United Milk’s collapse is not writing on the wall for farmer co-ops says Vic Robertson

He is not exactly saying “I told you so”, but in 2001 government farming advisor Sean Rickard of Cranfield University accurately predicted a rocky future for overambitious dairy farm co-operatives intent on vertical integration.

One year later, the Derbyshire-based Amelca group was looking for a buyer and this week, a year on, Wiltshire co-op United Milk called in the receivers.

The reasons for the collapse of these two groups are similar: possibly misplaced faith in the strength of the co-op system, high borrowings, slippage in business plans, overcapacity in the existing milk processing market, and doubtful management skills.

Any one of these individually might have brought them down or at least forced restructuring; the combination was lethal. Similar fates have befallen other leading farm co-ops such as Viking Cereals.

In the cases of Amelca and United Milk, greenfield site development costs and a high level of bank borrowing left them exposed. UM’s bank borrowings are estimated at £35m-plus. In the case of United Milk, farmers pitched in to the tune of £10-11m, less than half the target, or about £20,000 for each of the producing and non-producing subscribers. They are not expected to see much, if any, of this coming back. Nor are they expected to receive the £6.4m owing for milk delivered in recent weeks.

Receivers PriceWaterhouseCoopers has set up a payment system for milk delivered since they moved in on Tuesday. “We want to find a buyer for it as a going concern,” said joint receiver Stephen Oldfield.

United Milk had been experiencing losses since it started trading from its £45m state-of-the-art plant at Westbury, Wiltshire. It’s the largest processing plant in the UK with a capacity of 800 million litres a year, 5% of UK production, from its 320 farmer suppliers.

There is no doubt it made a major impact on the UK dairy scene. In contrast to the flood of surplus milk in the 2002 spring flush, which drove down prices to farmers, it mopped up the surplus this year, helping to keep prices stable.

As in the Amelca case, many observers remain critical of funding bank HBOS, accusing it of calling in the loan too quickly and just as the plants were beginning to hit their stride. Indeed, arch-critic Rickard is confident the dairy sector is about to hit a mild boom in the coming months.

Dairy industry figures are less supportive. They maintained there was already overcapacity in the processing sector even before United Milk came on its scene. They point to the recent decision by Dairy Crest to close its Chard plant in Somerset.

But it is just such a decision that makes the co-op movement even more determined to keep Westbury going, with the three major co-ops - First Milk, Milk Link and Dairy Farmers of Britain - joining forces with the aim of making a bid. They are already talking to the receivers.“This will be a real bid to take over the plant lock, stock and barrel,” says Barry Nichols, Milk Link’s chief executive. “It is clear that with the closure of Chard, there will not be enough processing capacity to deal with the spring flush.”

His comments are underlined by the other co-ops. All the more so as none of them regarded the Westbury operation as a farmers’ co-op in the traditional sense. Effectively it was a plc with farmer shareholders, they said.

Quintin Fox of the Plunkett Foundation, the organisation that overlooks the farmer co-operative movement in Britain, agrees and points out there are still around 600 co-ops still trading successfully in various areas although he admits that in certain cases farmer commitment is less than 100% and that many board members could benefit from further training, which Plunkett offers.

Many of these issues will be discussed at its annual dairy conference next month on the eve of the National Dairy Event. There may even be a special addition to the programme to examine the death and/or rebirth of Westbury.