MILK LINK has confirmed that payments for milk supplied in May will be cut by 0.62p/litre under a new monthly price adjustment scheme.
It has also said it wants members to increase their capital contributions to the business – although it added this should mean members start to see a share of the dairy co-ops profits sooner than expected.
A statement issued by the business today (Jun 17) said that it hoped to reduce members’ capital contributions to a nominal or zero rate by April 2006.
It also added that it would be in a position to start paying out a share of processing profits in respect of the 2006/07 milk year to those holding proposed new membership certificates.
One membership certificate will be issued for every one pound held in members’ capital accounts, which are funded by a 1p/litre levy, on Sept 30, 2005.
Those who have given notice to quit the co-op will only receive the certificates if they reverse their decision by Oct 1 this year, said membership director Mark Brooking.
Producers who retire after receiving the certificates will be able to keep them and benefit from future profits, but those who switch milk buyers will not, added Mr Brooking.
However, earlier payments will be conditional on members contributing additional money into their member capital accounts on top of the existing levy.
According to group finance director Nairn Glen, an extra £15m is needed – equivalent to 1p/litre on one year’s supply to Milk Link. This would be paid in a lump sum.
The payment will be optional but, to encourage members to subscribe to the scheme, additional contributions will receive double the number of membership certificates.
Members will also be invited to convert any capital proceed loan notes – set to be issued to replace Milk Marque preference shares – into their capital accounts at the same rate.
Mr Glen said: “Both the issue of membership certificates and the invitation to subscribe additional capital are in response to member requests.
“Membership certificates reflect the investment members have made in creating Milk Link as a vertically integrated dairy business. They define ownership and will ensure that, as our business grows, their pioneering role will be recognised and rewarded.
“Increasing total member capital in the business will allow us to reduce our bank borrowings, thereby reducing debt-servicing costs in future years.
“It will allow us to refinance the business in 2006, putting our borrowings on a more permanent revolving basis.
“Members would therefore benefit from a substantially reduced levy or potentially even no levy at all and from the share of processing profits attached to their membership certificates.”
However, John Allen of Kite Consulting said members needed to ask the Milk Link board some very tough questions on future profitability before increasing their contributions.
• For further detail of the price cuts and more analysis see next week’s Business section in FARMERS WEEKLY.