First Milk ups farmer capital to fund added-value dairy future

08-Feb-2013 - Last updated on 11-Feb-2013 at 15:17 GMT

British dairy processor First Milk is increasing the amount of capital that its farmer members are required invest in the business, in an attempt to speed up the growth of its added-value dairy interests.

First Milk’s dairy farmer members are currently required to invest 0.2 pence per litre (ppl). But from 1 April 2013, they will be required to pay 0.5ppl.

The co-operative added that it will continue to pay a twice yearly return on members capital investments after announcing a 3% return for the six months to March 2013.

First Milk external relations director Paul Flanagan told DairyReporter.com that the First Milk board and its dairy farmer members recognise the value of products such as whey protein and the sports nutrition sector.

He added that in future the “better margins” will come from added-value products such as whey protein and sports nutrition products – not dairy commodities.

“Move further and faster” on added-value

“This has been a joint decision by our Board and farmer representative group. They have recognised the global consumer trends and the trends in the global dairy industry and set out a clear path to move further and faster on added value,” said Flanagan

“So far we’ve used money generated from the business and bank borrowings to fund our moves. We’re now looking to increase the funding pot through investment by our farmer members, plus potentially employees and third parties.”

He revealed that First Milk has a “number of options” on the table at the moment, but decline to go into too much detail.

“To give you an example, we know the dairy products that will deliver the best margins in the future are not likely to be commodities like fresh milk, butter, cheap cheese and powder. It’s more likely that the better margins will come from added-value products such as whey proteins and sports nutrition products.”

Invest a little? Invest a lot?

First Milk took its first plunge into the added-value dairy category in September 2011 through a whey protein concentrate (WPC) joint venture with Fonterra. It furthered its interest in the sector in May 2012 through the purchase of sports nutrition business, CNP Professional.

First Milk hopes to build on these foundations. According to Flanagan, First Milk has two options – invest a little, or invest a lot.

“At this stage of our business development, we have two choices. We can keep investing a little every year, keep ticking along and slowly improve the proportion of added value versus commodity markets that we supply,” he said.

“Alternatively, we can actively choose to shape our business and invest in added value deals and look to transform that margins we receive. We have already identified investment opportunities and there will be other opportunities. The move that we’re visibly looking at added value investments, the more approaches we receive from sellers and like-minded potential partners,” he concluded.

Committed to raising milk prices

Alongside its capital investment increase, First Milk also announced that it is increasing its milk prices.

From 1 April 2013, the standard litre price paid to farmers in First Milk’s liquid pool will increase by 0.5ppl. While suppliers in its cheese and balancing pools will see their standard litre price will increase by 0.4ppl.

“We made this move on milk price as we are committed to raising our prices as far and as fast as we can,” said First Milk chairman, Bill Mustoe.