In November, 1926, a memorandum was received in the Department of Agriculture from the Irish Agricultural Organisation Society, setting out that the Condensed Milk Company of Ireland was willing to sell its interests, urging the necessity of buying, and asking the Government, in the event of a sale, to provide the necessary credits. This proposal was considered in all its implications—first by the Department of Agriculture, and then by the Executive Council—before a decision was come to in the end of December authorising the opening of negotiations. It was fully realised that this decision involved the Government in a most unusual role, and could only be justified as an essential part of a general policy for the reorganisation of the whole dairying industry.
The commercial organisation of dairying in every country is different from that of practically any other business. The raw material—milk—is never paid for on delivery; it is paid for at the end of the month after delivery, when the finished article, namely butter, has been sold, and the price paid for the milk is governed rigidly by the price obtained for the butter. Proprietary concerns quite properly exist to make profits for the proprietors and not for the suppliers of the raw materials, and when the finished article is sold before the raw materials are paid for it is inevitable that, in the absence of competition or control, the suppliers of the latter are at a grave disadvantage. This is the reason that the butter industry in every agricultural country in Europe is almost entirely in the hands of the farmer suppliers.
As a rule the first few creameries established in most countries are proprietary, but the results of their operations inevitably lead to the establishment of co-operatives. This country is no exception to that rule. Co-operative and proprietary creameries began to spring up side by side until to-day, out of a total of 580 creameries, there are 400 co-operatives and 180 proprietaries. There are some excellent proprietary creameries, and there are some very poor ones. There are a number of prosperous and efficient co-operative creameries, and at the same time there are a number that cannot be described as either prosperous or efficient.
The organisation of the co-operative creameries is to a large extent unsound. There are, of course, exceptions, but the rule is that a co-operative creamery is established by a small and enthusiastic minority composed of the most go-ahead and enterprising farmers in the district. They collect all the share capital they can obtain, they take a large amount themselves and they borrow the balance required for erecting and working the creamery from one of the Joint Stock Banks, giving as security the joint and several guarantees of a small number who are sufficiently unselfish to offer them. As a rule shares are taken by a minority of the suppliers and the share capital paid up is only a small proportion of the total cost.
This state of affairs is unsatisfactory. On the one hand the concern is under capitalised, on the other it is not adequate security for the full capital required, and finally, even if it were, the Joint Stock Banks cannot readily offer the sort of credits that are most suitable. The Joint Stock Banks on the whole, and especially at certain periods, have put large sums of money into the business, but the transactions have never been entirely satisfactory either to them or to the societies. The Joint Stock Banks are deposit banks, they must keep their money on call. They were never organised for the purpose of giving long-term credits, and these are the sort of credits that the societies really require and that are most economic— credits that can be repaid gradually over a period of six to eight years by deduction from the price of the milk supplies. When the Banks give these credits, as they cannot get the security of sufficient shares to cover the whole transaction, they have to insist on the joint and several guarantees of the farmers who are prominently connected with the enterprise. The results are obvious. The society is not, properly speaking, a co-operative society; the only persons who have a firm interest in it are the minority—the shareholders and the collateral securities. These, especially the latter, take all the risks and do not get the sort of support they are entitled to get, and that they would get if every supplier was financially involved in the success of the venture. Moreover, there is no co-ordination between the various societies. They are not all even affiliated to the central body, namely, the Organisation Society.
This is the only country in Europe, I think, where co-operative creameries compete with each other both for the purchase of their milk supplies and for the sale of their butter. Practically all the other countries that compete with the Irish Free State in the British market quote their butter in quantity and at firm prices. Danish butter does not compete with Danish; it competes with Irish. Here, however, any one Irish creamery will under-sell the other and an English grocer can get four or five different quotations from the same number of creameries in County Limerick or Tipperary. The net result of this is to depress the price of all. There is even a more serious side to this competition and it is that while creameries in the Free State are consigning their butter to England in small lots from different points by different routes, it is extremely difficult for the carrying companies to provide refrigerated space or cold storage, with the result that no matter how good the butter may be when leaving the creamery, conditions of transit make it very difficult to guarantee the quality by the time it reaches the British grocer. The difficulties of societies organised in this way in an area where there is competition between co-operative and co-operative and between co-operative and proprietary are obvious.
The manager must be careful that he does not offend suppliers whose supplies are not up to the required standard; the committee must pay at times uneconomic—because too high— prices for milk with the inevitable result that the society runs into debt and that in the long run all the suppliers lose on the double because of the necessity for borrowing under conditions which make high rates of interest inevitable; no adequate sums can be put by for reserves, necessary repairs, or new machinery. Large numbers of suppliers who have no firm interest in the concern must be conciliated at all costs and the necessary sacrifices must always be made by the few. Any other policy would result in some suppliers going over to the competing concerns and leaving the shareholders and guarantors to carry all the liabilities without adequate milk supplies.
