Banks watching as First Milk fights to survive after losses

Troubled First Milk is a critical player in north Cumbria’s economy with farmers, factory workers and other firms needing it to stay afloat.

The dairy co-operative has haemorrhaged eye-watering amounts of money in the past year as the wider milk industry has become overwhelmed by problems.

It is now reporting weekly to its bank, which is understood to have only assured the company financial support until February as talks over refinancing continue.

Meanwhile, the farmers who supply the company face further falls in the price they’re paid for milk this winter – with the potential for any rise a long way off.

Focus at First Milk, owners of the Lake District Creamery in Aspatria, is on pulling the company back to profitability.

Key to that has been a top-level shake-up which has included the appointment of new chief executive Mike Gallacher and the departure of chairman Sir Jim Paice.

But one of the company’s newly appointed non-executive farmer directors has warned that survival will not come easy.

Armathwaite dairy farmer Robert Craig said: “We are under no illusions that time is not on our side, but it is going to take time to sort this out.

“Reporting to the banks on a weekly basis has given them a lot more confidence than they have had. There is no hiding place but we are in the early stage of talks about refinancing for a further three years.

“We are a million miles away from where we were six to eight months ago. It was highly critical at that time but by no means are we out of the woods.”

The National Farmers’ Union (NFU) is critical of First Milk, stressing that cash injections from members have been key to survival.

NFU dairy board chairman Rob Harrison said: “Without a substantial injection of capital or continued long-term forbearance by the banks, the future of First Milk is by no means assured.

“However, we have met regularly with the new CEO and understand that some of the changes put in place since his arrival have put First Milk in a stronger financial position.”

Concerns have also been raised about First Milk’s pensions liability rising from £13.8m to £20.1m. The company, however, argues that contributions are “manageable and sufficient”.

Communications director Lee Truelove said the company’s borrowings had dropped markedly.

“By the end of September our borrowings had reduced to £46m and are forecast to fall further by March 2016. This contrasts with £84m at the start of 2015.”

Mr Gallacher has said that prices paid to First Milk producers will be in line with other processors.

But it could take up to spring 2017 before a 2ppl milk price improvement over and above market moves will be made.

First Milk is, however, not the only milk buyer that will face a winter of discontent, with Mr Craig predicting a difficult few months for dairy farmers generally.

“How low can the milk price go? Some farmers are claiming their production costs are more than twice what they are getting for their milk,” he said.

“Banks are starting to be more concerned. Their patience is beginning to run out. There may be other major players that could fall by the wayside in the next six months.”

NFU Cumbria council delegate Alistair Mackintosh said it must be remembered that measures to support First Milk financially so far have included increasing members’ capital investment from 0.5ppl to 2ppl for milk supplied between December 2014 and August.

“It also saw the amount of capital to be invested in the business from 5ppl to 7ppl. It suggests that producers have gone a long way to help prop up this business and I believe they are still doing so to the tune of 0.5ppl,” he added.

Mr Truelove said First Milk and Cumbria relied heavily upon each other.

He added: “We have a clear strategy and our creameries at Aspatria and at Haverfordwest in West Wales, are central to that. That’s why we continue to invest at these sites.”

A move to create a streamlined board at First Milk – with farmers given a greater voice – was approved last week.