It is usually the weakest businesses that fail in a recession. The downturn leaves them no more slack to muddle through.
And the unpleasant reality is that there are quite a few co-operative and other mutual businesses now feeling the pinch. If we are objective, we should not be surprised. Many of these are traditional businesses that have been operating for decades and have, in some instances, failed to modernise. They have got by without investing sufficiently in equipment or management.
Which is where we come to Dairy Farmers of Britain – DFB. This dairy co-operative was owned by the 1,800 farmers who supplied the milk. Now it has gone bust, with the result that many of its 2,200 staff – in Blaydon, Nantwich, Lincoln, Llandyrnog, Bridgend and Lubborn – will lose their jobs. There are also concerns about the sustainability of much of the 10% of UK milk production it was responsible for.
The Lincoln plant has already closed. Llandyrnog’s processing plant has been sold to one of the two principle dairy co-ops, MilkLink. The Organic Milk Suppliers Co-operative – OMSCo – is taking on much of DFB’s organic milk production. There are hopes that the Lubborn operation will also be sold. The Nene Valley business was sold in May, just before the business collapsed, and two dairies were closed last year.
In recent months, the co-op has been engaged in managing decline, a desperate attempt at restructuring and trying to do business deals to save itself.
The failure of the co-op is grim news for the farmer co-operators. They are all owed for their milk supply for May and the beginning of June. Sums in the region of £15,000 are a lot of money for dairy farmers, whose businesses are seldom very profitable. There are fears that many farms will go out of business and Radio 4’s Farming Today recently broadcast from the auction of the cows of one of the farmers most severely affected. As well as the loss of the payment for milk production, farmers also lost the value of their shareholdings in the co-op – about £25,000 per farmer.
It is common knowledge that the dairy supply sector has been screwed down in price by the big supermarket chains, led by the ruthless Tesco and Asda (Wal-Mart) managements. And there have been press reports that DFB felt the pinch from this as the Co-op Group pushed DFB to become more press competitive, but this seems to misrepresent the facts.
Co-op Group chief executive Peter Marks made clear at the recent Group AGM that he does not accept that the DFB’s failure was the Group’s fault – though it is true that the pulling of the supply contract hastened the end.
“This was a really difficult decision for us,” said Marks. “So much so that there were at least three meetings between our senior team and Dairy Farmers of Great Britain’s [sic] senior team and I personally got involved in one of them and met Lord Grantchester, the chairman of Dairy Farmers of Great Britain.
“The fact is, this business was an inefficient business. They’d failed to invest and therefore couldn’t compete. They were heading towards administration well before we decided to move our contract…. In effect when we moved our milk contract, the actual farmers who supply the milk will get a better deal.”
Marks’ interpretation of events is supported by many of the farmers. Farmers for Action claims to represent 12,000 farmers and is involved in discussions over the future of DFB. Its chairman, David Handley, told the News: “From the dairy farmers’ perspective, we were awaiting the news for some considerable time. It was dragging the industry down.”
Handley is not critical of the Co-op Group for withdrawing its contract from DFB, saying this was probably spurred by the problems with the dairy co-op, rather than causing the crisis. He says there were deep-seated operational problems within DFB, which the farmers’ co-op had been unable to grapple with. This also meant, he alleged, that the quality of the product was not always adequate for the market.
“The processing and the plant were not of a very modern type,” says Handley. “There are more progressive [dairy] co-ops out there who said they could do better.” It was this, he suggests, that persuaded the Co-op Group to move its contract. “The Co-op [Group] stuck with them for some time.”
It is also reported that another factor is that many DFB members are based in the most remote parts of Britain. Collecting milk from these farms is expensive and may no longer be viable for a milk processor, one fears. This would be a potentially devastating blow to some Welsh hill farmers and their communities, in particular. Welsh ministers have been especially active in responding to the DFB collapse.
The dairy industry itself is facing increased pressures across the UK. It “has reduced at such a dramatic level,” says Handley. But ultimately, he believes, the loss of DFB was inevitable. “This is something nobody wanted, but it had to happen and it had to happen quickly.”