Examination of Witnesses (Questions 80
- 88)
WEDNESDAY 16 SEPTEMBER 2009
MR STEPHEN
OLDFIELD AND
MR KEVIN
ELLIS
Q80 Lynne Jones:
What response have you got so far from HMRC?
Mr Oldfield: One of the policy
officers is onto it. We are pushing hard for an answer. I was
trying to get it for my creditors meeting on 7 September and,
indeed, I was trying to get it for today but I still have not
got my answer.
Q81 Lynne Jones:
When that decision was taken were members aware of the implications
should the investment not be successful? Who was giving the advice
in terms that this would be a good thing to convert from debt
into shares?
Mr Oldfield: My understanding
is that the Board asked the Council to approve the rule change
in order to allow that to happen. This is my understanding of
it. As a consequence of that the Board were given the ability
to make that switch from debt to equity at their discretion, but
the Member Council had to agree to a change in order to allow
that to happen. As I explained, the Member Council is a representative
body of the members elected. That was what happened as I understand
it.
Q82 Lynne Jones:
Were these implications spelt out to them?
Mr Oldfield: I do not know because
I was not party to that discussion specifically.
Q83 Mr Williams:
Shortly after the co-operative went into receivership Defra co-ordinated
a meeting of interested parties to see how the milk supply chain
could be maintained within the constraints of the receivership.
I think there were other meetings between Defra and your organisation
after that. Is that the total amount of discussions that have
gone on with Defra or have they been ongoing?
Mr Oldfield: I have had very considerable
discussions with Defra. I first met Defra after my appointment
on 8 June, so five days after. I saw the farmers first to make
sure they were clear on the trading position and then I went and
saw Defra. I also saw the Welsh Assembly. On 8 June I met with
them and informed them of the position. I explained that there
was a two-week hiatus period and I was very concerned that of
the 1,833 farmers there would be a tail, a rump of farmers left,
who did not have the option to find alternate homes for their
milk and would therefore be stuck with me as a Receiver collecting
their milk. I was very clear that I would not stop collecting
their milk. I made sure that was agreed as part of my Receiver
and Manager strategy. I did not want to call an end, to call time
on the Dairy Farmers' industry, their business, but what I clearly
had to do was to margin manage. The strategy was to continue to
collect the milk but to put Defra on notice that if I continued
to collect the milk as the number of farmers were falling in my
milk field so the price we were talking about earlier would go
down and down because clearly the costs of collecting the milk,
particularly those further out (more remote), would increase.
I talked to them about that on the 8th and by the 17th, which
was two weeks after my appointment which was the end of the hiatus
period when the farmers had to decide whether they were in for
a monthly contract or go, I then went back to Defra and that was
the meeting when all of the stakeholders came round the table.
By that time we were down to 300 farmer suppliers, which was much
lower, Chairman, than I was expecting—much lower. At that
meeting we discussed what we were going to do for the 300 farmers
who were in the rump. I could not continue to collect the milk
forever but I certainly was not going to call time on those 300
farmers, so what was the solution for these 300 farmers? Dairy
UK were there, a gentleman called Jim Begg who is the Chief Executive
was there and he clearly understood the importance of trying to
sort this out and finding an industry solution. We talked about
an industry solution and then we talked about Defra intervention.
The Regional Development Agencies were also there. The way I viewed
it was Plan A was an industry solution and Plan B was intervention
in order to try and solve the problem of people with no homes
to go to. In the event, following 17 June, within 43 days, so
by mid-July, 16 July, I collected my last milk because 144 of
the remaining farmers—gradually they were going—ultimately
went to Milk Link. That was the end of my milk collections from
16 July. Just to be clear, Defra was all about the Plan B, it
was all about what do we do about this rump of farmers if we got
left with them if the industry could not take care of it. Does
that answer the question?
Q84 Mr Williams:
Just about. In the forensic analysis that you have demonstrated
this afternoon, what is your assessment of Defra's role in this
sorry event?
Mr Oldfield: They were clearly
instrumental in putting the stakeholders together. On the 8th
I said, "We might need this" and on the 17th the room
was full of people, heads of the UK banks were there as well,
the UK agricultural divisions of the banks, so they had clearly
done their job of putting the stakeholders together. Everybody
knew what the challenge was but Plan B fortunately was not brought
to test, so as a result I was pleased with what they did on stakeholder
engagement.
Q85 Chairman:
Just a couple of little points of detail wrapping my mind around
some of the complexities of this issue. Was the bank finance to
the business subject to any covenanting arrangements?
Mr Oldfield: Yes.
Q86 Chairman:
What were they?
Mr Oldfield: I do not know the
specifics on the covenants but I know that there were covenants
set in relation to the banking facilities, as would be normal.
Q87 Chairman:
Could you drop us a note on that if that information is available?
Mr Oldfield: Yes.[7]
Q88 Chairman:
Just to be clear about the reaction of members to the December
2008 events when there was a 2 pence a litre price drop and at
that time, if I have understood it correctly, 322 members gave
notice that they wanted to leave the co-operative, I am assuming
that was one of the factors that would have influenced customers
of the Co-op to say, "We can't be certain of supply in the
future, therefore we're going to examine or review our trading
relationship". Was that chicken and egg situation one of
the triggers for the loss of the contract with the Co-op in March
2009?
Mr Oldfield: I do not know obviously
because I am not the Co-op but I would observe that you had got
losses in the liquids business, the milk price not being terribly
attractive against the Milk League, which I think you are all
aware of, and as a consequence of that farmers saying, "I
can't afford to take that price, I need to move to a new home
for my milk. I'm giving notice" and that in turn, the farmer
making a reaction to his economic circumstances, means he resigns
and that gets into the domain of the customers who say, "Where's
the milk going to come from?" and then they review. It is
part of my spiral. It is a consequence of the circumstances facing
the co-operative.
Chairman: Thank you very much indeed
for your forbearance and patience in answering our questions.
Obviously this is the first public outing, if you like, and trying
to understand the order of events and the relationship of one
event to another in what is a complex situation is quite challenging.
There are two things I would say in conclusion. If there are any
other things upon review that you want to draw the Committee's
attention to we would be delighted to hear from you. Obviously
what you have now said is down on the record and cannot be undone
but, nonetheless, can I put on record my appreciation for your
assistance to the Committee both before this hearing and in supplying
us with the report and your answers. Thank you very much indeed.
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