned distribution mechanism.

Of all the processors he supplies, his original (OldCoop) dissapoints him most. They say they'll take the extra milk he's going to produce but they've been a bit slow in getting rid of expensive directors and a bit stuck in their old ways. There's another converted co-op down the road who are running a bit leaner, and he told the new interim manager last week that if they want a shout at his extra litres (which they are crying out for, because they are losing quite a few of the go-ahead suppliers) they had better make sure they present some decent plans - with sensible costings - and reduced boards & executive pay at the suppliers meeting next month.

And so on..

Is the market not like that in thr UK? Suppliers switching and changing and then getting caught out in a prolonged down turn and a lot more than 10% of milk is going at below oat of production? And they have a big domestic market