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Sunday 22 January 2017

Dairygold looking at €130m plan for Mallow

Funding arrangements in place for 15t/hr milk drier at 22ac site

Published 15/02/2012 | 06:00

Dairygold is eyeing up a €130m investment at their 22ac processing site at Mallow.

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While it may be another eight weeks before the board at Ireland's largest dairy co-op approves the plan, projected costings and likely funding arrangements have already been laid out.

Dairygold CEO Jim Woulfe outlined his preference for a revolving fund, financed by farmers, to cover up to 30pc of the cost of the facility.

"It's not practical to leverage the entire cost from the bank," Mr Woulfe told members of the Agricultural Science Association (ASA) at a seminar in the Horse and Jockey hotel last week.

However, the Dairygold boss admitted that international banks had come knocking on the co-op's door looking to finance future expansion.

"We have the financial facilities in place to fund a €130m investment in Mallow over a 12-year period," Mr Woulfe said. "But the bottom line is that no matter where the money comes from, it will be the price of the litre of milk that will eventually make the repayments."

He believes that a 15t/hr dryer would offer the most economically advantageous option post-quota. While capacity would be built up in a two-stage process in tandem with increasing milk supplies, the ultimate goal is to process an extra 23m litres of milk over their current peak of 30m litres per week.

On the basis of a 60pc usage of capacity averaged out over a full year, this would enable the co-op to process an extra 700m litres per year.

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While Mr Woulfe stressed that his co-op was "all for collaboration" with other dairy processors, he said that it would be happy to proceed with its plans for Mallow in the absence of a better option.

"We can capitalise on the sunken money from the past in the brownfield site at Mallow," said Mr Woulfe, who estimated that existing gas and ESB connections, road structure and effluent facilities on the site could be worth up to €40m.

"These facilities will allow us to quadruple production on this site," he said.

If revolving fund contributions were based on the additional milk supplied over existing volumes, suppliers would be levied at a rate of 1.5c/l for seven years, with repayments, including interest of 1.5-2.5pc, kicking in from year eight.

Mr Woulfe said that the funding scheme would also need to incorporate some kind of a "pause button" to allow farmers to stop contributions if milk prices nosedive.

"The big question is still whether the payment would be levied on every litre of milk or just on new milk supplies," he said.

Mr Woulfe added that the co-op was also exploring the possibility of tax relief on the interest earned for farmers with Government officials.

The Dairygold chief was adamant he did not want a scenario developing where processing rights within the co-op developed into valuable assets in their own right, and said Dairygold would not move beyond the co-op model in its drive to expand.

"The co-op model is the ideal one. Look at the top 16 dairy companies globally and you will see that 14 of them are co-op based," he claimed.

He also said that a quality assurance scheme was likely before the end of the year.

"This will be an essential tool, especially in the infant formula business. The key to product differentiation when we are competing for customers out there will be assurance and quality," he said. "The Chinese have been amazed with what they've seen here in this regard and we need to build on this. I hope to see a scheme kicking off in 2013."

In relation to milk quota, Mr Woulfe said Dairygold could not be "anything but over quota" if the second half of March was good for grazing, despite a 22pc drop in January supplies compared to last year.

The ASA series is being sponsored by Ulster Bank.

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