Golden Vale leads the way

 

The past week may come to be seen as a landmark in the Irish dairy co-operative industry, with confirmation that Golden Vale Co-op has bid £22 million (€28 million) to buy the parts of Golden Vale plc's business that the plc does not want. Golden Vale chief executive Jim Murphy has made no secret of his belief that the plc had no future remaining in the commodity dairy businesses favoured by his predecessor, Jim O'Mahony. Growth, if it were to come, had to mean Golden Vale plc got closer to the consumer and concentrated its energies on consumer foods.

The milk processing business, beset by cyclical market movements and the requirement to pay milk suppliers the (often uneconomic) price they believed they should get, did not fit into that category and, according to the Murphy formula, had to be disposed of. Now it seems that Golden Vale Co-op is going to get back to its roots and become a dairy co-operative whose prime function is to provide a top price for milk without having to worry about the interests of outside shareholders and the price of shares on the stock market.

That is how it should be. If the main priority of farmers is the price they get for their milk, it is appropriate that they do so through a co-op.

Assuming Golden Vale Co-op's bid to buy back the milk and agri-trading operations succeeds - and that seems a near-certainty - the plc will be left to pursue its consumer foods strategy with the added bonus of £22 million to part-fund the expected takeover of Prize Foods. The co-op can then focus all its attentions on what co-ops should be doing - looking after the interests of their members.

For co-ops it does not matter if there is an occasional fall in profits - they don't have to worry about outside shareholders, share price, price/earning multiples or any other measurements of a company's worth used by the stock market.

It's a different story for Glanbia, the lame duck of the Irish food industry. The co-op owns a majority stake in the plc and that situation is apparently cast in stone. Laden down with vast debt, Glanbia has greater need than anybody else in the food industry to find a structure that will serve the interests of both farmers and outside shareholders. The current structure does not fit the bill.

When four of the co-ops floated on the stock market in the late 1980s, there were hopes that access to equity funding would be the foundation for rapid international expansion. Ten to 15 years on, only Kerry has been successful in that goal. Avonmore, Waterford and Golden Vale all valiantly tried and failed to carve out an international manufacturing business.

Maybe it's time for the Irish food industry - apart from Kerry - to scale back its ambitions.