To a very large extent the creamery industry here is built on the enterprise and sacrifices of the few, and in this there is a sharp distinction between our co-operative organisations and those of any other country where cooperation is properly understood and worked. Our societies are a compromise. They are proprietary in the sense that, in fact, though not in law, they are owned by the minority who take most of the risks. They are co-operative in the sense that the advantages are divided between all. They represent an attempt to reconcile the irreconcilable and in practice the result is that the advantages are diminished for the many and the risks increased for the few.
While some competition exists between co-operative creameries, there is intense competition between proprietaries and co-operatives for milk supplies. The extreme case is where a co-operative and a proprietary central are situate in the same district practically alongside each other, and where each has anything from three to ten auxiliaries existing side by side with those of its competitor, all competing for the same milk supplies. This is not uncommon; while in other districts there are co-operative and proprietary groups touching and competing with each other at various points. This is always the position where there is proprietorial and co-operative competition. When a proprietary creamery is operating without co-operative competition, the temptation to give what will be regarded by farmers as poor prices for milk is overwhelming, and rightly or wrongly, farmers encouraged by the example of co-operative creameries in other districts will always insit on erecting creameries themselves, so as to provide an alternative outlet for their milk supplies. In this way, as long as there are both proprietary and co-operative creameries in the same province, there always will be redundancy. Redundancy means increased overhead expenses, and the position at the moment in the districts where proprietary and co-operative competition exists is that the farmers of these districts are paying always twice, and often three times the overhead expenses that are required for efficient production.
The present state of affairs was almost inevitable. In every agricultural country in Europe and America farmers' organisations were provided with suitable credits, and from a very early stage their developments were guided by co-operative legislation. Here they were left without either. It used to be the fashion here to talk loosely about the inefficiency of farmers and farmers' organisations. Everybody heard of the few co-operative creameries that failed, and sweeping deductions were drawn from these comparatively few failures, very much to the discredit of the industry as a whole. The fact is that the existence, in spite of all the disadvantages, of 400 co-operative creameries out of a total of 580 is an extraordinary testimony to the pioneer work of the I.A.O.S., and to the capacity and loyalty of the Irish farmers. In no other country had farmers' organisations to grapple unaided with the same difficulties, and they are entitled to ask from the State now the facilities which have been refused to them for so long, and the want of which has placed them at such a disadvantage as compared with their competitors.
There can be no doubt whatever as to the measures that are necessary, and no apology need be made for putting them into operation. Co-operative Societies are at present governed by legislation passed for the purpose of regulating the operations of Friendly Societies. This legislation is out of date even for the purposes for which it was passed, but in any event it was never intended and is entirely unsuitable for Agricultural Co-operative Societies. For the purposes of Agricultural Societies it is proposed to introduce a Co-operative Act which will contain the provisions which are now common form in every other agricultural country. I do not propose to indicate its provisions except in the most general way. It will provide that all suppliers shall be shareholders; that a reasonable proportion of the share capital shall be paid up; that regular audits shall take place; that the area of operations of a creamery may be defined; that redundant creameries shall not be permitted and that all creameries shall be affiliated to the organisation society. This Bill ought to be non-contentious, except perhaps in regard to some of its details. It would certainly be non-contentious in any of the countries which are competing with the Irish Free State in the British market. These countries have adopted such an Act long ago, and consequently have long ago solved the problems which we must solve now.
In addition, it is proposed to introduce and pass a Bill during this Session providing for the establishment of an Agricultural Credit Corporation. This institution will deal with the credit needs of agriculture as a whole, but for the moment. I need only refer to its activities in connection with the dairying industry. One of its most important functions will be to deal with the credit needs of existing societies, and to provide sufficient capital for new societies. It may be well at this stage to say that this Corporation will not exist to shovel out money indiscriminately. It is the result of a recognition of the fact that agriculture requires not only additional, but, more especially, different kinds of credit to the credit facilities which were available for it from the Joint Stock Banks. This Corporation will deal with long term and intermediate term credits, but if anybody has got the notion that it will be established for the purpose of giving other people's money to borrowers who are not security for it, or handing out money philanthropically, without due regard to the necessities and desirabilities in each case, and above all to the prospects of its being repaid, they should disillusion themselves at once. So far as the dairying industry is concerned, it is obvious that the Corporation cannot operate effectively until the societies are so reorganised as to be adequate security for the credits required, that is to say, until the Co-operative Act is passed and put into operation.
