FDBusiness.com

For First Milk, and the rest of the dairy industry around the globe, 2014 was a year of volatility that has never been seen before. While returns from globally traded products were at record levels 12 months ago, they have fallen over 50% since then, leading to a steep fall in milk prices around the world. For every dairy business, this has made aligning incomings with milk price payments extremely challenging each month.

At member meetings in November, the First Milk Board was open about the losses that were accrued in the early months of this financial year as the company dealt with rapidly falling markets. Despite aligning milk prices with market returns to balance the books since October 2014, there remains a gap of 1 pence per litre on an annualised basis due to these earlier accrued losses, which has restricted the cash available to the business.

First Milk’s chairman, Sir Jim Paice MP, explains: “While our lenders have been supportive as we’ve dealt with this volatility, with the added uncertainty of the imminent EU quota removal, the Board has taken the decision to re-build the fundamentals of the business ahead of the spring flush. As such, the Board has therefore decided that the milk payment planned for 12th January will now be deferred until 26th January, with all future payments also being deferred by two weeks.”

Additionally, the Board have decided to implement the following measures:

* Reverse 1.1 pence per litre of the February milk price reductions for the manufacturing and liquid pools;

* Increase members’ capital investment from 0.5 to 2 pence per litre for milk supplied from December 2014 up to August 2015;

* Increased members capital investment target from 5 to 7 pence per litre.

He continues: “These moves will deliver a cash injection into the business and play an integral role in putting our finances and our business on a stronger platform as we approach the spring flush. We understand that the milk payment deferral will cause concern for members as direct debits and payments will have been lined up against milk cheques. On that basis, we are working with all major banks at national, regional and local levels to explain the rationale around this decision. That way, bank managers should be well equipped for any conversations they have with First Milk members.”

In addition to this move, First Milk is working across a number of areas to deliver a stronger business platform for 2015. Some of these are around better aligning the co-operative’s collective milk supply with market demand, and some are strategic moves. All are aimed at delivering stronger business fundamentals for First Milk heading into the 2015 spring flush.

First Milk is the UK’s only major dairy company, 100% owned by British farmers. It supplies a wide range of dairy products and dairy ingredients to customers in both national and international markets including block cheeses, soft cheeses, raw milk, butter, skimmed milk powder, whey proteins and sports nutrition brands. It generates annual revenues of £530 million (2012/13 figures) and is headquartered in Glasgow with seven manufacturing sites across England, Scotland and Wales.