Examination of Witnesses (Questions 89
- 99)
WEDNESDAY 14 OCTOBER 2009
MS HAYLEY
CAMPBELL-GIBBONS
AND MR
GWYN JONES
Q89 Chairman:
Good afternoon, ladies and gentlemen. Can I welcome you to this
further evidence session with reference to the Committee's inquiry
into Dairy Farmers of Britain. Our first witnesses this afternoon
come from the National Farmers' Union. Can I formally introduce
Hayley Campbell-Gibbons, who is the Chief Dairy Adviser, and Mr
Gwyn Jones, who is the National Dairy Board Chairman of the NFU.
Can I thank you very much indeed for your written evidence to
the inquiry. Our focus is very much in trying to track down what
went wrong and, therefore, what lessons can we learn from the
information which the Committee receives. One thing which struck
me about the NFU's evidence, if I could start with this question,
was almost a sense of reluctance to put on record why you thought
DFB had gone wrong. Why was that?
Mr Jones: Chairman, I find that
strange. I am not quite sure why you thought that. I think we
submitted the evidence as we knew it and as we saw it taking evidence
really from the Receiver's report.
Q90 Chairman:
But you are an organisation which has a deep knowledge of the
dairy industry. You have been involved in it for as long as I
have ever known anything about the National Farmers' Union, you
have a huge amount of expertise and you have what I call knowledge,
both private and public. I was merely looking at the structure
of the evidence in here, and it just struck me that there was
not a little vignette in there to give the NFU's explanation as
to why this business failed. You have dealt with all the consequences,
you have got some things about lessons learned, you have got a
commentary about the government response, you have got things
about milk contracts, receivers, governance of co-operative businesses,
but there is nothing to tell me why you thought it went bang.
So why did it?
Mr Jones: I think it is fairly
clear why it failed. I think the Receiver made it very clear that
it was a combination of bad judgment, bad management and poor
strategy. That is what he seemed to highlight.
Q91 Chairman:
I know, because we have had the Receiver's evidence and we have
had the Receiver's report. I am interested to know what the National
Farmers' Union think. You have members who were members of this
co-op. No doubt you talked to them and they said things to you.
I can read the Receiver's report myself; I was just genuinely
interested to know if the NFU had a view, or it might be that
you agreed with everything that Stephen Oldfield wrote full stop.
I just wondered, as experts in the field, whether you had an observation
to make as to why you thought it went wrong. What, for example,
were, in your judgment, the key business decisions that did not
happen as they were supposed to? Was it destined for failure right
from the beginning? That is a fairly provocative but, nonetheless,
quite relevant question.
Mr Jones: Yes, it is a relevant
question. I think it is right and proper for me to explain, first
of all, that we represent farming members and, of course, we do
get feedback from members. I do not think the NFU professes to
have expertise in milk processing, but, of course, we have followed
this all along and we do concur with the Receiver's report. We
do concur with what he says. We do not have an independent view
as such that is in any way different to that. It was very difficult,
following this through, to know exactly what was going on. We
had concerned members, we had some concerns of our own but, of
course, all we can do (and we are in a very responsible position
as the National Farmers' Union) is seek reassurances and invite
executives in and talk to them and question them and if they give
us reassurances then we have to take that at face value, because
we have no evidence or any facts to suggest that things are any
different from how they tell us. At the end, of course, again,
the only evidence we have is in the Receiver's report, because
he was the only person in possession of all the facts. That is
the reality of it.
Q92 Chairman:
I suppose I am a seeker after those bits of intelligence that
come to an organisation like yours. You have got your ear very
firmly to the ground; you have lots of people who are involved
in the dairy industry. Here were two small co-ops that came together
to form a big one. I would have thought that the NFU might have
formed a view, even with the benefit of hindsight, as to whether
this thing was going to fly and make it or whether you thought,
"Oh, dear, I am not so sure about that. Unless they do X,
Y or Z they are not going to make it." I just want to try
and get some commentary. With great respect, we have talked to
the Receiver; we know what he says. I am more interested in what
you have got to tell us.
Mr Jones: The evidence we submitted,
of course, we tried to base on factual information. If you are
asking me what we heard and what we thought, of course I can elaborate
on that.
Q93 Chairman:
Please do.
Mr Jones: I think maybe to start
with we ought to point out the difficult task all three co-ops
had when they first started after the end of Milk Marque. We had
three co-ops here that had an area of the country designated to
them. They had no money, they were starting from scratch and they
also had all the farmers that were assigned to them: they did
not have the luxury of signing up the farmers they thought were
well positioned geographically for haulage purposes or size, or
any of those things. In fairness to them, I think we ought to
state that before we start. So, all three co-ops were starting
from a very difficult position. When DFB made the purchase and
bought Associated Co-operative Creameries (ACC), yes, of course,
we had comments from the industry saying things such as, "There
goes the rationalisation of the liquid industry for some years
and farmers will end up paying for it." That is not in any
way factual and that is not something we can act on, but those
words were certainly around. Then, after a period of time, commentators
(and we are not short of commentators in the dairy industry) were
making all sorts of comments on a weekly basis, but, again, all
we can do is seek assurances. If the NFU at any time comes out
and says anything without being absolutely sure of its facts,
we can have quite an effect. These comments were already having
an effect on their customers and on our farmer members. If we
said anything that was in any way detrimental, our members could
leave and we could actually cause great harm to the organisation
ourselves.
