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Farmer Robert Craig smiling with cows grazing in the pasture behind him.
Robert Craig, a farmer at his Dolphenby Farm in Edenhall, England, is a member of First Milk.

For UK dairy farmers, ‘cooperation’ is a key ingredient

With four creameries and more than 1,000 dairy farms, First Milk — the U.K.’s only 100 percent farmer-owned co-op — is proving there’s strength in numbers.

April 10, 2018
Lush grass makes for happy cows at Dolphenby Farm, one of more than 1,000 U.K. farms that are part of the First Milk co-op. (2:24)

What does it mean to be part of a cooperative, or ‘co-op’?

In the U.S., several national hardware store brands function as co-ops, allowing store owners to operate independently while benefiting from a larger, shared distribution network.

In the United Kingdom, it means “working together for the good of everyone,” according to Robert Craig, a dairy farmer and member of First Milk, the U.K.’s only 100 percent farmer-owned co-op.

An infographic states: “Annually, an average cow produces 7,500-8,000 liters of milk, which can create up to 1 ton of cheese.”

Craig and more than 1,000 other dairy farmers across Scotland, Wales, and England send the milk they produce to one of four creameries operated by First Milk. Each year, First Milk churns that milk into approximately 53 thousand tons of hard cheese, which is packaged and sold under several brands in grocery stores throughout Britain. First Milk also supplies all the milk used by Nestle in the U.K.

“First Milk is really important to the smaller farmer, but actually it’s important to any size farm because none of us are really big enough to take on the market by ourselves,” Craig said. “So, working as a co-op, we can use our collective strength in the marketplace — whether we’re supplying the creameries or whether we’re supplying to processors through brokerage. Individually, it’s very difficult for one farmer to do that, but we’ve got that combined strength in the marketplace.”

An infographic states: “Across First Milk’s co-op of 1,000 farms, there are nearly 90,000 cows.”

That strength in numbers has proven a decisive advantage for co-ops like First Milk, according to research by Co-Operatives UK, an organization focused on growing Britain’s co-operative community. It reports that while only 40 percent of new businesses in the U.K. survive their first five years in business, that percentage doubles for co-ops, with eight out of ten making it successfully through their first half decade.

With so many livelihoods at stake, the right financial team matters

First Milk’s position as a leading supplier of raw milk in the U.K. may reflect the broader success of co-ops, but as a large enterprise it still faces significant business challenges, particularly in managing against the pricing fluctuations of the dairy industry’s milk market. And with more than 1,000 farms — many family-owned — depending on the collective success of First Milk, the co-op’s financial resources must be closely managed.

An infographic states: “First Milk produces 53,000 tons of hard cheese a year, equaling the weight of 117 Boeing 747s.”

“The nature of cheese is that you process milk through a creamery and lay it down for five, six months a year,” said Brian Mackie, a First Milk board member. “Cheese matures with age and comes to its perfection some months down the line, so there’s always been a need to fund working capital, in this case cheese stocks. However, while things like Scotch whisky get better with age, cheese matures and reaches perfection, but then possibly passes its premium.”

With the combined challenges of making and aging cheese, selling it at the right time, and managing against ever-changing market pricing, Mackie and his fellow board members said that having the right banking relationship is critical for First Milk’s success.

An infographic states: “By volume, 53,000 tons of cheese would fill more than 20 Olympic-sized swimming pools.”

Following a cyclical downturn in the U.K. cheese industry earlier this decade, First Milk had gone through a restructuring that included re-evaluating how it financed its operations. That’s when Wells Fargo entered the picture.

“Wells Fargo isn’t necessarily a household name that springs to mind in the U.K.,” said Mackie. “But because we needed to prove that the turnaround had worked and that the business was coming out the other end of a difficult period in good shape, speed was highly important.

“We invited five different lenders to come in and have a look at pitching for the business,” Mackie recalled. “And of all the potential funders we talked to, Wells Fargo showed that it understood our business and that it could quickly execute a timetable for pricing and documentation, which they did deliver.”

The U.K.-based team at Wells Fargo Capital Finance put together an asset-based lending financing package for First Milk, which provides the co-op with access to capital based on the value of its noted assets — in this case cheese stocks and receivables from customers — and fixed assets including the creameries and equipment.

“When Wells Fargo gave us a four-year commitment for the business,” Mackie said, “it showed to our suppliers — who are also our owners — and to our customers that First Milk is a strong and stable business with a strong and stable lender behind it.”

Contributors: Emily Best
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