The End Of The Co-Op?

"The 108-year existence of the IAWS Co-Op came to an end yesterday. Its members voted to ditch its co-operative status and pay back 125 million Euros to its members in a process that will see it float on the stock market." (Irish Independent—18.7.2005).

"We shouldn't lament the end of the I.A.W.S. society. It has served its purpose and things have moved on." (Richard Curran, Irish Independent—18.7.2005).

What would Horace Plunkett make of it all?

What would he make of the new wave of native capitalist entrepreneurs, the grandchildren of those whom he admonished and told them that their want of industrial success was largely due to their Catholic faith?

But, above all, what would the author of Ireland In The New Century (1904) think of the decision after 108-years of the Irish Agricultural Wholesale Co-Op to ditch its co-operative status and float the society on the stock market?

Most likely he would have supported such a move! To him the co-op principle was the means to an end—efficiency. Plunkett, the son of Baron Dunsany, was a liberal Unionist MP for South Dublin. As an imperialist, he realised the more efficient Irish agriculture became, the cheaper its commodities became for the British market.

I bet his old antagonist, Father Michael O'Riordan, author of Catholicity And Progress In Ireland, would once against challenge Plunkett's view, as he challenged Ireland In The New Century. And Labour Comment might just agree with him.

Body Corporate

On July 14, 2005, IAWS Co-op voted overwhelmingly to change its status, paving the way for a stock market flotation.

The ultimate step in the separation will be when IAWS Co-op (One51) transfers its remaining stake in IAWS plc directly to its co-op shareholders, thereby ensuring them a further windfall. At current prices, the value of the windfalls handed over to the co-ops would then hit around 520 million Euros.

The new company is expected to have a valuation of around 400 million Euros when it comes to the Dublin market, a move which is expected next year.

This was an historic move for the Irish Agricultural Wholesale Society, ending its 100 years plus status as a co-operative body, breaking from the co-operative structure it embraced when it was first set up in 1897 by Plunkett, Anderson, Finlay and colleagues.

The name of the group has been changed to "One51" to sustain the link with 151 Thomas Street, where the company has operated from since it was set up in 1897.

The decision was taken at a Special General Meeting of the Irish Agricultural Wholesale Society ('The Co-op'). It approved six separate resolutions proposing amendments to the current rules of the Co-op.

The society made the first move towards its new status as a body corporate, when its more than 40 co-operative members voted unanimously for the change and the new name.

The main change involves the transfer of key assets to the company structure, which will subsequently float on the Irish Stock Exchange.

One51

As part of this process, assets with a value in the region of 230 million Euros will transfer to the new company, One51, later this year, the members approved a resolution granting them 11 million shares in IAWS plc (a distinct company) later in the year.

"This windfall gain is worth over 125 million Euros to members and is a follow-on from similar allocations in 1996 and 2002, which were worth circa 400 million Euros to members." (Irish Independent, 15.7.2005).

Over the past 18 months, IAWS Co-op has been changing from a relatively dormant company to one which is actively seeking investment opportunities primarily in the waste and energy areas.

The Co-op has built a 26% stake in NTR, the operators of the national toll road, with interests also in waste management and wind energy.

"The I.A.W.S. Co-op has taken a controlling interest in Techrec Ireland.

"This is a new company set up to recycle electrical and electronic equipment. Total investment is Five Million Euros and I.A.W.S.—soon to be One51—is understood to have put up over 2.5 Million Euros of the total figure." (Irish Examiner, 17.8.2005.)

This investment follows the recent introduction of WEEE (Waste Electrical and Electronic Equipment) disposal regulations into the Republic and could prove a boon for One51 as it will be the first automated plant in Ireland capable of handling this important waste stream.

IAWS Co-op is already involved in negotiations to take over South Western Services (SWS). The deal involving the Bandon, Co. Cork-based SWS group, for which the Co-op offered 42.5 million Euros up front, to be followed by earn-outs of over 26 million Euros over the following three years, is set to conclude in late summer.

"The standoff between SWS board and management over the sale of certain assets to I.A.W.S. Co-op is over and the deal is moving towards conclusion." (Irish Examiner, 16.8.05.)

On future funding, Mr. Philip Lynch, Managing Director, said he saw no problems raising the levels of cash required to drive the combined fortunes of IAWS Co-op and SWS forward. After the conversion to a public limited company

"We can borrow all the money we want because we have good projects. When we get member approval to convert we will have the wherewithal to raise capital." (Irish Examiner, 15.7.2005.)

"Everything out there in that sector is for sale", Mr. Lynch said, adding that One51 could comfortably spend "a couple of hundred million" if the right deal came along.

