First Milk has insisted its business is “very safe” after the decision to defer payments to its farmer members sparked speculation over the UK co-operative’s financial security.
The company announced last week it would delay payments for milk collected by 14 days and increase members’ capital investment from five to seven pence per litre. The company said the move would address cash flow problems that have arisen from recent decreases in commodities prices, which were not reflected in the milk price paid to members.
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“In the early part of the year, everyone was paying more for the milk than the market was supporting and everyone wanted to not be the first to cut, including us. With the benefit of hindsight we would have been far better as a business to cut the price earlier,” First Milk vice chairman Nigel Evans conceded.
Since announcing the deferral, Evans said the co-operative has received a number of queries from members regarding its financial security.
He said: “A deferred payment is never a good sign but you have to recognise that a lot of companies in the last year or two have increased the time between which they pay their suppliers and they receive products from their suppliers. The reason for that is because when a downturn happens costs don’t always drop as fast as they should. We have seen a situation where we are paying more for the milk than we are able to retrieve from the marketplace.”
However, he stressed the group’s problem is squarely a “cash flow issue” and did not reflect any difficulties in the “core capital or the value of the business”.
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By GlobalDataThe delayed payment will free up cash, “fundamentally solving the issue”, Evans continued.
“We have strengthened the business significantly by making these decisions… This business is very safe. I know it comes as a bit of a shock. A deferral of milk payment is not something we did lightly. But I cannot emphasise enough how big an impact that has on securing the future of our business. Every drop of milk will be collected and every drop will be paid for.”
First Milk chairman Sir Jim Paice stressed the co-operative is also taking further strategic action to strengthen its business proposition.
“In addition to this move, we are working across a number of areas to deliver a stronger business platform for 2015. Some of these are around better aligning our collective milksupply 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.”
However, details on First Milk’s strategy were not provided and a spokesperson said the cooperative is “unable to discuss the details of other strategic activity”.
