By Andrew Shirley

MILK LINK has shocked its members by cutting milk cheques from March despite the announcement this week of a desperately needed price rise.

The dairy co-op”s board said the recent retail price increases for fresh milk meant it could follow First Milk and Dairy Farmers of Britain by paying an extra 0.3p/litre for milk, although the rise would not come into force until April.

But at the same time it said higher debt-servicing obligations after last year”s purchase of Glanbia”s cheese business meant the member capital account contribution would have to rise 0.25p/litre to 1p/litre from April.

These contributions are used as security for borrowings and capital for investment. They remain the property of members, but are repaid only a number of years after leaving the co-op.

A board statement said: “Milk Link is financing the acquisition of circa 100m of processing assets and 60m of stock. Over the next two years the cost of servicing the debt is at its peak.”

A 1.8m shortfall in expected pre-tax profits for the year ended Mar 31, 2005 – 27m on a turnover up 60% to 600m – meant members would also have to contribute an extra 0.12p/litre for milk delivered from last month to Feb 28, 2006, it added. The deficit was blamed on higher costs, increased milk payments and a shortfall in milk volumes.

This means members, already struggling with one of the industry”s lowest prices, will effectively face a deduction of 0.12p/litre for for March milk and 0.07p/litre in April.

A Milk Link spokesman said it had already had a constructive meeting with members since the announcement and they understood why the extra contributions were necessary and remained committed.

But Milk Link members contacted by farmers weekly were not happy. James Bowditch, whose family farm milks over 400 cows in Dorset, said he was thinking of leaving. “This defies belief and I am very worried.”

Steve Wall from Somerset said he was also thinking of switching buyers. “We knew there would be pain, but not this much. People are already on the limit.”

Another Somerset producer who did not want to be named said he had already given notice. “The 0.12p/litre retrospective cut is absolutely diabolical.”

Tom Hind, NFU dairy adviser, said it was good that the co-op”s milk price had been increased against expectations, but added: “This announcement doesn”t do anything to help the farmers with their increased costs.”

John Allen of Kite Consulting said he was very concerned. “The price Milk Link is delivering is not sustainable. The people running it need to realise that.”

andrew.shirley@rbi.co.uk