At this stage, however, we are brought right up against the fact that, even if the Co-operative Act were passed, it would be extremely difficult to put it into operation in present circumstances. Consider the effect in the present circumstances of attempting to compel suppliers of co-operative creameries to take up shares. Dovetailed in amongst the 400 co-operative creameries there are 180 proprietaries, with their creameries situated to a very great extent almost alongside the co-operatives. The suppliers against whom compulsion would be used are suppliers who up to the present have refused to take shares, and it is, to say the least of it, highly probable that the immediate effect of such a provision would be that a number of these suppliers would go over to the proprietary concerns, that a number of the co-operative creameries would thereby be left in a much worse position financially than they are in now, and that some of them would be put out of business. This would be most unfair to the creameries concerned, and it would be particularly unfair to the suppliers who are already shareholders or who have given their own personal guarantees for the finances required, and who have borne all the burdens up to the present. The Joint Stock Banks would have no option but to attempt to realise their securities immediately, not only in the case of creameries that were closed, but also in the cases of creameries which, though not closed, had been weakened financially by the loss of considerable milk supplies. The fact is that the presence of the proprietaries, and in particular of the Condensed Milk Company, has the effect of pinning down the co-operatives in their present position and making it extremely difficult to carry out essential reorganisation.
The problem is particularly acute in the area of operations of the Condensed Milk Company. The Company control 114 out of a total of 180 proprietary creameries. For the last three years the most intense competition has gone on between it and the co-operatives of Limerick, Tipperary and Cork. It began in competition for milk supplies for existing creameries. Where the proprietary and co-operative creameries existed side by side they proceeded to out-bid each other. I may say that, in my opinion, as a purely business proposition this procedure was absolutely essential from the point of view of the Condensed Milk Company. Cleeves had been taken over by the Company in 1923, while it was in liquidation. Very large sums of money were owed by the liquidated Company to farmers for milk supplies which had been previously delivered. The goodwill of the business had been completely lost, and the new Company had no alternative except to regain that goodwill by lavish expenditure of money on its milk supplies during the first two or three years of its operations.
Once a trade war like this begins it is difficult to limit it, and the co-operative creameries proceeded to meet the competition in the only way possible, and that was by establishing new co-operative creameries alongside creameries of the Company where these had not already existed. The Company in turn retaliated in kind. At first view it would look as if the farmers, during this period and in this area, were in a very happy position, in view of the intensive competition for their milk supplies, but in fact this was not so. All these operations were extremely wasteful. They meant that the milk supplies in these areas were being handled at from twice to three times the normal cost, and this tended to keep all prices below what they might be. In addition to this, the suppliers to co-operative creameries were losing far more than they were gaining from any increase in price of milk, by reason of the fact that their societies, in order to give an uneconomic price and to erect new creameries, were running into debt and generally developing along lines which left the societies in an unsound position financially.
This competition reached a climax in 1926. On the one hand the Company had revived Cleeves, installed about £80,000 worth of new machinery and transport and, in addition, had re-established goodwill at the cost of about £100,000 in trade losses over the whole period. On the other hand, the co-operatives were still holding on and even developing, but had used up most of their resources both in cash and credit in the task. This position could not remain static. Where there are two big interests competing within a small area for the same supplies and selling in the same market there is almost certain to be a trade war; and that is inevitable when one of them is composed of a number of independent units varying in their circumstances and without any common spokesman who could make an agreement on their behalf. The competition had to go on, and more money for the purpose had to be found by both sides. This was, perhaps, an easier task for the Company than for the co-operatives. The principal shareholders of the Company are Messrs Lovell and Christmas, Ltd., who are amongst the three biggest wholesale grocers in England. They had already put big sums into the business, and I have very little doubt that, if there was no other alternative, they could find more. Most of the creameries concerned, however, could get no more from the Joint Stock Banks and, as they had to find money or get out, during the latter half of the year 1926 urgent applications were sent in to the Department of Agriculture by the Irish Agricultural Organisation Society on behalf of a number of societies involved in competition with the Company.
Looked at from any point of view, such applications raised very grave issues indeed. These issues were being examined in all their implications by the Department of Agriculture, and it was in this state of affairs that in November, 1926, I was informed that the Company was ready to sell its interests. The Company had presumably also taken stock of its position, and while I am sure that the finding of fresh credits was not a serious problem for it, I am equally sure that the Report of the Banking Commission on Agricultural Credit just published raised considerations that it could not afford to ignore. In the light of these facts, it seemed to me that there were three possible courses open to the Government—(1) to refuse to interfere either for or against either side, and to confine itself simply to keeping the ring; (2) to refuse to consider the Company's proposal and, instead, to provide working capital for the co-operative creameries so as to enable them to compete with the Company and (3) to consider favourably the proposal of the Company to sell. I need not delay to consider the second possibility. Such a course would be out of the question; that being the case, the situation was reduced to alternatives, namely, either to refuse to interfere in any way, or to consider the application to finance the purchase of the Company.
