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First Milk loan capital to share switch divides farmers

Charlie Taverner 18 March 2016
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© Tim Scrivener© Tim Scrivener

First Milk’s plan to turn farmers’ capital into shares in the co-op has split opinion between current and former members. 

Some producers welcomed the change, which will dramatically strengthen the processor’s balance sheet. 

Other farmers complained they had been expecting payments totalling thousands of pounds, while there was no guarantee what the shares would be worth. 

Under the proposal, First Milk would no longer have to make cash payouts to farmers leaving the co-op. Instead, ex-members would keep a stake in the business they could then choose to sell. 

See also: Dairy co-op First Milk posts pre-tax loss of £25m 

See also First Milk back into profit with half year results

One Scottish farmer, who was planning to quit dairying, said he had more than £100,000 of capital invested that was now unlikely to ever be repaid.

But he said it was probably the right move to protect current members.

“Most producers have been calling for this move for the past 18 months to protect capital leaving the co-op,” he said. 

‘Farmers carry risk’

NFU Scotland milk committee chair Graeme Kilpatrick said First Milk was continuing to shore up its finances but “farmers continue to carry the risk”. 

NFU chief dairy adviser Sian Davies said this would be a “backwards step” for former First Milk farmers, who already had their wait for repayments pushed back from five to six years. 

“We understand that First Milk has faced a number of challenging decisions over the past few months, but farmers will be concerned if today’s announcement results in a negative financial impact on their businesses at what is already a very difficult time for the industry,” she said.

First Milk sent a more detailed and frank letter to farmers than the short press release.

Chairman Clive Sharpe wrote the capital change was the “final major element” of a turnaround plan, which began last year under new chief executive Mike Gallacher. 

He said there was a “significant difference” between the value of share and loan capital, which belongs to farmers, and First Milk’s net assets, after a long period of losses. 

The company has yet to decide what kind of shares farmers will hold.

This will determine whether outsiders will be able to buy a stake off a departing farmer, what kind of dividends members will receive, and whether farmers will receive any tax relief.

Complete overhaul

The capital change is the latest dramatic move at First Milk, which has been hit hard by the commodity crisis. 

In the past twelve months, the co-op delayed milk cheques, appointed a new chief executive, cut jobs, overhauled its milk payment structure and reshuffled its board of directors.

One Cumbria-based First Milk producer said he firmly believed the news on Thursday (17 March) was the right move.

“The way I look at it, last year the First Milk bucket had a hole in — the actions last year were like putting a plaster on it,” he said. 

“However, yesterday’s move should permanently bung the hole.” 

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