Members of troubled dairy cooperative First Milk have been urged to reconsider their business plans as milk prices fall.

Farmers are being paid around 20p a litre, which costs 30p to produce. Image:

John Owen, a council member of the Royal Association of British Dairy Farmers Council and farm manager at Gelli Aur College, Carmarthen, made the call after the 100% British farmer-owned company announced payment for members scheduled for January 12 was to be deferred by two weeks, with a knock-on effect for all future payments.

“First Milk members, together with the rest of producers, currently cannot do anything to influence milk price,” said Mr Owen. “We can only take First Milk’s word the co-op is not in danger of collapse; we have to take its statement as read, accept and support the board. First Milk has promised to take our milk and as many litres that we produce. We simply have nowhere else to go.”

Mr Owen said he has already reappraised Gelli Aur’s business plan, which resulted in capital expenditure plans put on hold, and he urged other First Milk suppliers to follow suit.

“Check out your true costs of production, and if you don’t know, engage with someone who can help – take advantage of DairyCo’s free half-day consultancy. Make sure your costs include labour, capital repayments and reinvestment. Budget on the low side of milk price – for an average 20p per litre; then maintain a clear cash flow forecast and budget and monitor against performance.

“Speak to your bank manager; if you need to lend money, then he will be more likely to be supportive if you have a carefully planned cash flow forecast and budget, and if you have creditors, they need to be managed carefully; take advice from your bank manager.”

Inputs and investments also need to be reconsidered, he said. “Delay any capital expenditure, only progress with spend that is absolutely necessary and will offer a quick return. Check out input costs and put in place a system that makes more use of forage – the cheapest is grass.

“It’s not just about farmers examining their businesses and costs; it’s a two-way process – farmers should be encouraging their suppliers to look at their production costs too.”

The news of falling milk prices has lead MPs to urge the Government to do more to protect dairy farmers from sudden decreases in milk prices.

The Commons Environment, Food and Rural Affairs Committee claims all dairy farmers and other small-scale producers should be protected by the Groceries Code Adjudicator (GCA), the independent watchdog that oversees the relationship between supermarkets and their suppliers. MPs are also calling on the Government to activate the GCA’s power to fine retailers – through a straightforward parliamentary procedure – before the election.

“Frequent, sharp and unpredictable rises and falls in milk price are driving dairy farmers out of business every week,” said committee chair Anne McIntosh. “The volatility of worldwide and domestic milk markets is making financial planning and investment impossible for small-scale producers unable to hedge against changes beyond their control.

“The vast majority of dairy farmers fall outside the protection offered by the GCA as it can only investigate complaints involving direct suppliers to the big 10 supermarkets and retailers, and as most milk production is small-scale, that excludes most dairy farmers.

“The committee thought that was wrong when the GCA was set up in 2013, and events since justify our view the remit should be extended to include small-scale suppliers, whether or not they have a direct relationship with the ultimate seller of their produce.”

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