The July 14, 2005 meeting of IAWS Co-op also approved a motion to keep at least 12 million Euros within the society and use this to found a charitable trust.

The trust will focus on self-help initiatives and educational causes at home and abroad, with an emphasis on underprivileged people. Its establishment is designed to reflect the original 'self-help' aims of the society and its first Chairman, Horace Plunkett.

It is important for readers to note that IAWS plc (public limited company) was a pup of the IAWS Co-op. Today, they are absolutely two distinct companies.

IAWS plc was floated on the Dublin and London stock exchanges in 1988 and specialises in convenience food and is a top profit performer in food stocks.

Most recently, it has expanded into the growing foodservice market through four branded concept offerings: Cuisine de France, Delice de France, Pierre's and La Brea. The group employs 2,500 people, with sales of 1.25 billion Euros and operating profit of 84.4 million Euros for the year ended July, 2003.

Ironically, Philip Lynch, for a time, was chief executive of both companies—the IAWS Co-op and the privatised IAWS plc. Having quit IAWS plc in late 2003, Mr. Lynch turned his attentions to developing the Co-op again with the intent to float it at the earliest opportunity.

In late May, 2005, IAWS Co-op went about ending its links with IAWS plc, when it sold off a million shares that raised 12 million Euros.

The Co-op still has a further 11 million shares in the plc, which represent almost 9% of the company. It is expected to distribute these shares among its own shareholders in the coming months. A pay-out which could be worth in excess of 125 million Euros to IAWS Co-op members.

Is it a Co-op or a 'body corporate' they want—or do the farmers want it both ways? When IAWS became IAWS plc in 1988, the apostate was not excommunicated. In fact, the IAWS Co-op became the biggest shareholders in the new plc.

In 2003, IAWS Co-op had net assets of 104 million Euros plus a 17% stake in the IAWS plc which at the time was worth nearly 200 million Euros.

Who is IAWS Co-op?

The Co-op's shares are owned by around 35 other co-ops throughout Ireland, North and South. There is also one co-op in Britain which has shares.

The big co-ops of Kerry, Glanbia, Dairygold, NCF, Lakeland and a couple of the big Cork co-ops together own more than 50% of the shares.

There is a sizeable number of small co-ops around the country that also have shares. Kerry's shareholding was boosted through it takeover of Golden Vale, but because of the machinations of the way the society works, shareholdings and control, are two different things.

The Board consists of ten Directors who run for re-election every four years. The bigger co-ops have around 10 votes each in that election process, smaller ones have around six votes.

But once the Board is elected, irrespective of the number of shares behind each member, it is one Director, one vote around the table.

"The sale of property and shares helped hike up profits at the IAWS Co-op by 166% last year. Accounts for the company show pre-tax profits for the 16 months to the end of last December were 65.5 million Euros, compared with 24.9 million Euros in the year to end August 2003." (Irish Examiner, 12.8.2005.)

The assets and investments of the co-op are tremendously varied. Yet there are common threads running through them.

For example, in terms of actual businesses, the IAWS Co-op (One51), owns meat rendering companies, Monery By-Products in Ballinsloe, Co. Galway and Premier Proteins. It has a 45% stake in French fertiliser company, Cedest Engrais.
It also has a stake in a Cork-based Malting Company of Ireland, where its partners are Dairygold and Glanbia. IAWS Co-op also owns the Dublin-based Irish Pride bread business.

IAWS Co-op also owns a variety of property interests, it has extensive property along the quays in Waterford city and in Cork. In the last 18 months, it has sold the famous Boland's Mill property on Dublin's Barrow Street.

One of the most interesting aspects of the co-op's operations was its investment policy. It invested around 100,000 Euros in Ireland On Sunday when the newspaper first started.

The Co-op made a tidy profit when the newspaper was then sold to Scottish Radio Holdings in 2003, IAWS Co-op then took an eight per cent stake in the Dublin Daily newspaper, investing 200,000 Euros. This investment proved to be less successful, and the paper collapsed at the end of the summer of 2003, just months after its launch.

IAWS Co-op (One51) has a 50% stake in Greenore Port in Co. Louth. Earlier in 2003, it emerged that the Co-op had invested in a broadband technology venture, partnering with a Canadian company called Axia NetMedia Corporation.

Aside from a diverse investment portfolio, the Co-op's biggest function in recent years has been its role in putting money directly in the hands of its members.

Since 1996, two major share distributions have taken place.

Around 250 million euros has been distributed directly to the Co-op's members and its remaining stake in the privatised IAWS plc is worth close to another 125 million Euros.

This 250 million Euros has been extremely useful for some of the co-ops in recent years.

