This Friday, the members of Avonmore and Waterford co-operatives have the opportunity to approve a major step forward for the dairy industry. Already they have voted once to approve a merger between
Avonmore and Waterford Foods, a move which would create the fourth biggest dairy company in the world, but the rules of both societies dictate that a second vote must also be held. Yesterday, shareholders of Avonmore plc approved the move at extraordinary general meetings, leaving Friday's meetings as the last hurdle to full approval from stakeholders in both groups.
A "yes" vote is likely, though not guaranteed. At the first co-op meetings, held earlier this month, Avonmore members voted in favour by a majority of almost 98 percent. In Waterford, the vote was 82
percent in favour. Given that a 75 percent majority will be needed for the second time next Friday, it cannot yet be taken for granted that the Waterford farmers will approve the move, although for the
"no" lobby to win over 75 percent would require a much lower turnout from those in favour than attended the first meeting. Scale is vital in the dairy industry internationally and the combination of Avonmore and Waterford would create a formidable company. It would have annual sales of around £2.5 billion and operating profits of
£100 million, a scale significant enough to allow it to be a powerful player in a number of markets. It would control around a third of the Irish milk pool and 15 per cent of the British pool.
The farmers in both co-ops will retain a majority stake in the enlarged group, owning a 55 percent stake, after benefiting from a cash boost as some shares are "spun-out" to farmer shareholders.
Unfortunately, some rationalisation of the enlarged company is bound to result in job losses, although both groups have promised that there will be no compulsory redundancies. But with increased competition inevitable in the international dairy market and the likelihood of reduced supports from the EU likely, it is surely better to move now to create a more competitive industry than to wait until change is forced by market conditions.
The merger plan also raises some question for national policy and is likely to be examined by the Department of Enterprise, Employment and Trade and the Minister, Ms Harney. She may decide to refer it to the Competition Authority to examine issues such as the market share the combined group will hold of the Dublin liquid milk market.
Policy-makers may feel that there is a choice to be made between competition on the home market and creating groups big enough to compete internationally. It is certainly vital that competition policy takes an active role in policing markets for goods and services in Ireland. And there may be competition issues to be examined in the context of Avonmore and Waterford.
However, given the cut-throat nature of the retail sector all suppliers will be put under pressure to give good value to the multiples and allow the lowest possible price to the consumer. If the retail groups are not happy with what is on offer from
Avonmore/Waterford, they will simply go elsewhere. Also, the
Minister, Ms Harney, must take into account the vital importance of the merger for the future of the dairy sector. And so should the farmers, who will vote next Friday.