The disbanding of the milk boards lead to the formation of the dairy farmers’ marketing cooperative Milk Marque, which, after investigation by competition authorities, split into three: Axis, Zenith and Milk Link. At the time, there was a belief in some quarters that the solution to ever-falling prices was to set up a dairy farmer cooperative and move into processing. Simple really. But things are rarely that simple, as recent history has shown.
Of the three ‘sons and daughters of Milk Marque’, Milk Link is the only name that remains. Set up in 2000 as a milk broker, the cooperative took the view that to get a sustainable return for its members, it had to get into processing. The results of that journey (profiled in Dairy Innovation in February 2009) have so far been successful.
Axis merged with Scottish Milk and eventually became First Milk, and it too has moved into processing. Zenith merged with The Milk Group – a dairy cooperative that wasn’t borne out of Milk Marque – and started out on its relatively short and rocky road as Dairy Farmers of Britain. It was a journey that ended last week when the cooperative called in the receivers.
DFB has been in trouble for some time, and while the events of last week weren’t totally unexpected, they still came as a body blow to the dairy farmers that had put their faith and their cash into the cooperative. DFB members will lose their milk cheques for May and the first two or three days of June, which is believed to be something in the region of £14,000. On top of that, farmers will lose the money they’ve invested in the venture, reckoned to average out at £25,000 per member (though, to be honest, many members had already written off this money).
In 2004, DFB spent £75m to purchase Associated Co-operative Creameries and create the UK’s biggest integrated milk supply and processing cooperative. The acquisition made DFB the third largest milk processor in the UK behind Arla Foods and Dairy Crest, with a capacity of 1.3 billion litres a year. One DFB director was quoted at the time as saying, “This will change the face of the dairy industry forever, moving farmers towards being price makers as opposed to price takers”.
At the time, several industry pundits and commentators believed that Dairy Farmers of Britain had paid too much, and others believe this was the time that cooperative’s troubles began. In recent months, as those troubles mounted, there had been a series of high-powered departures and arrivals as the board attempted to steady the ship. But the cooperative suffered significant losses in its liquids division. It announced the closure of its Fole and Portsmouth dairies in an attempt to achieve a return to profitability in this division. During the following months, it wasn’t able to pay its farmer members a competitive milk price, which resulted in members tendering their resignations in large numbers.
Since the receivers were called in, agreements have been reached to sell Lubborn Creamery to Lactalis, Milk Link is buying the Llandyrnog Creamery, OMSCo is taking on DFB’s organic members and operations, and the Lincoln Dairy – acquired in 2005 – has been closed with the loss of more than 100 jobs.
The initial focus, quite rightly, has been on DFB’s dairy farmer members. According to one dairy website, “industry reaction was swift and helpful with major dairy processors who were in a position to take on distressed DFB producers quick to offer instant contracts wherever possible”. While many farmers will find a home for their milk, other smaller producers and those in a less advantageous position geographically may well have problems, leading them to exit the industry.
But the secondary focus will be on what really happened behind the scenes at the cooperative. National Farmers Union Dairy board chairman, Gwyn Jones, said: “Given the amount of time DFB has had to prepare for what always seemed like the inevitable, to end up with this sorry mess this is an extremely bitter pill for DFB’s members. There are questions that will need to be asked at the highest level.”
One industry pundit called for “a forensic examination of the accounts and affairs of DFB during the last two years” to ensure that none of those involved, past and present, were guilty of what he described as “legally debatable” activity. He called for a thorough examination of DFB’s accounts and said explanations were needed from current and former executives.
In the meantime, the loss of their May milk cheque will have a profound and devastating effect on cash flow for many DFB farmers. They’ll need a sympathetic ear and a helping hand from their suppliers … and their banks. Similar, dare I suggest, to the sympathetic ear and helping hand the banks received (from the UK taxpayer).
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