first milk tanker

Struggling dairy co-op First Milk has announced a turnaround plan for the business that will see it axe almost half its head office staff and introduce seven separate farmgate milk price formulas based on local market conditions.

First Milk said the changes – which also include the launch of an independent review into the “governance and commercial learnings from the business’s recent disappointing performance” –  would place it on a stronger footing for the future.

The processor said today (1 May) that it had started a period of consultation for head office and support staff, while a “small number” of manufacturing roles could also be lost. Up to 70 jobs are under threat.

In a statement, it said the co-op’s aim was to “develop a business that is focused on providing great service and value to its customers; that is highly efficient; and is relentlessly focused on its core operations,” adding that in a competitive global economy, “this is the only guarantee of delivering a good milk price to farmers”.

The restructuring comes in the wake of the appointment of Mike Gallacher as CEO a month ago, replacing Kate Allum, and a tumultuous nine month period which saw First Milk slash its farmgate price for milk, and delay payments to farmers.

Its “new approach” to milk pricing involves the introduction – from 1 June – of a structure based on net commercial returns from First Milk’s manufacturing sites and customers.

This essentially means that the co-op will be paying seven separate milk prices (split into A and B payments), with farms located around its Arran, Campbeltown, Lake District and Haverfordwest creameries making up its manufacturing pools, and farms located on the Scottish mainland, in northern England, and the Midlands/east Wales forming its balancing milk pools.

In addition to these changes, the First Milk board has agreed a £3.3m reduction in member payments which has been built into its milk prices – equating to an average price reduction of 0.33ppl. Of the seven new milk pools, just the Haverfordwest manufacturing pool will see an A price rise from 1 June, up 0.3p to 21.17 ppl. The Midlands/east wales balancing pool and the Bute manufacturing pool will experience the largest cuts, with their June A price being cut by 1.2p to 19.3ppl. 

“None of the decisions announced today have been taken lightly, but they are necessary steps in the process of rebuilding a secure and stable future for First Milk, its members and its employees,” said Gallacher.

“As a team, our aim will be to provide every support for those impacted in the coming months,” he added. “Our strategy is aimed at continuing to restore the health of First Milk so that we can support rural communities through delivering better prices for their milk.”

Gallacher will explain the detail of First Milk’s turnaround plan at a series of meetings scheduled for the first two weeks of May. The independent review into the governance of the organisation – which  was announced by chairman Sir Jim Paice and will be modelled on the recent Myners review of the Co-operative Group – will be shared with members by the summer.

The initial reaction to the plan on social networks was generally hostile, with farmers taking to social networks to brand the new pricing structure “discriminatory” and a “disgrace”, while others described the processor as a “co-op no more”.

NFU dairy board chairman Rob Harrison said the restructure, and subsequent milk price cuts, concerned him. “While I understand that new Mike Gallacher and the First Milk board have had to take drastic and decisive action to secure the longer term sustainability of the business, this news on milk prices brings little or no comfort to some members who have supported them over the years.”