DAIRYGOLD MIRAGE

Dear Editor,

By all accounts, this year’s annual general meeting of Dairygold was a fraught affair. The collective realisation of farmers and shareholders of the once great co-op that they had been chasing a vision of the future that was in the end, simply a mirage, was deeply traumatic.

To find out that the emperor, in this case the departed chief executive, Jerry Henchy, had no clothes was bad enough. Worse was the brutal realisation that they had been suckered into believing in a business model that was utterly removed from their previous experience and expertise.

In economic and social terms, Henchy’s impact on Mitchelstown and Mallow and the co-operative that was once a byword for the gifted integration of producers and processors, has been almost Cromwellian in scale.

What happened in Mitchelstown and Mallow in a short few years is certainly a lesson for the age; salutary and frightening.

In 2003 when the board in its “wisdom” appointed Jerry Henchy as chief executive of Dairygold he inherited, according to the accounts of 2002, a company with turnover of €980 million and borrowings of €132M. The latest accounts of 2008 for Dairygold and Reox combined which equals the original company, show turnover at €943 million and borrowings of €240M.

The scale of the co-op’s disintegration should be spelled out. It has increased borrowings by €110M, and it has sold €100 million of assets, excluding Breeo foods but does include amongst a long list the sale of CMP Dairy in Cork.

In 2003, the co-op employed 3,300 people in a business, which saw top producers of milk, bacon and other food funnell, their produce through added value processing to become national and international food brands.

Just six years later, the co-op employs almost 2,000 people less, and in a final mortal blow to Mitchelstown, Mallow and surrounding hinterlands, its marquee brands, Galtee, Dairygold, Shaws, Ballyclough, Calvita, Mitchelstown, have been sold to Kerry Co-Op, its once famous processing plants are closed along with the first food enterprise park of its kind in Ireland situated in Mallow that had world leading food company Nestle and Borden’s as corner stone tenants and customers. Side by side with this economic devastation, shareholder value has dropped through the floor.

The urban-rural community of interest that characterised co-operative activities has fragmented. Collateral damage has been extensive. Local businesses have closed and the live register has soared.

In a huge irony, the largest creator of jobs in Mitchelstown, once Ireland’s finest food producing region, will be a German discount seller, Aldi, hardly regarded as a farmers friend.

It is difficult to understand how a successful business structure, the traditional values of corporate and social responsibility and the inclusiveness of the co-operative movement that sustained thousands of jobs on farms and in factories, were sacrificed for the new credo of outsourcing and shareholder return.

How did a co-operative with world class brands end up closing its profitable processing activities, breaking the chain between production and processing and end up using foreign produce in its own products?

How did Ireland’s most successful food producing enterprise mutate to become in great part a property holding company, slavishly following that sectoral bubble with such disastrous consequences?

It is difficult to escape from the thought that their new chief executive dazzled the board of directors.

Articulate, sometimes charismatic, Henchy managed to convince farmer directors to jettison a successful formula in favour of an ultimately flawed programme of asset stripping, outsourcing and cost cutting based on savagely executed redundancies.

Temporary high dividends and high milk prices disguised the fundamental truth for a time: the basis for the entire enterprise was being dismantled in front of farmers’ eyes yet they could not, would not, see it.

It was predicated on greed, the potential of property values and not unlike the banks, driven by mouth watering executive rewards. Henchy’s fall from grace was as striking as his rise to prominence.

The journey from messiah to mug was complete once, one by one, those farmer directors who supported without question the outsourcing and closing and indeed destruction of profitable factories, finally realised they were in reality looking at the destruction of a defining national agri business and terminated their working relationship with Mr Henchy.

It is cold comfort that some of those most responsible are no longer there and have been replaced by a set of directors who now must pick up the pieces but play forever more with half a deck.

There is huge anger too in Mitchelstown, Mallow and the North Cork region at the failure of government agencies and successive ministers who ignored the transfer of activity to Wales and Scotland by an enterprise which had been the recipient of multi millions of euro in grants and supports down through the years.

In 2003, the Mitchelstown Business Association clearly outlined to government the challenges facing rural Ireland and especially towns like Mitchelstown, dependent on one major employer and one industry.

It highlighted the Cork North West Strategic Study by Peter Bacon, commissioned by Cork County Council, that warned of the need for co-ordinated national political action to secure the economic and social development of the region.

The business association drew attention to the exclusion of border towns like Mitchelstown from the Cork Area Strategic Plan of 2003.

This disconnection from the ambitious targets set for towns near Cork city seemed to us to indicate that rural demise was not only acceptable but was based on a planned Celtic Tiger strategy that defied “high end value” jobs and property and patronised rural skills. We were ignored.

Whither Mitchelstown now?

Difficult to say. In a few short years, it has been stripped of its key economic infrastructure, its agribusiness skills but most especially is now bereft of the interconnectivity of business activity, which set it apart.

Its recovery will be long and hard won. It will not happen without the imaginative intervention of local and State agencies, a prolonged programme of investment and outreach activities by FAS and the third level sector.

Enterprise Ireland needs to wake up from its long sleep and how it allowed so much destruction to happen under its watch. Did it encourage the closing of the Galtee meats plant?

At a time when everyone worldwide is looking for “green shoots” of economic recovery, it is heartening to see a local sausage maker Hodgins using only Irish produce; expand his plant; Horgan’s Delicatessen supplies continues to strongly support the Irish Farmhouse cheeses.