Q94 Chairman:
You do not have to say anything detrimental, because this thing
does not exist any more. The reason I am asking this is that this
has had a further effect on the structure of the dairy industry
in England. We have got two remaining farmer-owned co-ops, we
have a number of quite well funded, in some cases very well funded,
private processors and everybody is working within the national
quota on milk, and one of the questions that I think people want
to ask is, if we have some idea as to why Dairy Farmers did not
make it, what implications does their failure have, if any, on
particularly the remaining two farmer-owned co-ops? This is pretty
profound to the structure of the dairy industry. Many farmers
put their personal trust in Dairy Farmers—they felt it was
the right way to go, they felt it gave them a share and an opportunity
to influence the dairy business—but, sadly, that trust and
hope was confounded by reality. We are interested to learn why
their aspirations were, sadly, not realised, hence the line of
questioning.
Mr Jones: Do you want to comment?
Ms Campbell-Gibbons: Yes, I can
talk a little bit about the structure of the industry. I am not
sure what the question was now, I am afraid.
Q95 Chairman:
The question was really to clarify and help you to tell us, if
you like, even with the benefit of hindsight, whether you felt,
looking at this thing, it was ever going to make it. You have
given part of an indication that perhaps it was not going to make
it, and part of that might be that you want to say something about
the capital structure of it. You were talking about ACC, for example.
Looking at it from the point of view of professionals, was it
the right kind of asset to buy in relation to the aspirations
of the co-op?
Mr Jones: Again, I think, to be
fair, you can only buy what you can afford and you can only buy
what is for sale. If you take one of the other co-ops, Milk Link
for example, they bought a large cheese company and they have
turned it around, and that is the key. I do not think it is a
matter of whether it is a co-op model or a plc model; it is all
about the management in the end, is it not, and the investment
made and then whether you can turn that round into a profitable
enterprise. It is easy for us to say now, of course, with the
benefit of hindsight, that ACC may not have been the best purchase,
and at the time there were concerns aired to us but no evidence
that anything was going to go wrong because they had actually
bought quite a good customer within that deal. The question was
how were they going to manage it and how would they turn it around?
We kept getting reassurances that they would be able to do that.
Looking at the evidence now, of course, there were many things
we obviously did not know about. It seems that they attempted
to merge and sell parts of the business many times over the years
and we were unaware of quite a lot of that, certainly in terms
of being sure. You do hear things, but you cannot ever be quite
sure, and a lot of these things are confidential. I do not think
the collapse of DFB in any way impinges on the other two co-ops
in terms of the model or in terms of questioning their resistance
because I think it is completely different. Companies fail too,
do they not, on a daily basis almost. That does not mean the model
is incorrect. It is, in the end, down to the management, but we
have been saying since 2005 in our vision document, which we would
be very happy to give you a copy of if you have not got a copy
already, that we strongly suggested that the co-operatives had
an independent evaluation to show whether they were being well
managed, whether the investments were good and whether they had
the right strategy. Unfortunately for us, we encountered huge
opposition to that, not least from our own farmer members who
believed in their co-ops and told us that this was seen as an
anti co-op stance. I do regret the fact that that happened, but
we have recently managed to persuade the levy body to do this
for us.
Q96 Chairman:
I am sorry, which body?
Mr Jones: DairyCo, the levy body,
is now undertaking this work. It is a great shame that it was
not done from 2005, because I have no doubt that if that had happened
we would have had a better indicator, and our farmer members in
particular, that things were not maybe going as well as they might.
Q97 Mr Cox: But
there are some obvious constraints on the current co-operative
model which other countries seem to have surmounted, particularly
constraints on capitalisation. They cannot raise money on the
Stock Market; they are subject to limitations on external investment;
the amount a member can invest is £20,000. We are talking
about major industry now. Twenty thousand pounds is wholly, I
am sure you would agree, inadequate for the purposes of investment
in what are major businesses. Do we not need to start looking
at the model to see how we might assist co-operatives to flourish?
In my constituency, which is a large rural constituency in Devonshire,
I have had plenty of those commentators that you speak of talking
to me and I do get the continuous theme throughout, which is that
people are not easy with co-operatives. We had one fail in our
area, a smaller one, the South-West. Do you not feel as a union
that what we could do here, in Parliament, is look again at the
structures for co-ops and try to do something about enabling them
to flourish with a legal regime that would allow them to have
better opportunities to raise capital, and so on?
Ms Campbell-Gibbons: I will answer
that in part, I think. I think that certainly to be successful
in the future we need to improve our competitiveness, and I think
that UK co-ops have to be in a position to be able to grow. If
you look at consolidation in the British dairy industry, I think
that there are certain aspects, the cost of doing that and there
can be quite a protracted process, that can put companies off.
Often it comes down just to the commercial decisions for two different
companies. I think certainly a competition framework might be
something that is seen as a barrier for some companies, and that
could be looked at. In terms of legal frameworks, we do have to
look at the legal frameworks that the co-ops are situated in and
the scrutiny that these companies are put under, which is often
not as intense as the scrutiny that plcs are put under in terms
of their financial performance.
Q98 Mr Cox: What
about the actual model? Is it enough to put a restraint of £20,000
on a member's investment into the co-op?
Mr Jones: There is no restraint
of £20,000. Many members would have vastly more than that
invested. Some of the large farmers supplying Dairy Farmers of
Britain, for example, may well have had in excess of £250,000
invested in that co-op.
Q99 Mr Cox: I
am pleased to hear you say that, because we have been told otherwise,
but that may be a point of fact on which we can be corrected.
In any event, the situation of farmers when they want to exit,
trying to get their capital out is often difficult and, again,
puts a strain on the capital of the co-op. I am really asking
the Union to propose improvements that might be made in the law
that would allow these co-operatives to flourish better. Have
you not got any positive constructive suggestions, or perhaps
you might go away and think about it?
Mr Jones: No, I think I do. I
think it is time to look at the rules, because there is no doubt
that these rules were put together a very long time ago and no
doubt it will do no harm to look again at the rules, for sure.
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