Annex 1
Member case studies and extracts from
famer accounts of personal experience
Case Study 1: Impact on farmers
As a dairy farmer in the North East of England,
milking 150 dairy cows I have lost £14,000 in milk
cheque money owed to me, and my investment in the company, which
totalled £40,000.
Case Study 2: Impact on famers
I had to endure a month of supplying milk to
the receivers at 10ppl before I started supplying a small local
dairy on a market related contract on 1 July. This dairy
paid the equivalent of 15.5ppl to those members who transferred
in June, and I have recently learnt that the price for July milk
will be 16.4ppl.
The table below provides a resume of the financial
implications that the receivership has had on my business so far.
For comparative purposes, the value of the milk supplied in the
period is also shown if sold at a typical industry price of 23ppl.
|
| May
| June | July
|
|
| Production | 42,030
| 37,801 | 42,530
|
| Price (ppl) | 0
| 10 | 16.4
|
| Value (£) | 0
| 3,780 | 6,975
|
| Value @ 23ppl (£) | 9,667
| 8,694 | 9,782
|
| Difference (£) | -9,667
| -4,914 | -2,807
|
|
As well as losses of approximately £17,000 on milk
sales in the last three months, my business has also lost approximately
£20,000 as a result of the money held in my DFoB Member
Investment Account (MIA).
Case study 3: Impact on Farmers
We are one of DFB's ex-members and were affected by their
demise. Having found a new buyer from the first of July we have
consistently achieved a price of over 25 pence per litre.
What I would like to know is how then could DFB not survive when
they were paying their farmers less than 20ppl?
PWC having stated they would then pay us a fair price from
the 2 June then told us that the fair price would be 10p
per litre. Having then thought better of their rash offer they
decided that we might squander the princely sum of 10p and said
they would pay us 5p one week & then the other 5p the week
after Milk Link offered to take us on in a so called rescue package
paying us 18.5p. When I asked if we would achieve this I was told
that with our production figures it would be more like 17p.
Many British dairy farmers have suffered badly over this
mismanagement and downright dishonesty and many who have caused
their plight should hang their heads in shame.
Case study 4: Impacts on farmers
My overdraft has had to increase by £35,000 to
cover May's lost milk cheque—that has been the hardest hit
immediately. My investment in DFB which was just short of £60,000 is
basically part of pension wiped out. I am fortunate that I own
part of the farm otherwise as a tenant farmer life would be very
rocky indeed.
The loss of the milk cheque equates roughly to a complete
loss of profits for the year. The loss of income will further
set back any investment plans on this dairy farm, assuming that
we get a sustainable milk price. I was fortunate to switch buyer
to DC within 36 hrs of the announcement and receive a just
reasonable price of 24ppl (just covers costs).
There are many who are not so fortunate and will probably
be exiting the industry, as will many others unless we get a better
price at the farm gate.
Case Study 5: Impacts on Farmers
Our business bank manager phoned on hearing of the collapse
of DFB to offer support and remind us that our annual banking
facilities needed to be discussed. Over the telephone she informed
me that the cost of our overdraft facilities would increase from
1.4% over base to 4.4% over base owing to the current economic
turmoil. A 300% increase in cost. There was no mention of any
difficulty in offering the same quantity of overdraft. It seems
that the emphasis in the media has all been about access to money
but surely it is as much about the cost of that money and how
the bank is making an excess on lending money and blaming it on
the requirements that government has imposed on them to cover
their lending.
Case study 6 (extract): Milk Buyers and Milk Prices
I increasingly believe that milk purchasers are now using
this situation to their advantage. Whilst many of the milk purchasers
are to be commended for recruiting ex-DFoB suppliers in the first
place, I now believe that their treatment of us warrants further
investigation. I completely accept that the secondary milk market
in the UK is currently in a terrible state. However, I fail to
believe that nearly all of DFoB's milk pool is now being traded
on the spot market as most processors would make us believe, even
with the volume of cheap milk and cheese coming in from Ireland.
First Milk are stating that all of the ex DFoB milk is going on
the spot market or into Westbury, as are Arla, Meadow Foods, Milk
Link and a number of smaller independents such as Paynes Dairies
and Wensleydale Creamery. Somehow it just doesn't all add up.
