Examination of Witnesses (Questions 389
- 399)
WEDNESDAY 28 OCTOBER 2009
MR MICHAEL
OAKES
Chairman: Can I formally welcome Mr Michael
Oakes, who was a former director of DFB and a member of DFB's
board?
Q389 David Taylor:
Welcome to the Committee and thank you for your time. You are
a tenant dairy farmer in Worcestershire. How big are you?
Mr Oakes: We milk about 150/160
cows, about 1.1, 1.2 or 1.3 million litres.
Q390 David Taylor:
You have been involved commercially at quite a number of levels.
You are a board member of the RDA and NFU council member for Worcestershire.
You were with DFB from cradle to grave, were you not, 2002 to
2009?
Mr Oakes: I was a supplier of
the Milk Group which was one of the two businesses which managed
to create Dairy Farmers of Britain.
Q391 David Taylor:
You have a fair amount of commercial nous then?
Mr Oakes: I think I have learned
a lot in the last few years with DFB. If you are trying to get
to the skills on the board, I was one of quite a few. We used
Rabobank to help us set up. I was not on the original board at
that time but the interim board took advice from Rabobank not
only on the financial structure but also the make-up of the board
and we used a guy from the Netherlands Institute of Co-operative
Excellence, NICE, called Gert van Dijk, who gave the previous
council advice on making sure they had a balanced board. They
tried to interview everybody.
Q392 David Taylor:
We are very interested to hear your perspective on the reasons
for DFB's collapse. Did it hurt you as an NFU council member for
Worcestershire to know that the NFU themselves had said that they
believed that the underlying causes of DFB's problems included
a flawed business plan, poor management and bad decision making
which gradually eroded the profitability and viability of the
company? That is your national body in which you have had a significant
regional part. Do you share that analysis?
Mr Oakes: No, I do not. I can
agree with some of the things that they said. Personally, I think
they said what their farming members wanted to hear.
Q393 David Taylor:
You are a farming member.
Mr Oakes: I am a farming member.
Myself and the vice-chairman went and sat with Peter Kendall and
Gwyn Jones and we showed them the journey we had been on from
day one of setting the strategy in place right through to the
demise of DFB, including some of the issues we had over the last
six or eight months. We gave them carte blanche to get to the
bottom of this. This was literally days after we had collapsed.
We felt it was important they knew the position the board had
been in and what the board had been trying to do. They represented
a lot of members. I do not think the NFU has used any of that
information.
Q394 David Taylor:
The receiver certainly was pretty unambiguous and said that the
main reason for the collapse was a long line of bad decisions,
aborted projects and a lack of any clear strategy within DFB which
rests with the board and the executive team. I presume you do
not necessarily agree with that?
Mr Oakes: There was a clear strategy.
The Milk Group emerged. At that point there was a new board created.
If you think back, at that point it did not matter who you supplied,
whether it was a PLC or a co-op. Nobody was getting a sustainable
milk price. Subsidies were about to be wound down and we were
coming into the brave new world. The milk price predictions were
13p, 14p, 15p. I do not have a crystal ball but that is the sort
of figure which was being predicted. Farmers as primary producers
were pretty weak. The FFA were out there protesting outside a
lot of the major retailers. There was a lot of activity going
on and farmers were being paid, on the whole, below the cost of
production.
Q395 David Taylor:
The NFU at national level is pinning the responsibility for the
collapse on the Board. It is always easy afterwards when the carcass
is there on the financial pathologist's slab to say what led to
its demise, but they said what they said and I quoted it to you.
So did the receiver. You disagreed, it seemed to me, quite strongly
with your own NFU and slightly with the receiver. In that case,
what is your take on it? What do you attribute the eventually
rapid collapse of Dairy Farmers of Britain to?
Mr Oakes: The board will have
taken some decisions which turned out with hindsight not to have
been perhaps the best route to go down but at the time they were
taken for the right reasons and we could and did stand up in front
of our own council and also the membership and justify most things
that we agreed to do. The strategy was to add value to members'
milk. We started with basically nothing and the members had to
contribute in order to allow us to do that, including myself.
We decided to go down the liquid route rather than the commodity
route. We looked at whether we should build a new dairy and add
a nice, shiny, new dairy such as Arla and Wiseman but we would
have had no Christopher Meyer base. An opportunity arose not long
after the merger. Associated Co-operative Creameries (ACC) decided
to sell their dairies. The big attraction for us with the ACC
dairies was the customer base. You had a customer. We had seen
Westbury fail. We had seen Amelca fail, both of which were very
efficient new factories, state of the art, but without a customer
base. We viewed having a customer such as the Co-op, which we
believed would have some kind of co-operative link with us—unfortunately
it did not quite turn out like that—would give us the ability
to develop a long term, mutually beneficial relationship with
another co-op. That contract to supply the Co-op was one of the
big attractions. We knew that they were not the best factories
in the world. You only had to go round them to see. We did not
get round them before we bought them because it was vendor due
diligence and there were some issues on that which I am sure you
will ask me about. It was that customer base. It was getting us
into the market place. It was adding value to the members' milk.
Q396 David Taylor:
Were you a member of Amelca?
Mr Oakes: No.
Q397 David Taylor:
Did the whole of your 1.2 million litres go to Dairy Farmers of
Britain?
Mr Oakes: Yes.
Q398 David Taylor:
Where do they go now?
Mr Oakes: Milk Link.
Q399 Chairman:
Can I just ask you about this ACC thing? I am struggling to find
anybody I have talked to in the industry who does not think you
paid anything but absolute top dollar for this investment. You
had due diligence done. Why were you convinced that that was the
right price to pay? You paid, what, about £70 million for
it?
Mr Oakes: Yes. We had a board
made up of farmers and other non-execs who were not farmers. We
had advice from Rabobank, advice on the price, plus Smith &
Williamson. The one thing we did not know was whether anybody
else was bidding. It was an open tender process where you had
to make some kind of assumption on what your competitors were
bidding. We believed at one point there were five competitors.
That got down to what we believed were two other serious competitors,
both PLCs, and the advice that we were given was that the price
we bid at the end of the day was what it would take to look to
acquire those factories. We also believed that it was not actually
the highest bid. Only the o-op knows that. Perhaps they will tell
you. They will not tell us, I am sure, but if some of the PLCs
had bought it there would have been far more redundancies on day
one. We put into our bid some kind of value. We wanted to run
those factories and we believed that that was worth something
to the Co-operative Society. Rightly or wrongly, that was the
view that we took. We took a lot of advice. There were warranties
and guarantees that what we said we bought was what it was. Unfortunately,
some of it was not and I am sure we will get on to that but when
we bid for that it was not a figure we plucked out of the air.
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