Memorandum submitted by Edward Howells
(DFoB 19)
In hindsight, as a member, problems were appearing
in Dairy Farmers of Britain (DFB) three years ago when the company
decided to introduce very tough penalties for milk with cell counts
above 250 and bactoscans above 100. The company claimed that
it would make it easier to sell the milk but I believe it was
a way to reduce the price they paid to farmers without affecting
their price in any comparative league tables. They knew farmers
would not complain about this in meetings because no farmer is
going to admit to high counts in public.
Another indication was the ever increasing penalties
for spring milk compared to autumn milk. I grant that the spring
flush of milk creates a problem but it has not been such a problem
over the past few years because of the ever decreasing milk field.
This was another subtle way of reducing the overall price paid
to farmers and also helping the cash flow of the company by holding
money back from farmers in the spring until the autumn.
The above are a couple of examples that everything
was not right within DFB for a few years.
The reasons for the collapse of DFB are numerous
but the initial reason must go back to the decision of the Government
to break up Milk Marque. This led to the set up of three Coops
which were too small to compete in the modern milk industry. It
also meant increased costs as three Boards were required, three
CEOs and three Chairmen.
The three Coops recognised the need to secure
more of the end price of milk for farmers and so moved into processing.
This was hampered by the fact that the Coops were now too small
to build large efficient factories.
I will not dwell on areas which have been highlighted
by many others and the receiver, they include
1. The acquisition of the ACC's plants.
2. The long term losses in the milk division.
3. The Tesco Local Choice initiative.
4. The competence of the Board
5. The quality of advice given by Smith &
Williamson.
One area which requires further investigation
was the role of the member council. I believe that the council
just rubber stamped any decisions taken by the board. The council
appeared to be more interested in tarnishing the reputation of
industry commentators who questioned the direction the company
was taking rather than safe guarding member's investment and the
long term future of the company.
The members of the council did not recognise
any of the warning signs that indicated that the company was in
trouble.
The chairman of council Mr Stephen Yates stated
in the meeting which was organised by the receiver in June that
he had been trying to remove the chairman of the board for three
years. If this was the case why did Mr Yates & council allow
the chairman Mr Rob Knight to take on the dual role of chairman
& chief executive for a period of time?
During the last 12 months the board &
the then CEO Mr Andrew Cooksey constantly told the members that
the company was moving into a period of making substantial profits.
This assertion is now clearly totally untrue. Should the directors
have made such announcements?
I am also concerned regarding the role of the
auditor. Why did they not indicate in their report in the company's
financial statements that there where problems with the long term
future of the organisation.
The above are my observations of DFB, I hope
that you can ascertain what went wrong with DFB and introduce
safeguards which can prevent such a collapse taken place in the
future. The collapse of DFB has had a devastating effect on employees
and members of DFB.
Edward Howells
September 2009
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