The first alternative might have been adopted. The State might have washed its hands of the whole business, left the issue to the parties concerned, and deferred the full reorganisation of the creameries for a few years until the situation had cleared up. There are possibly two points of view as to what would have happened if this alternative had been adopted. This is not the first time that something approaching a trade war was waged between proprietary and co-operative creameries. It is, in fact, quite possible for individual proprietaries and individual co-operatives to continue their operations in more or less static competition for a long time. There has been serious competition before between co-operative creameries and a combination of proprietary creameries, and, as a rule, the co-operative creameries have come out of it best. The history of Cleeves is an example of this, and there are others. This, however, was the first time in which the competition was on such a big scale.
The Condensed Milk Company of Ireland is a very powerful concern financially. It controls 114 creameries and 10 elaborate condensing plants. The principal shareholders, Messrs. Lovell and Christmas, are amongst the biggest wholesale grocers in England. Messrs. Lovell and Christmas handle large quantities of Danish, Australian and New Zealand butter and I have no doubt whatever that when the creameries here have completed their marketing arrangements, this firm will be able to offer for and obtain bigger quotas of Irish butter than they have obtained before. The standing of the firm is such that, from a purely business point of view, they are entitled to every consideration. They had come into the Company two years ago, primarily in order to secure a quota of Irish butter—a perfectly legitimate ambition, not only from their own point of view, but from the point of view of the Irish farmer. They had re-established the business by putting immense sums of money into it, and it is quite obvious they were not likely to surrender their commitments just at the stage when they had brought the Company into a position where they might reasonably hope for a dividend. The competition, therefore, would have continued, and I have little doubt that during this year a number of co-operative societies—I will not attempt to indicate the number— in the absence of further credits, would close down, and their suppliers would have no option but to transfer to the Company's creameries. I do not believe for a moment that the Company could clear its border lines of all competition in this way, but it would go a considerable distance towards this object. It would certainly come best out of the first round. The Company would then be in a position to achieve that on which it had expended so much money during the last two years. It could then start for the first time to trade on a normal basis, and to make sufficient profits to recoup itself for the inevitable losses of the reorganisation period. It was in a particularly fortunate position for this purpose. Even though there still remained competition from the co-operatives at certain points, it would be much more free of competition than formerly and it would be a very much simpler proposition to meet competition at the points where it still existed, as proprietary enterprises of this sort can always recoup themselves for losses at one end where competition exists, by additional profits where competition does not exist and where they have a monopoly.
On the other hand, the position of the co-operative creameries would have been changed. Some of them would have gone out, but these would have been the weakest, and a somewhat smaller, but, in my opinion, a stronger body of co-operatives would be left in existence. They would have learned a bitter lesson, which would drive them into a certain amount of co-ordination. A position like this could not remain static. On the one side, there would be farmer suppliers to proprietary creameries anxious to establish co-operative creameries again. On the other the co-operative creameries would be anxious to extend out, and in this way the two interests would meet again within a few years and the fight would begin anew. In my opinion, by that time the result of the fight would be somewhat different, and it might very well be that the proprietary concern, having won the first round, would lose the second. It would certainly be either that result, or a draw. Everyone will realise that this would be a most unsatisfactory position. During this transition period the necessities of the competition would result in waste, dissipated effort, and heavy losses to the co-operatives, and in particular to the shareholders and guarantors. The banks would be forced to the conclusion that money invested in farmers' creameries was not secure, and in many cases they would have no option but to attempt to liquidate their guarantees.
Even from the point of view of the Company, the situation would, at best, be unsatisfactory. It could not meet competition effectively by remaining frozen in the same position, and it would proceed to branch out into new districts where there were no creameries. The first signs of developments in this direction would result in the farmers of these districts coming together and asking for authority to put up co-operative societies themselves. The body that would have the making of the decision as between the two interests would find itself in a very unsatisfactory and difficult position. It would undoubtedly have to take the line that if farmers wished to put up their own creameries they had the first option and the net result of this would be that the Company, faced at many points with serious competition, would be prevented by State action from meeting it effectively in the only way in which it can be met, that is, by developing its business.
