Dairy Farmers of Britain faces foreclosure

The Dairy Farmers of Britain (DFB) is facing its demise due to its liquid milk division and even the bank will not get all its money back.

 

Receivers Pricewaterhouse Coopers has published a creditors' report which states on the dairy co-op stating: "A major contributory factor to the demise of DFB was the failure of its Liquids division to deliver sustainable profits".

 

The statement goes that "ultimately, it was loss-making, proved unsaleable as a business either before or during receivership, and (at least in one such negotiation) was cited as the reason why a 'significant next step' merger or joint venture deal was not possible."

 

Irthington farmer Gordon Brown, who until last year was a DFB council member, is now supplying First Milk but has gradually reduced the size of his herd from 220 to 190 in the last few months. He believes the co-op's fate was sealed when it bought Associated Co-operative Creameries in 2004 for GBP81 million (US$132.48 million) from the Cooperative.

 

Brown said the co-op "should not have gone anywhere near vertical integration" and that they "should have stayed as farmers producing milk and taking whatever we could get and looked at the short-term".

 

He added that there are issues surrounding the due diligence of the ACC purchase as costs of the dairies were too high.

 

DFB wanted to retain more of its members' milk cheques to cover cash shortfalls but the council did not support the move in March, only allowing the transfer of member equity into shares to improve the balance sheet.

 

Members received their final milk cheque from the receivers at the end of August - they were paid 16p a litre in the two weeks after DFB went into receivership.

 

Members who guaranteed the business were released from further financial obligation by the creditors report. There were 1,113 redundancies as a result of the co-op's collapse and Cumbria farmers lost thousands of pounds in investment and a full month's milk cheque.

 

HSBC will lose GBP4 million as a result of the co-op's demise and the total cost of receivership is likely to exceed GBP10 million.

 

The report describes how in September 2003, the DFB board decided to take positive action to improve its market position. This included proposals to build a new dairy as well as acquisition of dairy assets and the sale of its liquids business. DFB then lost of the Co-op milk contract announced in April - it represented 30 percent of DFB's liquid business. It invested heavily in launching the Localchoice milk brand in branches of Tesco across the country - but sales was much lower than expected and the brand was quickly discontinued in many shops.

 

Brown added that farming co-ops work the world over "but it is a particular feature of the UK where they have not worked".