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Potter's View: "One of the first steps First Milk should do in my opinion is to dump the voluntary code"


This month, Ian Potter looks at the First Milk debacle and believes its long suffering members deserve better, and then casts his eye over DairyCo’s most recent revelation.

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As I write, First Milk’s accounts for the year ending March 31 are due out. They are long due out, in fact, and certainly have not been published to timely plc standards. When they eventually arrive they will be heavily scrutinised and the co-op’s management cannot complain about this.


The company cannot hide behind some of the issues it has to address. For example, it has to look at the remuneration of senior people and link them to their individual ability and achievements.


Even some of the co-op’s strongest and most vocal supporters are admitting they are nervous, simply because they are not convinced the recent drastic actions alter the underlying viability of the business.


The co-op’s management and board are barely giving members enough oxygen to breathe, and at best the farmers face a long period of relegation zone milk prices and extended payment terms. For years First Milk members have settled for below average performance and for their loyal support they should expect superior performance.


The ramifications of its cash crisis are endless. Two traders who have surplus milk have informed me they will not sell milk to First Milk on any spot or short-term contract to go into Westbury for processing because they fear they may not be paid for it. That means it loses the opportunity to secure cheap milk and to utilise any spare capacity at Westbury.


The announcements by the co-op in January destabilised and demoralised farmer members in a matter of hours. I have huge respect and sympathy for the majority of First Milk members who have resigned themselves to the fact that no matter how many hours the family works and how hard they cut costs, they realise they will struggle to keep their heads above water with the lowest milk price and deferred payments for their efforts. And it must be doubly galling when they see friends and neighbours soaring high with the eagles on price.


Co-ops in the UK have a chequered history, what with Dairy Farmers of Britain’s failure and First Milk’s current woes. At least Milk Link saw the writing on the wall for small co-ops and made the right move with Arla.


But co-ops are no different to any other business in so far as if they don’t have a sound business plan they will fall over. Farmers join co-ops in the belief they will profitably process all their milk and they will maximise its value. But they want the co-op to be professionally and commercially run in their best interests.


Most dairy farmers do not join a co-op expecting to receive the top milk price in town. They forego short-term price promises in favour of a long-term, secure purchaser. And normally they invest in it in the expectation of a higher price and strong performance, and not to be forced to invest/cough-up because the co-op has run out of cash to pay the monthly milk cheque.


I don’t blame dairy farmers for looking elsewhere if they are not convinced their current milk purchaser’s business plan is sustainable.


Today, though, few can change milk purchaser. But for First Milk the time bomb is ticking. If it fails to convince mem-bers that its plan will not only guarantee survival but lift them to above average performance in terms of returns, it will cost it very dearly when recruiting recommences.


One of the first steps First Milk should do in my opinion is to dump the voluntary code 30-day notice of price movements asap. It’s a millstone around its neck and is way off being a level playing field across processors. Keeping to the 30-day rule is doing what is right for those who coined the code – it has seemingly not done the right thing for it members.


So, for what it’s worth, here’s my tip for everyone else for 2015 and 2016. Remember what happens in this crisis, and how your milk purchaser treats you. Those who play fair with a straight bat should be applauded. If you are subject to an opportunistic milk buyer who drops the milk price when he can, and sneaks in other scheming ways to drop your price further, dump him as soon as you can - and don’t forgive or forget. As Alan Wiseman stated in 2010 ‘Treat people the way you would like to be treated. That’s a simple rule which has built our business to what it is today’.


Finally, the mass media have certainly given the UK dairy industry its quota of coverage in January. Apart from First Milk, the main point they have centered on is how come water costs more than milk, with four pints for a ridiculous 89p or less? Well my jaw dropped when I was alerted to the January 22, 2015, issue 38 of DairyCo’s Dairy Market Weekly. In it was an article headlined ‘Is the price comparison between milk and water hiding a bigger point?’ The article went on to state: “As the graph shows (DairyCo loves graphs) if we take the branded and nonbranded weighted average prices for both water and milk sold by retailers we can clearly see that, in both cases, milk sold for more than water.


So while the mass media have been lapping up the story that water is more expensive than milk, DairyCo to whom producers pay £7m a year in levy, have carried out some fantastic research to prove that milk is, in fact, more expensive than water – thus taking away one of our greatest headline grabbers ever! I ask you. Where’s the PR nous?


There’s surely some brains there somewhere. After all, the head of AHDB’s market intelligence section is paid close to the salary the country pays George Osborne as Chancellor of the Exchequer.


That said, however, DairyCo’s all-time words of wisdom surely have to be from its ‘Forage For Knowledge’ bulletin once when it said: “Variations in grass growth results are down to local differences in moisture and temperature.” Never!


Ian Potter

Ian is a specialist milk quota and entitlement broker. Comments please to ianpotter@ipaquotas.co.uk

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