FARMER co-operatives should grow by mergers rather than expensive takeovers, according to Irish dairy leader, Mike Magan, who says Australian milk producers could learn a lot from the route taken by the Irish milk processing sector.
Mr Magan’s take on farmer co-operatives and corporate wheeling and dealing for milk processing was lapped up at the recent 2010 Aust-ralian Dairy Conference on the South Coast, since many milk producers have recently had to consider their voting options on buy-out offers for their grower-run businesses.
Dairy companies have not been alone as the target of neighbouring processors’ expansion moves or overseas initiated takeovers, with the grain industry undergoing major consolidation in recent years.
Mr Magan has held several chairmanship roles with agricultural bodies in Ireland but it was the advice from his time as chairman of Lakeland Dairies Co-operative, the country’s second largest dairy co-op, which Australian producers took the most from.
He believed strongly in the co-op model, but said changes had to be made.
“Co-ops are the best model for the farmer to retain control. It is the best model for evening out highs and troughs in pricing,” he said.
“But co-ops must not root themselves in the past.”
Mr Magan argued a “better standard of people to represent the farmer” was needed on co-op boards.
He said directors had the best ability to manage the products and advance the farmers’ interests, rather than simply representing a geographical supply region.
“The issue that we share is trying to retain the maximum margin as primary producers,” he said.
He urged Australian milk producer shareholders not to “make the same mistakes we made for short-term cash benefits” after outlining the story of Lakeland’s expansion.
The company was formed 20 years ago after merging two regional co-ops which were not contiguous to each other.
Their territory was separated by Baileboro co-op, which was instead bought by a large meat processor.
That venture changed hands three times before Lakeland eventually bought it six years ago, but Mr Magan said the purchase, for many years, strangled those who had stayed loyal to co-op ideal.
“To get the synergies offered when Lakeland bought back the ‘wayward one’ we embarked on a rationalisation program selling non-core assets,
dropping winter milk bonuses, closing a feed mill and two milk processing sites.
“We needed to raise the funds to buy the neighbouring entity.
“The money obtained by the original shareholders (of Baileboro) was lost to the dairy industry, but if we
all could have merged way back, many millions of euros would have been in dairy farmers pockets’ today.”
With his own farm, “Bunacloy” at Killashee in County Longford in the heart of Ireland, turning off 1.1 million litres from 200 cows, Mr Magan was optimistic about Ireland’s immediate dairy future.
Email a friend