For example, Dairygold made six million Euros in 2002 from the sale of IAWS shares which had been distributed from the co-op. This six million Euros was the difference between the co-op showing a profit or a loss for 2002. Lakeland Co-op cashed in around 20 million to 25 million Euros from the 1996 and 2002 allocations, providing it with funding that enabled it to deliver on its expansion plans.

And with the anticipated sale of its further 11 million shares, almost nine per cent of IAWS plc and estimated to be worth around 125 million Euros, Co-op members are in for another 'killing'.

In the meantime, IAWS Co-op (One51) will probably go on making money from anything from newspapers to ports to broadband and property, especially property. Anything, it would seem but primary production.

"Plcs the worst mistake"

But it is not all sunshine and roses, oh, No!

"Turning co-ops into plcs the worst mistake we ever made" was the cry of Oliver McDonnell (Irish Independent, 24.5.2005). McDonnell is a working farmer and writes a weekly column for the Irish Independent farming supplement each week.

"I attended the agm of Glanbia plc last week and I have never come across the levels of frustration prevalent among dairy farmers at this present time. The second thing which shocked me even more was the fact that the Glanbia management had included "our" de-coupling payments into their accounts in their calculations and their paperwork along with discounting in an effort to prove to us that it was necessary for them to introduce such a huge reduction in the price paid for milk.

"This is what I call a huge indictment on farmers and on farming today. We are monitored and spied upon at every level and any privacy we ever had has ceased to exist. Everything we have, everything we possess and every resource at our disposal is currently orientated towards producing milk for an ungrateful processing industry whose only aim is to fleece their supplier and to deplete the source of supply in the name of profit for themselves. They will do anything and everything they can in the name of profit and we have no voice.

"The aggression and dictatorship prevailing among those who govern the processing industry (at least in that which I supply) knows no bounds. The leading Plc/Co-op in this country is at the bottom of the milk price ladder. Irish farmers are paying a very high price for the exorbitant profit levels in Glanbia of over 80 million Euros as we see it.

"They can buy businesses and industries in many countries all over the world but they cannot pay their own indigenous suppliers. I cannot speak for suppliers in other countries. We have a situation whereby our milk processors are getting richer and richer while we their suppliers are getting poorer and poorer. They are gaining in strength paying off their debts and increasing their business outlets while we struggle all the hours God sends to meet our commitments.

"Life has changed and business has changed and not for the better. Just a short few years ago we as farmers had a good relationship with our milk processors. But not any more. there is too much aggression on their side and too much anger on our side. Even our proposal of no confidence in the board was deemed illegal.

"Glanbia are of a one-track mind at the present time. They are focussed on driving forward, increasing business and increasing profits. And I have no problem with these objectives [emphasis added, Editor]. They are as they should be. The problem lies with their methods and their attitudes and the fact that they are determined to walk all over us and to hell with the cost in human or financial terms.

"The processors and the superstores in this country are enjoying phenomenal profits. We are the second most expensive country in Europe. The consumer is spending more than ever on the weekly shop and the producer—the first link on the chain—struggles to survive.

"We have not had an increase in milk price in real terms for more than 20 years.
"The horse has well and truly bolted now but it is a sorry day that we ever signed up to turn our co-ops into plcs. Co-ops worked for the farmers and in the farmers interests. Plcs work for the shareholders and in their own interests only." (Irish Independent, 24.5.2005.)

He loves the sea, but doesn't want to get wet!

Oliver McDonnell doesn't object to Glanbia's craving for increased profits. It's their "methods and their attitudes". Is he for real? Does he sincerely believe this? If he does, he must be the most naive farmer in Leinster! Perhaps the "lords of the land" have had it too easy for too long. Now the 'chicks are coming home to roost'.

The Co-op principle!

In 1989, the then Director of the Centre for Co-operative studies at University College, Cork (UCC) Professor Denis Lucey pointed out that—

"Everyone is happy in the dairy industry while profits remain at their present healthy levels, guaranteeing good returns to farmers and investors.

"But the expected weakening of dairy product markets could create tension in the plc/co-ops, Kerry, Avonmore and Waterford.

"All three raised substantial sums of money by adopting the plc mechanism, and they have formed ambitious plans to become major internationally effective food firms, Professor Lucey told the International Co-operative Alliance in Italy that year.

"But he raised several questions about the long term future of the new business organisations, which are seen by co-operation experts around the world as innovative, if not experimental and that was putting it diplomatically.

"If a tension emerges between short terms profitability and milk payments to farmers, will management and Board focus more on the investor?

"Does the 51-49 per cent share holding provide, in practice, the guarantee which the formal procedures imply or, in other words, could an institutional investor holding a large bloc of shares exert a significant influence on the orientation of the organisation?"

