Markets

First Milk Posts £25m Losses After Dairy Price Collapse

UK - Dairy co-operative First Milk has posted pre-tax losses of £24.9 million in the year to March 2015, after the dairy price slump took its toll on the business.

29 October 2015

2 minute read

Europe

Chairman Sir Jim Paice commented: "The financial performance in the year to 31 March 2015 was materially affected by the decline in market values impacting all areas of the business as well as performance issues in a number of areas. The level of losses incurred was not acceptable and the Board have taken steps to ensure that they do not recur.

"In the previous year, returns from commodity markets supported higher milk prices being paid to members, with milk prices increasing progressively to record levels.

"Since the spring of 2014 there has been a collapse in the value of dairy products. This has resulted in a decline in value in excess of 50 per cent with material reductions month-on-month.

"Given the level and speed of these reductions, milk prices paid to our members were not aligned with the returns being generated by the business."

In the Annual Report, First Milk said the difficult financial situation was exacerbated by the termination of a contract at short notice in March 2014, leading to an over-supply of milk processed into products, and the company having to meet commitments on price to farmer-members before revenue had been generated.

The company said the Board had decided to make sure most products were forward-sold to minimise such risks, reduce the notice period for milk price changes and introduce retrospective milk pricing.

Among other changes, the company introduced milk prices which incorporate 'A' and 'B' pricing, with the 'B' price being applied to circa 20 per cent of the volume and which is adjusted retrospectively to reflect the latest market returns, and the annual report said that financial performance has much improved in the current year.

Other issues faced by the company included the value of cheese sales, a breakdown at its whey processing facility, and a lower performance of its sports nutrition business than expected.

"There remains considerable volatility in the returns generated from globally traded dairy commodities and we will continue to adjust the amount paid for milk supplies to reflect these returns," the report said.