It seems to me that in many cases the ex-DFoB members are
now being used to subsidise the milk prices of all other producers
on standard contracts. For example, my milk purchaser has stated
that it is currently not utilising all of its standard milk supply
in existing markets, and so is placing some of this milk into
the secondary milk market. Why then, if the market is so terrible,
are the producers on standard contracts not receiving a milk price
reduction?
Milk purchasers are conscious of the fact that they are able
to keep the ex-DFoB members on much lower prices, since these
producers will not speak out and take action as most have no other
option. Producers are frightened and scared to speak out, and
the milk purchasers recognise this. How long can this two tier
industry go on, with one cohort of producers receiving 23-24ppl
and another cohort receiving sub-18ppl?
Case Study 7: Milk Buyers and prices
We had been in discussion with several milk buyers five months
before the demise of DFB on 3 June. The new buyer we preferred
gave us an indicative price for our milk supply on 3 March
which correlated with that being paid to other suppliers in the
area by that supplier. When contacted late in the afternoon of
the 3 June this same buyer gave a detailed indicative price
for our milk which they would collect the following day and we
said thank you. This price was again detailed over the phone the
following day. Again this indicative price correlated to that
being paid to fellow producers in our area. However some weeks
later we had a visit from the company representative to inform
us that our milk price for June and subsequent months would be
at least 6 pence a litre less than the price indicated earlier.
We now supply a different buyer and trust that the price contracted
will be honoured.
Case study 8 (extract): Tax
I am facing a four figure tax bill for the last financial
year as a result of the money I had invested in my DFoB Member
Investment Account. Due to DFoB's March 2009 debt for equity
swap (which members could never individually vote on remember)
it seems that my money invested with DFoB is classed as an income
loss rather than capital loss and so cannot be easily offset against
tax. Paying such a large amount of tax on money that I have never
had and never will have is inconceivable. Needless to say I am
in discussion with my accountant and NFU legal team on this matter
as this must be challenged.
Refunding these tax demands will affect no one else apart
from HM Revenue and Customs. As a rough rule of thumb, if the
1,800 ex DFoB members each had an average MIA value of £20,000,
then the overall tax effect would be approximately 28%. As a worst
case scenario the Government would therefore face a loss of just
over £10 million if the taxation was waived. However,
the actual loss to government is likely to be much less than this
as a number of producers will be able to offset the taxation against
a capital gain such as the sale of land. For tenant farmers such
as myself this is not an option. Once again, this is a key area
where Government can assist affected producers without interfering
with the milk market.
Case study 9 (extract): Accountability and Governance
One can't help feeling that the senior managers and directors
were bad at their job and did not at all operate the company as
the co-operative that it was supposed to be.
Case study 10: Accountability and Governance
Our contention is the conversion of the MIA to shares was
at best underhand and at worst robbery. As retired members we
were helpless. We had resigned but could not change contract yet
decisions were made over which we had no influence but have to
bear the consequences. We would like to ask what was the board's
thinking and what part was played by the banks in supporting this
change. Was putting the company into administration always the
planned out and to take with it as much of our funds as possible.
Can I also say as director of a two farmer owned cooperatives
any one who does believe this debacle has not damaged the cooperative
movement in agriculture is as deluded as the board of DFOB and
its series of lame duck chairman were.
Case Study 11: Communication
I would like to know why I was phoned by DFB to ask if I
was still going to leave DFB when my resignation was up only two
weeks prior to them calling in the receivers and why they guaranteed
me that it was impossible for a co-operative to go bust. How come
they were allowed to turn our investment account money in to shares
when they knew it was never going to be worth anything and finally
why did they call in the receivers at the point when it would
cost the farmers the hardest, they were meant to be owned by us.
We have lost over £70,000 and are still being made to
pay now with lower than everyone else in milk price. So much for
loyalty.
