FRom the FT - Dairy Farmers of Britain

Small dairy producers face skimmed payments

By Andrew Bounds

Published: June 8 2009 03:00 | Last updated: June 8 2009 03:00

Almost 2,000 farmers are set to lose tens of thousands of pounds each with the collapse of one of Britain's largest dairy co-operatives, according to the National Farmers' Union.

Dairy Farmers of Britain, which supplies 10 per cent of the UK market and has 1,800 members, was put into receivership by management last Wednesday after it failed to find buyers for loss-making parts of the business.

Commenting on the collapse, Hayley CampbellGibbons, chief dairy adviser to the NFU, says the average farmer with 200 cows will lose at least £14,000 on milk and about £50,000 in investment. "It is a nightmare," she says.

Andy Guy, a co-op member from Nottinghamshire, has been searching desperately for alternative customers for his milk.

"I have lost £7,000 from my milk cheque and thousands more in investments," he adds.

Stephen Oldfield, receiver and manager from PwC, says DFB could not pay for milk delivered in May and did not know how much it could pay members in June.

"One month's milk cheque is in many cases a whole year's profit," he admits. Mr Oldfield says there could be a 1bn litre shortfall this summer, hence the need to "keep the milk flowing".

However, food industry observers say milk will still arrive on supermarket shelves.

"Supply has not changed and demand has not changed," says Will Sanderson, for Milk Link, another co-operative.

The longer-term legacy will be a further step on the road to consolidation, begun after deregulation in 1994.

Many believe Dairy Farmers of Britain could be sold within "days or weeks", with bigger rivals such as Dairy Crest, Arla and Robert Wiseman mentioned as possible buyers.

The group, which has already shut two dairies, is shedding 640 of its 2,200 employees and has cut milk payments by 2p a litre to 22p.

About half of its members had already said they would quit - but they are still serving a one-year notice.

Simon Chantler, executive chairman of Meadow Foods, which supplies dairy products to the food industry, says milk price volatility will continue as European Union quotas were gradually abolished, opening the sector to global market prices.

"We had highs last year and now with the credit crunch the price has fallen because demand even in places like China has fallen sharply," he said.

Stefan Barden, chief executive of Northern Foods, which uses dairy ingredients in many of its ranges, says New Zealand, with its vast lush pasture, set the production standard. "Too many British producers are inefficient. The herds are too small," he adds.