In a word, the whole situation would be impossible, and it is quite plain that there was no real alternative except to cut the knot at once and to agree to provide credits for the purchase of the assets of the Company, provided these could be purchased at a reasonable price. In considering the application it was obvious that in normal circumstances the attitude of the Minister for Finance should be that if the co-operative creameries concerned purchased, he would lend the money required to supplement local capital, provided he approved of the price and was offered sufficient security. This attitude, however, could not be adopted in this case. It would be merely another way of refusing to have anythink to do with the matter. It is obvious that the Company could not negotiate on the basis that, if and when a price was fixed as between the negotiators, each and every one of the creameries involved should agree to it. Any small proportion of the suppliers could prevent the sale by disagreement, and the Company would then be in the invidious position of having offered to sell, having revealed its exact position and, to some extent, its trade secrets, and nevertheless having to carry on because the ultimate purchasers had refused to agree amongst themselves. This was out of the question in this particular case. The farmers concerned had learned a very bitter lesson as a result of the liquidation of Cleeves, and in these circumstances the Company could not afford to allow a feeling of insecurity to grow up amongst their suppliers. If the Company attempted to negotiate in such a way as to make it necessary to consult the suppliers to co-operative creameries all over the area, within which its operations were carried on, the inevitable result would be that at an early stage after these consultations had become public, the Company would begin to lose its own suppliers. If a large number of the suppliers thought that the creameries which they were supplying were likely to be closed down in the near future, rightly or wrongly they would come to their own conclusions, and they would see what they regarded as very good reasons for being amongst the first to transfer their milk supplies. It was therefore out of the question to insist on the purchase going through on the basis that the co-operative societies concerned should buy, and having come to the conclusion that it was essential to buy, we had in fact no other alternative, except the alternative which has been adopted and which, in fact, amounts to buying ourselves and transferring afterwards.
The negotiations for the purchase of the fixed assets of the Condensed Milk Company commenced in November, 1926; the price was settled at £365,000 on the 22nd February, 1927, and a provisional agreement for sale was signed on the 12th March, 1927.
In the Spring of 1924 the Condensed Milk Company of Ireland (1924 Ltd.) was formed for the purchase of the original Condensed Milk Company of Ireland Ltd., and Cleeves Ltd., which had gone into liquidation in the year 1923; I will call both bodies, for the sake of brevity, Cleeves—and in the year 1925 the Condensed Milk Company purchased the Newmarket Dairy Company Ltd. The Company, therefore, owns the business and assets of Messrs. Cleeves and of the Newmarket Dairy Company, and in addition, about ten creameries which were purchased or erected since 1925.
The nominal capital of the Condensed Milk Company is 300,000 £1 shares, of which 240,000 are fully paid up.
The principal shareholders are (1) Messrs Lovell and Christmas, of London, who hold 140,473 shares; (2) Mr. Andrew O'Shaughnessy, T.D., who holds 35,000 shares; (3) the Newmarket Dairy Company, who hold 47,058 shares; the balance, namely, 17,469 shares, is divided between seven shareholders in small amounts. The total capital put into the business since its inception is very difficult to estimate, because very large sums were invested in the erection of buildings, etc., by Messrs. Cleeves, and all these assets were sold in the turmoil of 1923 at a sacrifice figure to the new Company. Since the liquidation of Cleeves, however, there has been about £400,000 net put into the business in one way or another.
Of the 240,000 shares which have been issued fully paid-up, 225,000 represent cash shares and 15,000 bonus shares. Of the 225,000 shares 79,000 represented moneys which had been paid to the liquidator of Cleeves. Further investments in the Company include a cash loan by Messrs. Lovell and Christmas of £100,000, the full value of decrees obtained by the Company for compensation for property in Tipperary (namely, £16,000) and elsewhere, and advances by way of ordinary bank overdrafts. Cleeves, Ltd., was purchased while in liquidation for the sum of about £80,000, and, in addition, the sum of about £40,000 was paid to farmers in respect of milk supplied to the old Company. This was not a debt due by the new Company, but it was considered that it was necessary to pay it in order to re-establish goodwill. The Newmarket Dairy Company was subsequently purchased for £90,000. New and additional machinery, transport, buildings, etc., cost about £90,000, making about £300,000 in all. The difference between this figure and the net amount put into the concern would appear in a balance sheet as trade losses over the whole period. These are approximate figures. There is no balance sheet for the whole period, and the 1926 balance sheet is not yet published. The difference represents to some extent what can be described as normal trade losses, but it is mainly money expended with a view to re-establishing the goodwill of Cleeves, Ltd., regaining supplies from the co-operatives and ultimately clearing the field of operations of the Company of competition from the co-operative creameries.
At present the property of the Company includes (1) 113 creameries, of which 14 are centrals and 99 auxiliaries; (2) 10 condensed milk plants, 2 of which are finishing and 8 crude centres; and (3) other assets, including an up-to-date toffee factory, mills, houses, lands, shops, motor transport, and interest in an International Condensed Milk Distributive Company. These are the assets for which £365,000 has been paid.
