Dairy Company Financial Stability

The dairy world was rocked again recently with the announcement of the cessation of business of Tomlinson’s Dairy in Wrexham.  This dairy company took in milk from around 70 milk producers in north Wales & Cheshire, around half of whom were contracted to Sainsbury’s Dairy Development Group.

These producers are pressing hard on Sainsbury’s to pay them for the six weeks of milk that they will not receive payment for from Tomlinson’s.  They may well have a legal case (as well as a moral one) as Sainsbury’s verbally re-assured producers prior to moving from Muller two years ago, on Sainsbury’s advice, that they would not suffer.  Clearly, they have now suffered.  The pressure is even stronger as M&S have paid their farmers.

However, full marks to the transport company and to Muller (as well as to M&S) for taking in the milk from the affected farmers, so that milk deliveries, at least, have not been hampered.

Meanwhile, how often do we find that when a dairy company goes to the wall, that it happens just before the “milk cheque” is paid?  This is the time when exposure for the farmers is at its maximum, and when the position of the foreclosing bank is at its most advantageous.  Cynical, one could say, but also inevitable.   And there is nothing you can do about it, if your milk buyer goes bust.

It is extremely difficult to change milk buyer these days, and many producers have (realistically) a choice of just one.  But if your buyer is small and financially weak, you need to be aware of these risks.  Obviously large milk buyers can go down too, so it is essential that you are fully aware of the relative strength of your milk buyer, and that you factor this into your milk marketing decision, long term.

To discuss this and milk contract issues further, contact Charles at charlesholt@fcgagric.com or your local FCG office.

Posted in Business Management, Dairy & Forage, Lincoln.