6 Conclusion
109. Mr Mustoe, the Chairman of First Milk, told
us that the difference between a plc and a co-operative was brought
home to him in his first few months in the job when he met some
of First Milk's farmer members. He commented: "they are not
ordinary shareholders in the sense that they are expecting a dividend
and if it goes down it's annoying but it's not material in terms
of their existence." He stated: "The difference with
a co-op is that you have the ability as a business to mess with
people's lives and if you run your business poorly then those
people will suffer".[217]
DFB did not fail because it was a co-operative. However, dairy
co-operatives in the UK are comparatively young and there is much
to be learnt from older, larger co-operatives in Europe and elsewhere.
Defra should produce a report within the next 12 months examining
governance and capital-raising arrangements in these co-operatives,
together with the legislative framework that applies, and exploring
the lessons these countries offer for dairy co-operatives in the
UK.
110. No single factor—not even the purchase
of ACC in and of itself—caused DFB's demise and its problems
were not unique: the majority of them could affect any business.
DFB experienced some bad luck. More significantly, it suffered
from over-ambition, a shortage of capital and, at various points
during its existence, poor governance and poor communication.
In its final year, it lost the confidence of its members and its
customers. Hindsight certainly makes it easier to begin to understand
what happened at DFB, but, as we have made clear, some of the
issues we have discussed in our report should have caused concern
at the time. Ultimately, DFB's members were badly let down. We
have suggested some steps which we believe may reduce the chances
of other farmers suffering a similar fate.
We summarise below the actions
that should be taken by the Government.
111. As the Department responsible for agriculture,
Defra should be offering advice and assistance to support the
growth of agricultural co-operatives. First, Defra must pursue
the matter of the taxation of members' contributions to co-operatives
with the Treasury. It is manifestly unfair that farmers should
have to pay tax on money that is only notionally allocated to
them and that is actually invested in their co-operative. Secondly,
Defra must co-ordinate the key players to devise solutions for
overcoming the constraints on the capitalisation of agricultural
co-operatives. The Legislative Reform Order that is currently
before Parliament should be regarded as the beginning of this
process, rather than a solution by itself. Thirdly, Defra should
work with the Financial Services Authority to ensure that issues
affecting agricultural co-operatives in particular are taken into
account when developing best practice guidance for industrial
and provident societies.
112. Clearly the immediate impact of the failure
of DFB was a further questioning of confidence in the dairy industry.
Defra must recognise this in its work to ensure that the dairy
industry has a positive future that reflects the natural advantage
of the grass-growing areas of the UK for producing milk.
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