1. The Development of Dairy Co-operatives in Ireland TJ Flanagan ICOS September 2016 Irish Co-operative Organisation Society (ICOS) 1

2. ICOS Represents over 130 co-operative businesses and organisations in Ireland 2 Irish Co-operative Organisation Society (ICOS)

3. Brief History Evolution Present Current Issues Co-op Approaches Dairy Co-operatives in Ireland 3 Irish Co-operative Organisation Society (ICOS)

4. Brief history Ireland had traditionally supplied butter to Britain Small farmers churned butter at home, for sale to traders Issues with quality and small scale of individual butter makers in late 1800’s Danes were becoming stronger in UK market New technologies emerging (steam separator). 4 Irish Co-operative Organisation Society (ICOS)

5. Horace Plunkett and IAOS Co-op creameries established by Sir Horace Plunkett, a Unionist MP, landowner, businessman from 1880’s onwards First Co-op creamery founded in 1889. IAOS formed in 1884 5 Irish Co-operative Organisation Society (ICOS)

6. Horace Plunkett and IAOS In 1903 370 dairy societies By 1914 there were over 1,000 societies and nearly 90,000 members Difficult times in rural Ireland, Dairy Disposal Co. established in 1927 Slow painful evolution until 1960’s (preparation for entry to EEC) 6 Irish Co-operative Organisation Society (ICOS)

7. Early 1970’s investment in driers etc 100% increase in volume from 1973 to 1983 Milk Quotas in 1984 Stagnation in volumes for 30 years Co-ops evolved other businesses Pigs Agribusiness Feed Milling Consumer foods Windfarms Late 1980’s, the Plc arrived; Kerry, Golden Vale, Avonmore, Waterford, Donegal…… Evolution 7 Irish Co-operative Organisation Society (ICOS)

8. Total Milk production 7 bn litres (8% liquid milk) 10 milk processors (Co-op and Co-op/plc) 17 milk purchasing Co-operatives Some of the Purchasing Co-operatives are shareholders in Processing Co-ops Most Co-ops are Multipurpose Milk Processing Liquid Milk Consumer Foods Agri Trading Feed Milling Other businesses The Irish Dairy Industry 8 Irish Co-operative Organisation Society (ICOS)

9. 17,000 dairy farmers, producing c 400,000 litres each Avgerage 80 cows at 5,000l per cow Average Constituents. 3.99% fat, 3.50% protein 90% of milk produced in spring calving herds 10% of milk from year round calving for liquid milk, and some winter manufacturing milk schemes. 85% of total production is exported Milk production 9 Irish Co-operative Organisation Society (ICOS)

10. Seasonality 10 Irish Co-operative Organisation Society (ICOS)

11. 500 million litres for liquid milk 6.5 billion litres for manufacturing 60% of milk used to make butter, 190,000t 25% of milk used to make cheese, 210,000t 40,000t Casein 65,000t Whole Milk Powder 200,000+ other powders, SMP, FFP, Whey, Chocolate crumb Increasing focus on Infant Formula Ingredients Current Milk Price is 24-25c. Average over the past 5 years has been 32/33c (@3.6%fat, 3.3%prot). Irish Dairy Production 11 Irish Co-operative Organisation Society (ICOS)

12. Routes to Market Ornua (t/o €2.1bn) Kerrygold Butter UK Cheese Business International Milk Powders Traders Individual Co- ops/Companies Supply relationships with Infant Formula Companies 12 Irish Co-operative Organisation Society (ICOS)

13. This is the real playing pitch…. 13 Irish Co-operative Organisation Society (ICOS)

14. Major Challenges….operations 14 Irish Co-operative Organisation Society (ICOS) Expansion post 2015 (50% by 2020) Significant investment taking place in processing capacity, innovation and marketing The industry is only moderately profitable (1-2%) Volatility; damaging to suppliers and to consumers Counteract the growing strength of retailers.

15. How can we support farmers to achieve profitability? Volatility management tools? Fixed price schemes Taxation measures Financial tools Quality and Efficiency Programmes Access to cheaper capital Major Challenges……support farmers 15 Irish Co-operative Organisation Society (ICOS)

16. A proposal currently in front of the Irish Tax Authorities Allowing farmers to defer up to 5% of their milk income for up to 5 years Only pay tax when the money is received Co-op holds the money Dramatically reduces the level of volatility in after-tax income. Will allow farmers and Co-ops to voluntarily enter into “Cap and Collar” milk pricing schemes to reduce volatility. ICOS 555 Scheme 16 Irish Co-operative Organisation Society (ICOS)

17. Quality Assurance Bord Bia (Irish Food Board) Origin Green programme All milk suppliers are audited to an International Standard Funded and facilitated by Co-ops Building Quality and Efficiency 17 Irish Co-operative Organisation Society (ICOS)

18. Glanbia Milkflex Scheme. €100m fund Interest 3.75% over Euribor (0%) Milk price<28c/l for 3 months repayments will be reduced by 50% for the following six months (4 times max) Milk price fall <26 c/l for 3months all loan repayments suspended for six months (2 times max) Milk price >34 c/l for 3 months, loan repayments, where due, will increase by 25% for the following six months (4 times max) Standard term of eight years, but may be extended by two years. A loan set-up cost of 1.25% will be deducted from the approved loan. Cheaper Capital 18 Irish Co-operative Organisation Society (ICOS)