Comparison of Milk Supply Agreements

(MSAs)

Updated February 2015(Note: some MSAs still in development,

not all Co-ops’ MSAs included)

1 - Duration and notice?

2

Co-op

Kerry Duration: from effective date (2010) to 31/03/15, then no less than 5 years. Notice – 5 years. Initial duration = 15 years.

Dairygold Duration – 5 years; Notice – 2 years. Initial duration (ID) 7 years. Co-op must give 5 years notice to farmer.

GIIL Duration – 3 years; Notice – 2 years; ID 5 years. GIIL must give 5 year notice to non member suppliers

Aurivo Duration – 3 years; Notice – 1 year; ID 4 years

Carbery Share standard, not MSA (West Cork co-ops -> MSA)

Arrabawn Duration – 1 year; Notice – 1 year; ID 1 year

Tipperary Co-op Duration – 1 year; Notice – 1 year; ID 1 year

Lakeland Duration – 3 years; Initial notice – 2 years; ID 5 years. Notice 1 year after ID. Notice can only be given on 1st Jan of any year after 2018. Co-op has to give farmer 2 years’ notice.

North Cork Co-op Share standard, not MSA

2 – Share up? How much?

3

Co-op

Kerry No

Dairygold 4c/l (0.5c/l over 7 years or until reached)

GIIL No

Aurivo 3c/l (0.5c/l until reached – avg current shareholding 0.6c/l)Bonus shares don’t qualify. Levy to start from Jul 14.

Carbery Mini 16 shares/1000l on existing; 25 shares/1000l on new milk post 2015. Equiv to approx 2c/l and 3.12c/l. These are Carbery shares, not West Cork Co-op shares.

Arrabawn 3c/l (higher when supplies grow by more than 30%)

Tipperary Co-op 3c/l

Lakeland No

North Cork Co-op 2c/l for quota volume + 40%; 4c/l above that. Producers between 100k and 250k can expand for just 2c/l. 0.5c/l levy from early 2014 to 2018, no levy when prices <29c/l.

3 – Other financial contributions?

4

Co-op

Kerry No, but no guarantee of milk price after 120% reached.

Dairygold Revolving fund (0.5c/l x 60 monthly payments provided milk price >27c/l – Nov 2014: mini price increased to 30c/l); Loan scheme (optional); Deferred payment of 20% of Apr/Sep milk on growth milk post 2015 – postponed till 2018

GIIL No

Aurivo Revolving fund 0.5c/l over 50,000l when price >29c/l. 15% of supplies >250,000l also exempt from RF. Levy to start Jan 15.Deferred payment of 20% of May/Sep milk on growth milk post 2015 – to be paid Jan of foll. Year. Feb 2015: Revolving fund postponed for one year.

Carbery No, only sharing up

Arrabawn No, only sharing up

Tipperary Co-op No, only sharing up

Lakeland No

North Cork Co-op No, only sharing up

4 –Volume restrictions? Forecasts?

5

Co-op

Kerry 120% of 31/03/15 quotas gets “leading milk price”. No guarantee above that.

Dairygold No restriction, forecast 3 years ahead +/- 10%. Penalty if undershoot

GIIL No restriction, forecast 3 years ahead, no consequences

Aurivo No restriction, forecast but no consequences

Carbery MSA with co-ops – not yet developed

Arrabawn No restriction, forecast 12 months, no consequences

Tipperary Co-op No restriction, forecast 12 months, no consequences

Lakeland No restriction, no forecast requirement

North Cork Co-op N/a

5 – Specific milk price commitment?

6

Co-op

Kerry “Leading milk price”, complex formula decided and assessed by Kerry. No outside scrutiny/benchmarking. “Leading milk price” not guaranteed for milk >120% of quota.

Dairygold No, as previously to be set by Board

GIIL Minimum 1c/l profit over costs (extending JV commitment)

Aurivo Benchmark against rolling average IDB PPI. Aurivo price to stay ahead.

Carbery No, as previously to be set by Board. Co-op MSAs still outstanding.

Arrabawn No

Tipperary Co-op No

Lakeland Will endeavour to pay competitive milk price having regard to market conditions. Will be determined by Board.

North Cork Co-op N/a

6 –Exclusivity? (all milk to co-op – this is standard co-op rule provision)

7

Co-op

Kerry Yes

Dairygold Yes

GIIL Yes. However, allows dual suppliers to continue, but same proportion of growth milk to GIIL

Aurivo Probably (MSA not available yet)

Carbery n/a – MSA with West Cork Co-ops

Arrabawn Probably (MSA not available yet)

Tipperary Co-op Yes

Lakeland Yes. For dual suppliers, same proportion of growth milk to Lakeland.

North Cork Co-op As per co-op rules

Note most/all co-ops provide exemption for own use and own processing

7 –”Improvements” from consultation?

8

Co-op

Kerry Some indication of possible flexibility re price above 120%; “leading milk price” was a long fought for concession.

Dairygold Penalty for non signature abandoned; longer time for sharing up for farmers whose parents had retained shares; price below which no levy up to 30c/l

GIIL Duration/notice periods reduced; price commitment; no compulsion, but suppliers to be encourage to share up; seasonality penalties suspended pre-15

Aurivo Higher mini price for RF levy; earlier repayment of deferred payment; increased level of exempt supplies for RF; later start for RF levy (Jan 15 – now postponed by further year); milk price commitment re. IDB PPI.

Carbery MSAs with co-ops, consultation ongoing

Arrabawn MSA consultation ongoing

Tipperary Co-op Agreement is minimal

Lakeland Shorter duration; no link/obligation to purchase inputs from co-op;

North Cork Co-op Agreement is minimal

8 – To sign or not to sign?

• MSAs are desirable in principle, and offer the farmer important guarantees: greater clarity on volumes to allow farmer and co-op to invest appropriately, and at the right pace; improved customer confidence in security of supply; security of tenure for farmer through commitment by co-op; greater receptiveness by banks when seeking credit…

• MSAs are coherent with the principles of the EU Milk Package (measures included in the new CAP to protect farmers and strengthen their hand in the market)

• Duration/notice: cuts both ways, you commit to supplying for the period, but the co-op commits to buying your milk

• Some MSA are more challenging as they require financial contributions: how clear are you about how this will be spent? How convinced are you of the quality of your co-ops’ plans?

• Failing to sign could exclude you from certain bonuses or options

9

9 – To sign or not to sign? You decide!

• Milk price commitment. Apart from GIIL (mini 1c/l profit over costs as per JV commitment), Kerry (“leading milk price”) and Aurivo (link to IDB PPI), most MSAs reiterate co-op rules (price set by board “from time to time”).

• Expecting a specific price level is unrealistic in a volatile market, except for fixed price contracts or other hedge.

• Expecting a commitment from one’s co-op through better efficiencies, merger/co-operation and marketing to return the maximum price markets allow is legitimate.

• Ideally, this should also be benchmarked at an ambitious level and transparently, by reference to an independently measured but relevant index (PPI, KPMG, LTO…)

• Ultimately: you have nothing to fear from MSAs, but you must make sure you understand fully what signing or not signing involves in your co-op.

10