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Memorandum submitted by Lord Grantchester (DFoB 34)
From the evidence session last week, there are some further items of interest that need to be made available to the Committee.
1. The directors and executive management team conducted a series of regional meetings throughout England during the week-end Saturday/Sunday 6th & 7th August 2004, to discuss the proposed purchase of ACC. The purchase was then formally decided at a Special General Meeting of the Council of DFB that took place on Monday 8th August 2004. 2. The document "Working Together to build a better future" which was submitted by the Co-Op as part of its evidence, was a public document sent to all customers of DFB to explain who the company was that had made the purchase of ACC. The Governance structure of DFB is detailed in a document "New rules of Dairy Farmers of Britain" dated 26th June 2002, lodged with The Financial Services Authority and available to all members of DFB. A copy is attached. This document was updated from time to time thereafter. 3. The Executive team and employees at DFB undertook to perform and report to best practice, and found immense motivation, satisfaction and pride in complying with the necessary requirements.
4. The Co-operative Group in its evidence, suggested that DFB was unwilling to move to a new form of dedicated supply chain. This is misleading. It is correct that an additional premium was offered. Unfortunately, in consultation with the membership, this premium was considered hugely inadequate for the extra costs that would have had to be borne by the farmer. 5. The public quote I read out concerning the purchase of ACC
was: "This is a move which results in 6. PricewaterhouseCoopers (PWC) was asked by HSBC to undertake an Independent Business Review (IBR) of DFB's 523 project. PWC was also engaged by DFB with a duty of care to HSBC to market the company in whole or in parts. Thirdly, PWC was also instructed by HSBC as Insolvency Practitioners to undertake the receivership of DFB. The undertaking of all these roles by one organisation is a feature of this case. The PWC team who were advising HSBC as part of its IBR review was the same team conducting the receivership. I understand that other banks engage different parties as receivers from those that had conducted an IBR into an organisation. 7. Government support. DFB
was unable to source help from the Redundancy Fund within the Department of
Business, Enterprise & Regulatory Reform (BERR) as this fund only paid
statutory redundancy, which was offset by any element of contractual redundancy
due in addition to statutory payments. DFB inherited from ACC a union
agreement to pay both statutory and contractual redundancy. 8. The impact of collapse had been most materially felt by farming member suppliers as unsecured creditors to DFB. HSBC substantially recovered its debt with the sale of the assets of DFB. The remaining three liquid dairies are still available and have not been sold. 9. One unfortunate aspect of the collapse on dairy farmers that has come to my notice concerns the aggressive actions being undertaken by the utility companies, especially the power companies and Scottish Power in particular, against farmers and others in the Small & Medium size Enterprises (SME) sector. I understand many of the utility companies have unilaterally decided to switch accounts from quarterly to monthly invoicing, based on estimated meter readings, which subsequently turn out to be over-zealous, which are then followed up with aggressive demands for payment.
10. From the discussion with DEFRA and contingency work undertaken by DFB, the supply chain of milk from farm to consumer was not materially affected. A feature of the collection and haulage of milk is that it is integrated between all the companies in the industry. I would like to pay special tribute to the employees of DFB who continued to manage the situation throughout the difficult time of receivership. 11. The vulnerability of dairy farmers supplying a product with a short shelf life, with limited capacity on farm at a time of any receivership is well known. It is a fair question to consider how appropriate was the policy of continuing "margin management" of the business in receivership once farmer members ceased to be owners of the business and were only suppliers. 12. The confidence of dairy farmers in co-operating to influence the
price of their products will have been severely damaged. The dairy
industry is perhaps one of the few remaining sectors of the 13. A feature of co-operatives is that returns from the market are pooled and then returned to supplying members. The differing customers return differing prices that inevitably are "smoothed" to some extent within the milk payment structure of the co-operative. In contrast, individual farming supplies to certain buyers can attract premiums according to the end use of that milk. This has now resulted in huge disparity between prices for milk, essentially the same product, paid to neighbouring farmers. This has not only worked against co-operatives, but severely affected the relative prosperity between dairy farmers. 14. The position outlined in paragraph 10 has been one consequence of the NFU "Vision" document. The challenge the farmer faces through the supply contract are not those outlined by the NFU. Rather, the challenge is for the farmer to make the contract work better for the farm. 15. The long term nature of a milk supply contract is one feature that was demanded by the banking sector of the three large farmer co-operatives. Without the security that members are in a long-term relationship with their own company, the banking sector was unwilling to lend. 16. The Companies Act has been updated and is comprehensive. In comparison, the legal framework governing Industrial and Provident Societies is largely unchanged. There are many aspects of this outdated framework that impacted on the operations and strategy of DFB. 17. A relatively new entrant to the business of providing advice and best practice to Co-ops and farmer-controlled businesses has been provided by English Farming & Food Partnerships (EFFP). I would like to point out that this organisation has been excellent, together with Scottish Agricultural Organisation Society (SAOS) in providing commercial acumen and leadership to farming businesses. I commend to the Committee the provision of business services and policies to the farming sector through these two organisations. 18. I understand that representation to the Revenue by accountancy organisations in the farming sector, that farmer member losses through receivership be favourably treated and allowed against future farming profits have been turned down. While the technical answer provided by Customs & Revenue may be correct that the majority of the losses are capital by nature, most farming businesses find it hard to utilise these losses. It would be extremely helpful if the Committee could seek assurances from the Minister of Agriculture that help could be provided to the farmer members of DFB that the regulations be interpreted to allow their losses to be offset against future revenue.
Lord Granchester October 2009 |