The procedure proposed for the transfer of the Company is as follows:—The 300,000 £1 shares of the Company (of which 240,000 are fully paid-up) will be purchased for £196,513, and the trade credits and trade liabilities of the Company will be taken over by the purchaser. The purchaser in the first instance will be a holding body nominated by the Department of Lands and Agriculture. The trade debts exceed the trade credits by £168,487, and this sum of £168,487, when added to the price of the shares, viz., £196,513, amounts to the figure for which the Company was purchased, viz., £365,000. It will be seen that it is vital that this figure of £168,487, being the difference between the trade debts and the trade credits, should be a firm figure, and to effect this an agreement will be entered into under which Messrs. Lovell and Christmas will guarantee that the credits and liabilities amount to certain figures, so that in the event of the difference between them being more than £168,487, the surplus will be recouped by Messrs. Lovell and Christmas.
The price was fixed in the ordinary way by bargain and sale, the negotiations being conducted on the purchasers' side by Mr. Cox, of Messrs. Arthur Cox and Company, solicitors to the I.A.O.S. The valuation of the machinery of the condenseries and toffee factory was made by Mr. Patchell, an ex-Chairman of the Institute of Civil Engineers. London, and by the chief engineer of one of the largest German Dairy Engineering firms. The price of £365,000 was arrived at without reference to the moneys put into the business by the owners. The negotiations were carried on from the point of view of purchasing at a figure which represented a fair value of the property as a going concern. When the price was arrived at in this way, and when the difference between the trade debts and trade credits had been fixed at a firm figure by the guarantee of Messrs. Lovell and Christmas, the price of the shares was adjusted so that the total figure would amount to £365,000.
It is considered essential that the liquidation of the Company and transfer of the property to the co-operative societies concerned should commence immediately, so that the necessary adjustments, at least of the creameries, should be completed before the beginning of the next milk season.
A considerable number of the creameries will now become redundant. When I speak of them as redundant I mean that they are placed alongside and are competing for milk supplies with co-operative creameries which are themselves capable, without any additions in the way of plant or buildings, of handling at least the total milk supplies of both. An additional complication is added by the fact that a few of the Company's creameries will in the new scheme of things become partly redundant and partly non-redundant. For example, a central creamery of the Company may become an auxiliary to an existing co-operative central, or a co-operative central may become an auxiliary to one of the Company's non-redundant creameries, where a new co-operative society is being set up, or where the Company's creamery is a good one as a central. There are not many such cases, and they need not for the moment be taken into account.
In view of the fact that roughly half the creameries are redundant, it will not be possible to recover the full price of all the creameries from the co-operative societies. For the purpose of re-selling the Company's creameries to co-operative societies they may be divided into three classes:
(1) non-redundant creameries operating in areas where there are no co-operative societies;
(2) non-redundant creameries operating in areas where there are co-operative societies; and
(3) redundant creameries
The proposal in regard to (1) is simple. These creameries will be sold to new societies, to be formed from the suppliers, at the price for which they were purchased from the Company.
With regard to (2): New societies will not be formed to take over these creameries; they will be sold as operative concerns to existing societies at the full price for which they were purchased.
With regard to (3), that is to say, redundant creameries: These were purchased as going concerns. They will now be closed and dismantled. It is obvious that in many instances the total price paid for them cannot be recovered from the co-operative societies. These societies are only acquiring the milk supplies, and it is for the milk supplies that they will be expected to pay. They will be dismantled and the buildings and machinery disposed of at the best price available. To cover the difference between the price paid for the creamery as a going concern and its value as thus disposed of, where a difference exists, the Minister for Finance will contribute a grant.
The position, therefore, is that so far as we are selling any portion of the property of the Condensed Milk Company to the creameries, we will only sell at the price for which we purchased it. A grant, as opposed to a loan, can only be given in respect of property which has been purchased but which is redundant, in the sense that it is not being transferred. We will expect that the purchase money will be covered by shares with a reasonable amount paid up, and the balance will be advanced by the Minister for Finance at a reasonable rate of interest. The arrangements for repayment will be exactly the same as the arrangements for the repayment of sums advanced from the fund recently voted by the Dáil for new creameries, that is to say, by monthly deductions from milk supplies. It is expected that the total grant which the Treasury will be asked for in respect of these redundant creameries will be between £50,000 and £60,000. The co-operative creameries will be expected to undertake liability for the balance, viz., £150,000 or £160,000.
