Administration leaves farmers owed for six weeks’ milk

About 70 milk producers have been left without payment for about six weeks’ milk supply as a result of Tomlinson’s Dairies going into administration.

Mike Denny and Peter Dickens of PwC were appointed joint administrators to the Wrexham-based business by the High Court on Monday (14 October).

It is believed that all affected producers have found, or have been found, new processors after being told last weekend to find alternative suppliers by Tomlinson’s, which could no longer take their milk.

Tomlinson’s also had operations in Chester and Shropshire and across the North West. Most of its 331 employees have been made redundant.

Growing calls for Sainsbury’s to pay farmers

Thirty-four of the unpaid farmers are members of the Sainsbury’s Dairy Development Group (SDDG), who were moved from supplying Muller in 2016 when Tomlinson’s was awarded a Sainsbury’s supply contract.

See also: Liquid milk sector starved of financial returns says Kite Consulting

Tomlinson’s Dairies – background

  • Founded 36 years ago, the company processed and packaged Welsh, British conventional and organic milk and dairy products
  • Rapid expansion in past three years, doubling the size of its dairy and adding a distribution hub at Ruabon to reach a total capacity of 200m litres-plus 
  • Most recent accounts are for year ended 31 March 2017, with turnover of £47m and pre-tax profit of £2.33m
  • Trading results deteriorated in recent months on significant cashflow pressure – higher energy costs and low commodity cream prices were two of the main factors (administrators’ statement)
  • Operating losses of about £5m to March 2018, but improving performance towards the end of March 2019, narrowing operating losses to about £2m for the year
  • Some operating profit in spring this year – blow moulding operations were sold in May 2019, reducing debt and improving cashflow while plans were prepared for further restructuring
  • During the summer, the company refined its costs of operation in response to customer tenders

Their choice at that time was to supply Tomlinson’s or lose their Sainsbury’s contract. There are growing calls for the retailer to pay up for milk supplied between 1 September and 14 October, for which the farmers are owed.

It has been suggested that this could be done now, with any payment to the farmers as a result of the administration process then being made directly to Sainsbury’s.

Farmers Weekly put this to Sainbury’s, but the retailer said it would not discuss payments at this stage – the priority was to maintain milk collections, which was being done.  

Sainburys’s denied that an element of Tomlinson’s difficulties was the requirement to retender for the retailer’s business earlier this year.

There are a further 48 Tomlinson’s milk suppliers (in addition to the 70 unpaid) who are Arla farmer members. These producers will not lose their milk payments, as the dairy simply operated as a contract processor for the co-op, dealing with its Welsh branded milk products, said an Arla spokeswoman.

Challenged processor

A Kite Consulting report listed Tomlinson’s as a “challenged” processor in its league table report on the liquid sector earlier this year.

At accountant Moore UK, Duncan Swift leads the firm’s food advisory group. “Long-term sector success is all about operational scale to achieve margin and depth of capitalisation, to withstand business shocks,” he said.

“Tomlinson’s was always vulnerable on both counts.”

Tony Rimmer of Chester-based agent Rostons said farmers were already struggling with the wet weather and waterlogged maize crops.

“There are some very big producers among them,” he said. “There will be a big knock-on effect on suppliers such as contractors and feed companies. This is concentrated in a small area and comes on top of the Wright Marshall administration.”

A Tomlinson’s Dairies spokesman said: “The family shareholders, directors and management of Tomlinson’s are devastated by the administration and sincerely regret its impact on their customers, suppliers, farmers and employees.”

Milk buyer warning signs

The liquid sector has heard many sustainability warnings this year. Many have little choice of milk buyer, but there are warning signs to look out for, say advisers. These include:

  • Late filing of accounts
  • Frequent changes of accounting year end dates
  • Changes to payment dates/other terms
  • It is also suggested that farmers contact other suppliers to their buyers – for example, hauliers and contractors – to ask what their payments experience is and whether it is changing
  • Loss of contracts/changes of customer – are your buyer’s customers, new or existing, likely to be paying a premium?

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