The Arrawbawn board’s decision to accept Aurivo’s offer to purchase their liquid milk sales book came as a shock to suppliers and employees at the Kilconnell plant.
It is important to remember that this is an agreement between the boards of cooperatives.
Both boards are strongly staffed by dairy farmers, complemented by a few independent directors. So, unlike other sectors, dairy farmers are in control of consolidation in their sector.
This move follows Glanbia Co-op’s decision to buy out its dairy processing business from Glanbia PLC. Kerry Co-op is also in similar discussions, with farmer-controlled boards leading the way and trying to control its future.
Liquid milk producers face an expensive winter. Concentrated feed becomes significantly more expensive, together with all other inputs.
While milk prices for grass-based production have been excellent all summer, the few remaining winter milk producers have a bigger challenge ahead.
The price of milk in stores has been the focus of liquid milk producers in the past, with angry protests being the order of the day when revenues have been squeezed.
According to CSO figures for the end of July, the price of fresh whole milk has increased by 21.2 percent over the past 12 months. But dairy farmers argue that the price in July 2021 was the same as in July 2016.
They rightly point to the concentration of power in the hands of a small number of supermarket shoppers. But that is only part of the reason for low milk prices on the shelves.
An important factor that is completely ignored is that the co-ops undercut each other to win the big supermarket deals.
These cooperatives, whose boards are full of farmers, have been ruthless in their desire to expand all aspects of their business while the farmers increased production.
Aurivo’s taking Arrabawn out of the liquid milk business should be seen as a positive move if it weakens supermarket shoppers as one co-op has less to play off against the others. Consolidation can be good for farmers if it rebalances trade.
There is a big difference in how consolidation is viewed by dairy farmers versus cattle farmers.
Kerrygold is used as a prime example of cooperatives working together to establish a niche product in a crowded market. In recent years, some farmers have been upset when an Irish cooperative broke ranks and launched a butter product that was seen as a potential rival to Kerrygold.
Dairy farmers feared that this competition could lead to lower milk prices if Kerrygold’s price was pushed down or sales volumes fell.
In the beef sector, on the other hand, the lack of competition and unproven monopoly allegations are argued.
The beef sector trades with the same supermarkets as the dairy sector, where milk, butter and beef are commonly referred to as ‘loss leaders’.
The business methods used by supermarkets do not differ from product to product.
Supermarkets do not deal with a single supplier and as more Irish suppliers compete for sales with fewer and fewer supermarkets, the greater the supermarket’s power.
Beef is in a trickier place than liquid milk. When supermarkets increase the price of beef too much, sales volumes fall as consumers switch to cheap pork and chicken instead.
The option for consumers to move away from dairy isn’t as obvious, as all other non-dairy options are generally more expensive.
Consolidation, if done well, can be beneficial for farmers, but it will not be able to change international prices or international supply and demand in our export markets.
However, it could prevent processors from undercutting each other in our home market. The magic ingredient in consolidation is trust, which is easier to find when gate prices are high.
Angus Woods is a drywall builder in Co Wicklow
https://www.independent.ie/business/farming/comment/what-beef-sector-can-learn-from-dairys-latest-co-op-takeover-41963651.html What the beef sector can learn from the recent dairy co-op takeover