With regard to the ten condensers, Deputies are probably aware that a considerable proportion of Irish condensed milk is made from separated milk. The butter fat is used to make butter in the creamery attached to the condensery, and the separated milk is condensed. Four of these condenseries exist in the Limerick-Tipperary area. In this district there is intensive dairying, and there are large supplies of separated milk to spare, over and above what is required for calf rearing and pig feeding. On the other hand, the condenseries in the southern area are in a different position. In this area there are much smaller milk supplies, and there is at the same time more calf rearing and pig feeding, and consequently more separated milk required for these purposes. In normal circumstances there would be very small supplies of separated milk available for condensing. The Company obtained its milk supplies in this area, in keen competition with the co-operatives, by a complicated and expensive system of transport capable of tapping a very wide area. It is clearly undesirable to attract away the separated milk from the feeding of calves and pigs in an area where there is considerable rearing of calves and pigs and where there are no big supplies of separated milk. The Company, of course, were not under the necessity of taking these considerations into account. From the point of view of farmers and farmers' societies they are very relevant, and it seems clear that the condenseries in this area—about half the total—must be regarded as redundant. My proposal is to get whatever advice is considered necessary on the question as soon as possible. It may be that some of the machinery should be transferred to other areas, but it seems clear in any event that there will be something like £50,000 of redundant property amongst the condenseries and that this must be covered by grant and not by loan. The non-redundant condensers would be taken over by some society or federation of co-operative societies at the price for which they were purchased, the whole cost being covered by share capital, a reasonable amount being paid up, and the balance being found by loan, to be repaid by periodic payments of interest and sinking fund.
I am not to be taken as deprecating the condensing industry. I consider it necessary that our dairying should be more adaptable. There is every advantage in having more than one string to the bow. Butter will always, of course, remain the main source of income and an absolute necessity to our present agricultural economy, but in view of increasing competition it is highly desirable to be in a position to take advantage of favourable markets for condensed milk, cream, and cheese.
With regard to the "other assets," these of course are not required by the farmers and must be disposed of elsewhere as soon as possible, consistent with getting their full value. In view of the fact that they are for sale, I do not wish to indicate their cost at this stage.
The taking over, disintegration and transfer of such a big business will undoubtedly prove a difficult and costly task. The transfer would be simple if there were no condenseries, if creameries only were involved, and if these creameries could be divided into two classes—redundant and non-redundant. The case of the Lansdowne premises will illustrate the difficulties. This premises includes a central creamery, condensery, and an adjoining toffee factory. It was necessary to concentrate huge quantities of milk there in order to keep the condensers going, and this necessitated a huge creamery as well. The Company of course could not get skim or whole milk from the co-operatives. So far as the creamery is concerned, it is one of the biggest central creameries in Europe. The plant is designed to handle enormous quantities of milk and butter. This might have been quite sound from the point of view of the organisation of the Company, but the position of the Lansdowne premises will be radically altered by the transfer. The district is studded with first-class co-operative creameries, from which the necessary supplies of separated milk may be obtained, and it may very well be that the ultimate fate of the Lansdowne creamery, apart from the condensing side of the business, will be to become an auxiliary to a co-operative central in the same neighbourhood, while the condensery along with others will become the property of some federation of co-operative societies. This central creamery, apart from the condensery and toffee factory, with its plant and equipment, and with the milk supplies which it obtained from its own auxiliaries, is valued as a going concern for £16,500, and it was bought for that figure from the Condensed Milk Company. On the other hand, if it is to be closed as a central and worked merely as an auxiliary, it is not of course worth anything like that figure, and must be regarded as partly redundant, and the societies concerned will in that event be asked only to take liability for that proportion of the price that would represent its value as an auxiliary. Of course this is all conjecture and further consideration may lead to different plans. There are other creameries which present the same sort of problem, but not, of course, to the same extent, and the expenses of these creameries represent a considerable slice of the £50,000 grant which must be found as a portion of the total price of the creameries.
Obviously the correct course is to limit the problem as much and as soon as possible. The liquidation will commence at once and arrangements will be made for the transfer of the milk supplies of redundant creameries so as to get these out of the way with the least possible delay. The organising of new societies can then be undertaken, and by the time that this work is done it will be easier to deal with the difficulties that are left.
The liquidation will proceed, the redundant creameries and condenseries will be closed, and concurrently with this arrangements will be made for the transfer of non-redundant creameries to existing societies and to new co-operative societies to be formed for the purpose, and for the transfer of the milk supplies of redundant creameries to existing societies. All this will cost money. While a business is in liquidation there is practically no income to be put against its overhead expenses. The cost of this liquidation and transfer will be borne by the State.
When it was decided that there was no alternative to purchasing, the problem resolved itself into getting good value for the dairy farmers who would be the ultimate purchasers consistent with, and I make no secret whatever of this, giving full fair play to the Company. Whatever views its shareholders may have I am satisfied that the Company has got fair play, but I am still more satisfied that the creameries concerned and the co-operative movement generally have got real good value. The question "Could the Company be induced or coerced to sell for less?" can be readily answered. The Company could be forced to sell its assets for whatever figure the Dáil inserted in an Act of Parliament passed for the purpose of compulsory acquisition. This question is, however, entirely irrelevant. Once the Government intervenes it is no longer a question of the lowest price but of fair compensation.