Aldi has made Mitchelstown, because of its location and food history, its main distribution centre. The brand Truly Irish Pork and bacon products also have strong Mitchelstown connections.

There is a proposal for a business enterprise centre. All positive developments vital that they are supported so that economic recovery has indeed “green shoots” in our area.

Finally, is it not the ultimate shame for the decision makers in Dairygold to be witnesses to loyal dedicated workers having to sit in to have their legitimate concerns and rights be listened to as we witnessed last week.

The final act of the destruction of a once mighty Co-op, community project and brand leader in our country.

Yours sincerely,
Tony Lewis,
Carrigane,
Mitchelstown.

N.A.M.A. VALUATION NONSENSE

(The following is the text of a letter submitted to the Minister for Finance, Brian Lenihan TD)

Dear Minister,

How in God’s name will NAMA value property prices based on estimated current market value at a time when there is no current market, based on estimated long-term values in five or maybe ten years when the market supposedly recovers, based on inestimable long-term projections based on unsupported long-term assumptions regarding the nature, amount and timing of that recovery, when the Government was not able to estimate exchequer returns between December and March last, nor estimate tax returns between April and July last, a period of just three months and when it even denied that there was a problem six months after it was obvious to everyone else that there was one.

The NAMA valuation process is cloud cuckoo land.

Mr. Liam Carroll optimistically estimated his current property value at 25% of its book value. In a current market fire sale the real value is estimated at half this or less or a max. of 10-12%.

This means that the haircut the banks must take is 88-90% not the 10-12% being talked of. There is no guarantee that long-term property prices will rise to any great extent any time soon or at all.

NAMA must therefore adopt a conservative approach to valuations and if anything apply a 10-20% discount rather than a premium for long-term values, and the haircut banks must therefore take is 90-92% not 10-12%.

The €90B loss being talked of is likely to be €100B+. At 92% discount, this means a loss of €92B which Sean Citizen will end up paying for. Add to this the cost of running NAMA and managing the loans, the property and its disposal, for which no doubt the banks will demand a hefty fee. Add to this hefty legal costs and we have a potential Moriarty Tribunal cost all over again only much much larger.

Add to this interest payments on money borrowed from the ECB which the banks and ultimately the government must recoup from Sean Citizen through higher bank charges on the one hand and higher taxes on the other, and the total cost to Sean Citizen is likely to be €120+B. NAMA is due to have a life of 10 years. Long-term property values have historically risen at 3%/annum.

Over 10 years this compounds to a 34% increase, so the real value would go from €10B to €13.4B assuming there was no interim sell-off or fire sale. If there are 600,000 contributing households/families in the country and each pays on average €3,000 a year to the bill, it will take (120-13.4)/(3*0.6)/=/59 years, or two and a half generations to pay off, assuming no hiccups along the way.

And, all this on top of the normal tax take to pay off our increasing borrowing and exchequer deficit. Bank recapitalisation will be made up of NAMA valuation and government injection in the form of equity. These must not be artificially manipulated to allow banks a windfall gain at the expense of the taxpayer.

If the equity injection required is greater than the bank book value, the government must acquire up to 99% of bank shares if it wants to avoid full nationalisation. Nationalisation would do nothing to avoid having to value properties.

It would transfer bank assets but not builder/developer assets to the government builder/developer assets would still have to be valued as outlined above. It would also transfer all bank debts automatically to government debt which is Sean Citizen debt.

Nationalisation therefore offers nothing but has significant pitfalls such as increased bureaucracy, political interference and higher risk exposure. Neither would nationalisation make money available to businesses and entrepreneurs.

This depends on bank confidence in businesses long-term viability and is overshadowed by uncertainty over bank ability and need to generate profits to pay interest on bonds and preferential shares.

The whole lot ultimately depends on public confidence, which given the risk of unemployment and higher and higher tax rates to repay bank indebtedness alone is not likely to turn positive any time soon. In short, NAMA is a road to disaster, and there is nothing for it but to effect a write-off /write-down of the bank losses immediately.

Bank bondholders and the ECB must accept the vast majority of the loss, not Sean Citizen.

To effect this, the ECB must print money and engaging in positive quantitative easing and by give EU governments 100% loans at 0% interest repayable over 30 years when inflation will have reduced the relative value of the capital sum to a manageable small sum.

Yours sincerely,
Kevin T Finn,
King’s Square,
Mitchelstown.

SIN OF OMISSION!

Dear Sir,

Please permit me to put a letter in your popular newspaper concerning ‘Sporting Heroes of the Past!’ (Letters page, The Avondhu, August 13th, 2009). In that letter I forgot to mention some really good local sporting heroes of the past on the soccer field.

So, sir, may I have a second opportunity?

Who could forget the Floods – Mick, Pakie and Danny? Mick and Pakie played with Fermoy F.C in the F.A.I. Junior Cup final (1958). In more modern times the sporting heroes were the Ahern’s (Jim’s sons) and the Hoares (Mick’s sons).

Also, Raymond Bobby O’Shea should never be forgotten. He was captain of the Swifts F.C. (Fermoy) (1962), Town League (U16) champions. His family was known to me when my parents had a grocer’s shop on Patrick St. (1948 – ’65).

Goodbye!

Yours sincerely,
Tom McAuliffe,
‘One Cool Cat’,
13 Cluain Dara,
Fermoy.