Professor Lucey also raised the question which is uppermost in farmers' minds.

"What pattern of milk payments will emerge? Who will be leaders and followers in changing milk payments to farmers?".

Co-ops and Plc's are fundamentally different, "night and day", Professor Lucey told the Farm Examiner.

As far as UCC Centre was concerned, the ultimate test for the three 'public' dairies will be if their farmer users are better off.

Going Plc has been an indictment of the co-operative structures, Professor Lucey stated.

Jim Power Romances!

Jim Power is chief economist at Friends First, the building society. He comments regularly in the daily press. He is no friend of the trade union movement but he has sympathy for the farmers!

"Having been born and reared on a farm, I have done my utmost over the years to maintain as much interest as possible in things farming.

"It is not easy, because such is the fall from grace that farming has suffered over the past couple of decades, that it rarely warrants any mention in the numerous economic reports that are produced in this economy on a regular basis.

"Farming accounts for a relatively small part of the overall economy and employment in the industry is declining on a consistent basis. Unlike the 1970s and 1980s, we never now hear trade unionists complaining about the privileged position of farmers in society.

"These trade unionists must be happy that after years of bitching, they have played a successful part along with many others in undermining the position of farmers.

"Sensible farmers now justifiably see themselves in an industry under pressure on all fronts and but for the flawed EU financial assistance model, most of them would be unable to put food on the table. When asked by farmers about their future, my instinct is to tell them to sell up and get out of an industry that is dying on its feet.

"The reality for farmers is that they produce a primary commodity, tiny on a global scale, having no pricing power, have relatively high production costs, and have seen a massive increase in all input costs over recent years.

"As somebody who has worked in the fund management industry, it struck me and still strikes me as very odd that those farmers in favour of the merger [Glanbia, Editor] at the time failed to recognise one of the basic laws of fund management, particularly as it would relate to a food co-operative turned Plc.

"Basically, anything that a food Plc such as Glanbia would do to screw the farmer suppliers, the better it would be for profitability and for the share price, and the more applause the company would earn from fund managers. By definition what is bad for the farmer suppliers to Glanbia is good for the company.

"Whatever hope the farmers in the Waterford area had when they had some control over the product they produce, they lost it all when they handed it over to the board of a Plc who are more interested in growing salaries and keeping fund managers on side, than with placating farmer suppliers." (Irish Examiner, 10.6.2005.)

Labour Comment should send a copy of Jim Power's article to Oliver McDonnell, the facts of barbaric economic life are all there, and Jim was "born and reared on a farm".

So the Trade Union movement, "along with many others", played a successful part in "undermining the position of farmers". What a load of cobblers. Anyone with an objective eye, can almost witness a parallel decline in both the influence of the farming community and the Trade Union movement. What is even more apparent in the Brave New Global era is the rampant demise of voluntarism and its discouragement in every aspect of life, nothing is done out of love anymore—any endeavour that's unpaid just cannot be of any value!

In fact, when the present writer set out to do his monthly tract for this journal, the original aim was to write on the Bi-Annual Conference of the ICTU held in Belfast on June 21-24, 2005. So little of significance or inspiration occurred on the banks of the Lagan that, when it was announced that IAWS Co-op was going private, the writer was compelled as a socialist and Trade Unionist to express a view on what he believed is a development that will contribute little to the well-being of our society and incur the surrender and loss of what is still a practical and noble principle—Co-Operativism!

Labour Comment has no hang-up, either, in relation to the contribution of farmers and their families. We accept as well, that the Co-ops in the main were good employers and had no difficulties in recognising the Trade Union rights of thousands of their workforce.

Role of Co-ops

The contribution of co-operatives to the economy in exports, employment, industrial activity and development of rural areas is substantial.

Co-operatives in Ireland play a major role in the economy, contributing to almost 50% of our total food exports. Food exports make up over 40% of Ireland's net export.

The Irish Co-operative Organisation Society is the umbrella body of the co-ops which is directed and controlled by a National Council elected by the 150 member co-ops representing an individual membership of 150,000 people.

ICOS is one of the Social Partners and is a party to the current Sustaining Progress agreement, indeed it has been party to all the National Programmes since the first Programme for National Recovery in 1987.

Despite the high profile plcs like Glanbia, Kerry, Lakeland and Donegal, the great majority of creameries operate on the co-op principle alone.

Benefits of Co-ops

Co-operatives have a long and successful tradition both in Ireland and around the world. Although the precise advantages of each co-operative can vary depending on the organisation and the needs of its members, several benefits are common to all:

* The main advantage is the limited liability of the incorporated company (i.e. the liability of the individual members to their share capital). This means the individual shareholders liability is limited to the amount he/she has invested in the company.