The real considerations are two-fold and can be stated as follows:—Having regard to the circumstances and implications of this transaction, has the Company got fair compensation and have the dairy farmers of the country got good value? I have not the slightest hesitation in answering both questions in the affirmative. The creameries, as I have said, cost £210,000, and this leaves the condensers and what I have called "other assets" at £155,000. These other assets include house property apart from dwelling-houses attached to creameries, transport, mills, toffee factory, land, shops, etc. I do not wish to indicate the cost of those because they must be re-sold in the open market. Moreover, if I indicated precisely the cost of the condensers I would thereby be stating the exact price of the "other assets." I can, however, give a figure which I will ask the Dáil to accept as sufficient for the purposes of this discussion and which at the same time will not prejudice the position. There are three items amongst the "other assets" which, apart from the rest, are worth in the open market at least £40,000.
The net amount in respect of creameries for which the societies will be asked to take liability is about £160,000, that is, after deducting the grant in respect of redundancy. These creameries handle in a season 24,000,000 gallons, being the milk of about 55,000 cows. That is a conservative estimate. An average auxiliary cannot be run for less than £600 per annum. The closing of the redundants will save the farmers at the very least between £35,000 and £40,000 per annum in overhead expenses. This sum would pay off the debt, interest and sinking fund, in six to eight years three times over. The total price has, of course, been apportioned between each creamery. If, a month ago, before this transaction had become public, the committee of any co-operative creamery concerned was informed that it could buy its particular competitor at the price which has now been fixed upon it, and that a loan would be forthcoming for the purchase, it would accept the proposition not only with unanimity but with enthusiasm. From the point of view of the societies that are actually taking the property, the transaction represents real good value as a commercial transaction, but from the point of view of the industry as a whole and of the indirect benefits, the value is inestimable.
I do not anticipate many difficulties. It is expected that every effort will be made to get the shares to cover the assets transferred by shares subscribed voluntarily, and I believe that far the greatest proportion of the shares will be forthcoming in this way, but in any event the committees of the societies concerned will, if necessary, have the aid of the Co-operative Act to compel any recalcitrant minorities to do their part by taking their just proportion of the shares.
I hope that nobody will make the mistake of regarding this transaction as the beginnings of a policy under which the Government proposes to run the creameries of the country. The exact contrary is the fact. The purchase of these creameries has no justification other than it is a necessary preliminary to the efficient working of the Agricultural Credit Corporation and the Co-operative Act. The Co-operative Act will regulate and define the conditions under which existing societies may operate, and new societies be established.
The Agricultural Credit Corporation will provide the necessary credits for agriculture generally, and for the dairying industry in particular. When this transaction is completed, the Co-operative Act passed, and the Credit Corporation established, the responsibility for the future of the industry will be in the hands of the farmers themselves, and the functions of the State will, to a great extent, be negative. The organisation problems which I have indicated in this statement will still remain to be solved, but they must be solved by the joint efforts of the Agricultural Organisation Society and the creameries.
Nobody knows better than the Irish farmer that money is not to be "picked up" in dairying. The industry has gone through hard times during the last two years, and there are hard times still ahead. Competition is getting keener every year. Our competitors are putting all their resources of technical skill and organisation into the fight. We can only hold our own by going one better. Even under the best conditions and with the measures proposed, the problems outstanding cannot be solved without good-will and without considerable hard thinking and hard work. I am quite satisfied that there is sufficient capacity for both within the co-operative movement to effect the desired ends. I conceive it to be the duty of the Government to pay off arrears, even though it is not responsible for them, to put the dairying industry on a solid foundation, and, having done that, to make it quite clear to the farmers concerned that the future is their own making.
I will be told that this policy aims at a monopoly. I admit it—a most unusual monopoly: a monopoly of all the producers. I would point out that it is going to benefit the farmers, and would ask whom is it going to injure? The fruits of such a policy will not only manifest themselves in the countryside but also in increased prosperity in every town of the Free State. I will be further told that this is an attempt to shelter the dairying industry from competition. It is rather an attempt to enable the industry to meet the organised competition of Denmark, New Zealand, Australia, and Canada. This competition is quite sufficient to go on with and to keep the industry on its mettle.
Dairying is just as essential to our agricultural economy as a manured crop is to the rotation. Our policy is to hand over the industry to the farmers themselves. This is certain to lead to the formation of a solid and formidable organisation, around which they can shelter in difficult times, and which will grow and develop until our farmers control every phase of agricultural production and thereby obtain what they are not obtaining now, a fair proportion of the profits of their labour.
