Dairy firm urged to be honest with farmers over investment

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Farmers who supply milk to the UK’s largest dairy firm need to know the “absolute truth” as to why they are being told to plough extra money into the company at a time when milk prices are tumbling to new lows.

Ian Macalpine, chairman of the Royal Association of British Dairy Farmers (RABDF) said many dairy farmers were worried for their futures.

Co-operative milk buyer First Milk, which announced that payments to its farmers were being deferred for a fortnight while also asking members to invest greater margins into the company, has moved to reassure its suppliers in an online video featuring the firm’s vice-chairman Nigel Evans.

Stating that farmers were under great “stress” following the announcement, Mr Macalpine of the RABDF, said: “We urge First Milk board to be honest and up front with its communications with members, many of whom have been left uncertain of the future of their dairy farming businesses.

“They need to be informed of the absolute truth in particular about the use of their increased capital contributions from the current 0.5ppl (pence per litre) to 2ppl.

“First Milk’s member businesses are being put under enormous stress with crucial decision making with banks and suppliers, both for the short and long term. Consequently, they need accurate information in order to make these decisions; they also need to be reassured that they will continue to have a milk buyer.”

First Milk’s Mr Evans used his internet broadcast to explain why the company had taken action, saying: “We have a situation that has arisen within the business in terms of cash flow and it partly has arisen as a result of market moves in the spring and our inability in a way to actually lower the milk price quickly to deal with the drops in the commodity prices and the product prices we were supplying in to, and a cash deficit built up.

“In effect we traded at a loss for a while and in order to deal with that cash issue that has arisen from that we are deferring the payment (due to its farmers this week) for 14 days and that will effectively lift that cash deficit from the business.”

Asked why First Milk - which has 36 members in Yorkshire - did not just loan the money from banks, Mr Evans said: “Part of that cash deficit arose from a loss making situation that came in the spring but the other element of it is a direct result of cheese stock values against which our loans are secured and those values have been falling right throughout the autumn and they have reduced our borrowing headroom.

“Now, we could go back to the banks and borrow that money from the banks but when we looked at that, actually, the cost of doing that was pretty significant and quite frankly the cost to us as members, suppliers to First Milk, was lower by actually taking the route and deferring the payment and seeking further capital input into the business. This fundamentally solves the issue.

“We are committing more member equity to First Milk and we are putting ourselves in a position where we will not have this problem and nor will we have a problem in terms of seeking extra loan capital at any point for the foreseeable future.”

The RABDF urged members to attend First Milk’s AGM in Haydock on January 30 to air their views.