Case study 12 (extract): NVZs
Like all other dairy businesses, my thoughts are focused
on NVZ compliance by 2012. With the milk prices I am receiving
and the losses incurred through the DFoB receivership, I have
no idea how I can make the figures stack up to comply with the
legislation. My business has been knocked back by several years
and I find it incredible that the ex-DFoB farmers can be expected
to comply with the legislation in the same timescale as other
producers on standard contracts. I was initially very pleased
to hear the NFU calling for an NVZ compliance extension back in
June, but the issue seems to have died away. This issue must not
be allowed to go quiet, as this is one area where affected producers
can really be assisted. The government does not have the power
to manipulate the milk market, but it does have the power to apply
for a derogation to this legislation. NVZs are already going to
claim a significant number of victims, but the losses could be
huge if action is not taken soon.
Case study 13 (extract): NVZs
Whilst we accept that nothing can be done about the present
fragilities of the UK milk market, there are key areas where the
current pain could be eased, with NVZ compliance being the main
example. We sincerely hope that the Government can recognise that
the UK dairy industry is currently on a knife-edge and that urgent
action is needed to prevent the critical mass leaving the industry.
Case study 14: Causes of Collapse
As a member of DFB I believe that there were a number of
factors that led to the co-op's demise, I will list them for clarity:
— Probably initially paid too much for the ACC business.
— A lack of communication with the farmer members.
— Underestimating the power of the dairy commentators.
— A lack of business acumen by the board and management.
— The co-op dairy buyers wary of the bad press the DFB
received and trying to ensure continuity of supply.
— The credit crunch (I think this was a fairly minor
feature and probably meant the company could have been allowed
to lose more money).
— An expectation that the UK dairy industry would rationalise
quicker.
— The idea by the management that they didn't have to
increase the profit level of the company, and a knowledge that
they could reduce the milk price.
— An extremely poor chairman who didn't understand the
dairy industry and was only in the business for his own gain.
— A weak board who should have been keeping an eye on
the Chairman.
— A government that doesn't understand the importance
of rural businesses both to the UK economy and to the security
of food supplies.
Case study 15 (extract of member letter to The Co-Operative
Supermarket)
Dear Sir,
I am writing on behalf of my family as an ex member of DFB.
My brother and I run two dairy units in the Congleton area. With
370 cows producing three million litres of milk.
What's this to do with Co-op Retail Group? Quite a bit I
believe. What made the management of DFB pay an inflated price
for the ACC dairy business, what made them think they could make
a profit and pay a competitive milk price? Were they deceived
by ACC and Co-op Retail Group?
In spring 2007 Tesco announced an initiative to pay
dedicated dairy farmers a cost plus price. At the same time Co-op
Retail Group had DFB's management "dancing on tables"
to hang on to the Co-op milk contract. At this time our milk was
branded as Cheshire Milk in Co-op stores and I was told by DFB
that you would not pay a premium for local milk, yet Tesco followed
suit with its "Local Choice" milk contract that became
the best milk price in the league tables until 3 June 2009.
The other major supermarkets now also have dedicated suppliers
on sustainable milk prices but not Co-op Retail Group. With DFB
members receiving the lowest milk price for the last 12 months,
the loss of the Co-op Retail Group milk contract this spring triggered
a wave of member resignations including our own, leading to the
collapse of DFB. Presumably competitors undercut DFB for your
business, but how could their tender have been sustainable if
it undercut the lowest paying processor?
Did you not feel any duty of care to DFB members and their
dairy cows who you have exploited so deliberately since the inflated
milk sale of ACC? Are you the same "ethical" business
I see self promoting itself on prime TV adverts every night? Not
in my experience. We should have been your partner on the milk
supply front, proud to be associated with each other.
Instead I believe you have stuffed us. The time has come
to say fair's fair and pay your share. You should pay all the
lost May milk cheques and you should engage with ex DFB members,
like ourselves and offer a sustainable price to be your suppliers.
Case study 16: Contracts
Our dairy business has received a severe setback due to the
collapse of DFB. We lost over £13,000 with no milk cheque
in May and the first two days of June and of course all the Retention
Fund of nearly £19,000. We obviously realised that DFB were
in severe financial difficulties and had already given in our
notice, had spoken to other milk buyers and had decided to sign
with Milk Link who were fortunately keen to have us. Surely there
must be some law against a situation where a company can be seen
to be in difficulties but there seemed no way one could default
on a contract with them without having to give a year's notice
to leave.
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