By Anna Burdett Farming and Rural Affairs Editor

Last updated 21:53, Tuesday, 18 November 2008

After weeks of merger talk rumours, Cumbrian NFU chairman Russell Bowman says only a super co-op can save the dairy industry.

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Mike Chester: ’Assurances’

He says farmers must stop competing against each other and start working together ahead of milk price drops expected next year.

Rumours have been circulating for six weeks about two or more of the co-ops – Dairy Farmers of Britain (DFB), First Milk and Milk Link – being on the verge of joining forces. Many believe an announcement is imminent.

Mr Bowman said: “We have three co-ops all developing their own brand; they would be far better as one, working together.

“The industry is going to die if we don’t do something soon. We’re looking like we’ll have to face price decreases next year.”

A merger between First Milk and Milk Link was abandoned in February because they could not agree on a deal.

First Milk spokesman Paul Flanagan said: “I agree with Russell’s point about the need for consolidation in the dairy industry, but any move must clearly be in the best interests of our members.

“While there are various criteria that we look at in business deals, it all boils down to one thing – will completing a deal make our members better off?

“I firmly believe that the current challenging market conditions create opportunities for well-placed companies like First Milk.”

Will Sanderson, from Milk Link, said: “We’re constantly evaluating opportunities for our business. A year ago we were in merger talks with First Milk.”

There have been serious concerns over the future of DFB in recent weeks after the board decided not to pay interest on members’ accounts. Many Cumbrian farmers have tens of thousands of pounds invested in the business.

Matt Sheehan, membership director, said: “This decision was taken in the face of extraordinary circumstances in the market place because DFB does not have cash reserves.

“It’s business as usual and milk cheques will be paid.”

Mike Chester, who retired as a farmer director in August, said he had been given assurances by the co-op.

The Allonby farmer said: “I am assured that though they have been flowing against the tide, the business is sound and they are not about to go into liquidation.

“I think it is highly likely a merger will happen in the near future. One of the stumbling blocks has been the monopolies issues. But because of the plight of the dairy industry, I think more consideration will be given to a merger.”

An estimated 10 per cent of Cumbrian dairy farmers have quit over the last two years and milk supplies are at their lowest for 35 years.

Higher milk prices over the last eight months have been cancelled out by feed and fertiliser price hikes and now farmers face having to buy new slurry storage tanks because of Nitrate Vulnerable Zones.

Mr Bowman added: “The proof that a new super co-op had really succeeded would be an increasing supply of milk to the market place for a substantial price.”

He tackled the issue in his monthly Cumbria Farmer blog and says he wanted to provide some practical answers.

Nick Utting, group secretary for the NFU in Carlisle, said: “There is little doubt that an amalgamation of all the co-ops could be of long-term benefit to the dairy producer.

“There are members of co-ops now calling for amalgamation.”

n Read Russell Bowman’s blog on page 7.