Co-op News September 2019: Agriculture

Price wars, demutualisations,
mergers, climate change
Hard times for dairy co-ops?
Last month saw another high-profile casualty in the
dairy co-op sector, as New Zealand’s Westland was
sold to Chinese company Yili.
This follows a turbulent few years for the dairy
industry, with global prices remaining volatile
and fierce competition for markets – while for
those working in the UK and Ireland, there is the
added uncertainty of Brexit, which threatens to
disrupt operations.
Repercussions for co-ops include the pricing crisis
and subsequent demutualisation of Australia’s
Murray Goulburn – a major, long-standing player in
the sector – and a large number of consolidations.
Last month in the US, the 300-member St Albans
Cooperative Creamery, with farms in Vermont,
New York and New Hampshire, merged with Dairy
Farmers of America, which has 8,100 farms across
the country and is based in Kansas City. It had been
struggling with low milk prices for several years and
saw a net loss of 20 farms from its membership,
leaving it with too low a capacity to compete in
the market. St Albans’s members voted 99% in
favour of the move, which will bring much needed
investment from DFA.
“It is absolutely necessary.
The present situation in
Latvia – 33 dairy co-ops
– in such a small territory
is absurd. It is not the future”
In Ireland, LacPatrick and Lakeland co-op
merged, and Dairygold co-op has cited Brexit
concerns as it signalled its willingness to talk with
potential merger partners.
Such mergers can help co-ops pool resources
and gain more leverage in the market. For
instance, Latvian dairy co-operative Piena Cels
has just announced plans to merge with Estonian
co-op E-Piim so they can jointly invest €100m in
a new dairy plant in Estonia for processing milk.
The plans – backed by EU funds, a bank loan and
private investments – will allow dozens of small
co-ops to improve their market position.
“It is absolutely necessary. The present situation
in Latvia – 33 dairy co-operatives – in such a small
territory is absurd. It is not the future,” said Piena
Cels chair Raimonds Misa.
The troubles affecting the dairy industry are
highlighted by New Zealand dairy co-op Fonterra,
which expects to make a reported loss of NZ$590-
675m (£310-355m) for the year to 31 July.
The loss – which has forced Fonterra to axe this
year’s dividend – comes from a mixture of factors.
The co-op hit trouble with its drive for overseas
expansion, which has seen it close a business in
Venezuela and suffer impairments on a Brazilian
venture. It has also been impacted by domestic
competition and environmental factors, with
a drought hitting its Australian operations.
Drought has also affected the industry in Europe,
with dairy co-op Arla handing all its profits to
members hit by last year’s heatwave. This points
to climate change hitting the agri sector with
a double whammy, putting pressure on them to
reduce greenhouse emissions on the one hand,
and bringing more uncertain weather conditions on
the other.
But leading lights of the co-op movement say the
model remains a resilient one, well-placed to help
farmers ride out uncertainties in the market.
Craig Presland, chief executive of apex body
Co-operative Business New Zealand, says he has no
long-term concern that either of the country’s two
remaining dairy co-ops – Fonterra, which produces
around 82% of the country’s milk, and Tatua Dairy,
which produces around 1%, will demutualise.
He says the co-op model remains an effective
mechanism for farmers to get a good price for
their milk while minimising the cost of inputs.
But he also cites analysis of Westland’s downfall
By Miles Hadfield
36 | SEPTEMBER 2019