First Milk has announced plans to defer milk payments to its farmer suppliers by two weeks and has requested increased investment from them to help it offset struggles with cash flow. The payment intended for January 12 would now take place on January 26 and further payments would be similarly deferred, it said.
The board of the dairy cooperative, which is wholly owned by its farmer members, said it would reverse the 1.1p per litre (ppl) cut in the milk price paid to its farmers. The reduction was scheduled to take effect from February 1.
However, it requested that supplier members up their investment in the business from 0.5ppl to 2ppl for milk supplied from December 2014 to August 2015. In addition, it increased their capital investment target in the business from 5ppl to 7ppl.
‘Wholly unacceptable’
“This is a wholly unacceptable announcement from First Milk coming after last week’s announcement of a milk price cut, which I understand is partly to be reversed,” said NFU president Meurig Raymond.
“It is quite clear that this announcement will be a serious burden for farmers and will be damaging to cash flow at an expensive and demanding time of year for costs. It is essential at this time that banks understand and are supportive of our farmer members so they can continue to finance their businesses.”
Raymond said he would also be contacting all the main agricultural banks to plead with them to give First Milk leeway. “It is so important at this difficult time for the dairy industry that the financial health of First Milk is secured,” he stressed.
He said the NFU would aim to provide answers to members’ queries via its regional services and its CallFirst service.
Unprecedented global volatility
First Milk said it had been forced into the position following unprecedented global volatility in the industry in 2014, with oversupply prompting milk prices to plummet.
Returns from globally traded products had more than halved in comparison to record levels 12 months ago, leading to a steep fall in milk prices around the world, it said.
“While our lenders have been supportive as we’ve dealt with this volatility, with the added uncertainty of the imminent EU quota removal, the board has taken the decision to rebuild the fundamentals of the business ahead of the spring flush,” First Milk chairman Jim Paice announced.
“We understand that the milk payment deferral will cause concern for members as direct debits and payments will have been lined up against milk cheques. On that basis, we are working with all major banks at national, regional and local levels to explain the rationale around this decision. That way, bank managers should be well equipped for any conversations they have with First Milk members.”
‘Cash injection’
“These moves will deliver a cash injection into the business and play an integral role in putting our finances and our business on a stronger platform,” said Paice.
“We don’t know how long this current market downturn will last, and we are aware that hundreds of UK dairy farmers are unlikely to find a home for their milk this spring. Our priority is to make the business and our processing assets as secure as possible in order that we can continue to process and market every litre of our members’ milk.”
First Milk produces a range of dairy products and ingredients, generating annual revenues of £530M. It is headquartered in Glasgow, with seven manufacturing sites across England, Scotland and Wales.
After speaking to Paice, Richard Lochhead, the Scottish government’s rural affairs secretary, said: “The immediate financial impact on First Milk’s already hard-pressed members is unfortunate and the government will keep in close touch with First Milk to monitor the situation.
“We are also in close contact with the wider industry to discuss the broader implications of the volatility of the dairy sector.”