* It provides for continuity of existence. Unlike a sole proprietorship, a corporation has an unlimited life span, provided it makes its annual return to the Registrar and provided it remains solvent. The corporation will continue to exist even if the shareholders die or leave the business, or if the ownership of the business changes.

* Corporations also have more ability to raise money, which may make it easier for your business to grow and develop. It is a 'body corporate', with the ability to act in its own right, to sue and to be sued, to make contracts, to give credit and to borrow money.

Co-ops and Taxation

Under the Income Tax Act, 1918 (which until 1967 Income Tax Act was the basic taxing statute in Ireland) exemption from tax was granted to Friendly Societies, Trade Unions, Clubs, Savings Banks and Industrial and Provident Societies.

In the case of mutual and professional societies, clubs and associations which were not founded for the making of commercial profits, taxes were not assessed on any surpluses they might make, on the basis that a person cannot make profit out of himself or herself. That is provided any trading was among themselves only.

However, profits made from trading with non-members was not exempt.

Most agricultural co-operative societies and livestock marts were incorporated under the Industrial and Provident Societies Act 1893. They usually paid very little tax because most of their trading was between fellow members.

There was a formula used to find the taxable profits and this formula was based on the proportion of profits attributable to trading with non-members by multiplying the profits by a factor which was the sale/purchases to or from non-members divided by the total overall sales/purchases.

Also, under Finance Act, 1927, Section 8, the profits of societies formed for the promotion of Gaelic football, hurling and handball are statutorily exempt from tax in so far as the Revenue Commissioners are satisfied that the profits are applied for the promotion of those Gaelic games. this provision greatly helped to build up and strengthen the capital base of the Gaelic Athletic Association.

Likewise, societies like Cork Mutual Benefit Building Society, Irish Permanent Building Society, Educational Building Society, etc. were all enabled to build up their own and their members capital base on tax free earnings. Liberty Hall and many other Trade Union buildings were enabled to be built out of tax free funds.

Similarly, mutual life assurance companies did not suffer tax or suffered minimal tax which enabled very substantial capital bases to be established.

Only the income/profits derived from members was exempt from tax. Other income such as dividends or interest from invested capital and rents from properties was taxable.

The tax exemptions enabled relatively large pools of capital to be built up which greatly strengthened the Irish economy at a time when it was needed because of the weak financial situation after so much capital had been destroyed or wasted in two world wars.

"Farmer and Businessman"

The big question is: are the farmers men of capital or men of labour? This question was posed by Emmet O'Connell a few years ago.

"The rural-urban divide that farmers now decry was ploughed, harrowed, and seeded by their own leadership, with only the occasional—very occasional—exception.

"And herein lies the basic quandary for farmers: are they men of property, part and parcel of the capitalist class, income poor (for most) but asset rich for all? Or are they stewards of the land, earning their bread by the sweat of their brow?

"The Irish farmer, by allowing direct payments from Brussels to be tied to land ownership and production to be limited by quotas (milk quota, suckler cow quota, sheep quota, tillage quota via area aid quota), has made a major error." (Emmett O'Connell, Farmer and Businessman, Sunday Business Post, 15.11.1998.)

Of course, there is a price for everything! And it wasn't just the farmers. The state's entire infrastructure has been overhauled and refurbished, at huge expense to German and French workers, and cheap Asian labour, and all the while the native entrepreneurs were stashing their new found wealth offshore and gaining a reputation as the foremost speculators in property in the UK, the old Eastern Europe, South Africa, without creating a single job for their own.

Their media mouthpieces have found new courage and every day you open the daily papers they celebrate each misfortune that befalls the Euro and predict its demise.

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"Farmers now and in the future need all the help and support they can get from every other element in the community. The farmer vote is getting smaller and the urban vote, urban influence and above all urban economic power is getting stronger every day." (Lt.-Gen. M.J. Costello, Irish Farming News, January, 1986).

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Every day that passes, the state replicates the culture and customs of Albion and its first cousin across the Atlantic. Not an aspect of our way of life is exempt: transport, health and education. Now it seems that farming is next in line: sugar, potatoes could be on the way out as a profitable commodity for farmers. If the mad surge of expansionism continues, we'll end up in an urban jungle like England, ultimately importing the greater part of our foodstuffs.

Even now, the co-ops and their farmer members are becoming more and more reliant on property and outside investment for the greater part of their financial return. As the urban octopus spreads his tentacles wider into the countryside, the role of the farmer diminishes as a provider of daily sustenance.