Farmers lost millions due to 'inadequate' bosses at troubled dairy co-op, say MPs

More than 1,000 jobs were lost and 1,800 farmers were left out of pocket following the demise of Dairy Farmers of Britain (DFB), one of the major players in the UK milk-buying market.

About 240 Yorkshire farmers were members of the co-operative, which supplied more than a billion litres of milk a year to the food and drink industry before it collapsed in June 2009.

In a report which is published today, MPs on the Environment, Food and Rural Affairs Committee lay much of the blame for DFB's failure on its 81m purchase of a processing company, Associated Co-operative Creameries.

DFB wanted to add value to its farmers' milk by expanding into processing but the report says it paid too much for the creamery business and became tied into a loss-making contract to supply a competitor that cost millions.

The co-operative's difficulties were compounded by a lack of capital, falling confidence, poor communication and problems with its governance structure, the report adds.

MPs also criticise the Rural Payments Agency for failing to follow the lead of the Welsh Assembly and offer early single payments to farmers who were affected.

The committee's chairman, Michael Jack, said: "The harsh reality of a cruelly competitive liquid milk market exposed the inadequacies of DFB's senior management as they sought to put the business into the 'premier league' of Britain's dairy industry.

"By paying too much for tired processing assets and the customer base of Associated Co-operative Creameries, they sowed the seeds of their eventual downfall.

"Members' trust in their management was rewarded by personal losses totalling millions of pounds and the fractured dreams of a better milk price."

Farmers lost the money they had invested in the co-operative but also missed out on a month's earnings because DFB failed to pay them for the milk it collected during May 2009.

The National Farmers' Union estimates that members lost between 60,000 and 65,000 on average, but one farmer who joined the DFB when it began in 2002 told the committee that he had lost about 120,000.

MPs found the Department for the Environment, Food and Rural Affairs (Defra), which helped members to find a new buyer for their milk, had responded "positively" to DFB's collapse.

But they called on the Government to change the tax system and update legislation to make sure that insolvency appointments over co-operatives are made on the same basis as appointments over limited companies.

Mr Jack said: "DFB did not go to the wall because it was a co-operative but the demise of the business and the challenges faced by the receiver have highlighted a number of significant weaknesses in the legislation."

The report states: "Defra should be offering advice and assistance to support these co-operatives. Capital raising is one of the principal challenges facing UK dairy co-operatives."

The MPs urged Defra to set up a task force including members of the banking community and industry representatives to look into ways of financing agricultural co-operatives.