Dairy Farmers of Britain, the UK co-operative supplying 10% of the country's milk, has become the latest victim of the global economic downturn. Unable to compete as its larger rivals slashed prices, the loss-making DFB has been forced to throw in the towel and call in the receivers. Dean Best looks at how the DFB business turned sour.

"A very sad day." "A massive financial blow." "A sorry mess."

The collapse of UK dairy co-operative Dairy Farmers of Britain into administration has provoked a range of reactions - some angry, some despondent.

With the future of DFB's 1,800 farmer members uncertain -and with some facing heavy losses after it emerged today (4 June) that they wouldn't be paid for the month of May - such reactions are natural.

Nevertheless, behind the failure of DFB, which accounts for 10% of the UK's milk supplies, and behind the heated reactions, lies a set of rather more prosaic reasons for the breakdown of the business.

According to administrators PwC, a critical factor in the demise of the co-operative came just two years after the business was founded. DFB was set up in 2002 through the merger of Zenith Milk and The Milk Group. In 2004, DFB bought the Associated Co-operative Creameries dairy business from the Co-operative Group. Ultimately, the businesses acquired for GBP75m (US$) needed more investment than DFB could afford.

"DFB had a loss-making liquid milk business that required a lot of investment to compete with the super-dairies," PwC joint receiver and partner Stephen Oldfield told just-food today.

The co-operative's liquid milk business suffered losses, which meant it could not pay its members a competitive milk price. And competition in the UK dairy processing sector has been fierce, with the global economic downturn sapping consumer demand for dairy products and forcing dairy commodity prices down.

A struggling DFB found itself unable to compete with larger rivals Dairy Crest, Arla Foods and Robert Wiseman Dairies, which have all cut their prices in recent months. The closure of two dairies and a review of the business that led to a split of the company into two were made to try to revitalise the business.

However, DFB's inability to compete meant scores of members tendered their resignations from the business. What's more, a key contract to supply UK retailer The Co-operative Group was lost to Wiseman. That loss was a big blow to the business and, in the words of PwC, made DFB's restructuring "insufficient" to turn around the liquids division.

Just two weeks ago, Nene Valley Foods, a packaged cream processor owned by DFB, was sold off and the rest of the business is now on the block.

Oldfield told just-food that DFB had attracted interest from a "very wide" number of parties and the remaining farmer members - as well as its 2,200 staff - will no doubt hope a sale comes quickly.

The administrators declined to comment n the identity of the potential suitors, although when considering any possible buyers, it is important to note the restructuring rushing through the UK dairy sector.

In May, Milk Link said it would close a dairy in Kirkcudbright in Scotland. In January, Arla closed a creamery in north Yorkshire, a move that came four months after Dairy Crest announced plans to shutter a dairy in Nottingham. Wiseman has recently constructed a dairy at Bridgwater but, like its peers, has suffered to some extent amid falling commodity prices.

Uncertainty reigns, then, for DFB and its members. "DFB made in quite clear in its statement that there is no guarantee all future milk supplies will be collected and distributed," Lyndon Edwards, chairman of The Royal Association of British Dairy Farmers cautioned.

Edwards said the association was "encouraging" other co-ops and alternative milk purchasers to take on milk from DFB members. "For those farmers operating in regions where there are few alternative buyers, we suggest that they should collaborate to either allow a milk brokerage to come out of DFB, or find an alternative buyer themselves," Edwards said.

Elsewhere, there has been outright anger. NFU dairy board chairman Gwyn Jones said he was "furious" that farmers would not be paid for their milk.

"Given the amount of time DFB has had to prepare for what always seemed like the inevitable, to end up with this sorry mess this is an extremely bitter pill for DFB's members," Jones said.

What the future holds for DFB members remains to be seen.