Arla Co-op Offer

Over 1,600 British dairy farmers are being offered the chance to become full members, and thus owners, of Europe’s largest dairy co-operative.  Members of Arla Foods Milk Partnership Ltd (AFMP) plus farmers with Arla and Milk Link direct supply contracts have been invited to join Arla amba (the full co-op). 

As full members they will receive the amba milk price from 1^st January 2014 plus the 13^th payment supplement (effectively a profit-share based on how well the co-op performs).  The procedure is that Milk Partnership Limited (MPL), which is the investment vehicle of AFMP, will become a corporate member of the Arla amba business from the 1^st January.  MPL will then change its name to Arla Milk Co-operative (AMCo).   AFMP Ltd farmers will have to contribute 7.5ppl to become full Arla Foods amba members.  This will be made up as follows;

• money already invested in MPL – 2ppl (this is made up of 1ppl from the investment levy that AFMP farmers have been paying since 2012, plus another 1ppl relating to MPL’s part ownership of Arla Foods UK plc)
• 3ppl funded via a bank loan sourced through MPL.  Although the terms of the loan are still being negotiated this will be paid back by a monthly levy, plus an additional 0.5ppl deducted from 13^th payment for 2 years – 2014 and 2015.  Total deductions will be no greater than 1ppl per year.  The remaining 1ppl + interest will be taken out of 13^th payment in years 3, 4 and 5 investment levy for two years, 2014 and 2015
• in 2014 and 2015 0.75ppl will be taken from the 13^th payment and paid into the common capital of the co-op
• 1.0ppl will be taken from members individual capital balances over the first two years and converted to common capital

In ‘cash’ terms, therefore, producers will only be paying the monthly levy amounting to 0.5ppl per year for their full membership.  With the various deductions, they will not be seeing much of a 13^th payment for the first two years of membership though. 

Farmers have until the 15^th November to decide whether to take up the offer.  Any AFMP farmers who do not sign up will be offered an Arla direct supply contract instead.  Such farmers will see their 1ppl direct investment in MPL returned, but they will only get a proportion back of the other 1ppl invested in Arla Foods UK. 

Of the 1.8bn litres potentially covered by the offer, around 400m relates to those on a Tesco direct supply contract, and a further 40m litres to those in the dedicated Sainsbury suppliers group. 

A limit of 1.8bn litres has been set for suppliers joining the co-op on a first-come-first served basis.  If This amount is not fully subscribed by AFMP farmers or Arla/Milk Link direct suppliers, co-op membership will be offered to other dairy farmers.  At least 65% of members or at least one billion litres of milk per annum must be committed for the deal to be settled. 

In addition to these proposals, changes to the Arla Milk Link merger conditions have been put forward.  Subject to the approval of Arla Foods amba’s Board of Representatives who meet on 9th/10th October, Arla Milk Link members will receive the Arla Foods amba’s 13^th payment from 1^st January 2014.  The first payment being made in early in 2015 for milk supplied in 2014.  This is two years ahead of schedule and stems from the fact that the merger of Milk Link and Arla has yielded quicker and larger cost savings than planned.  Based on past performance the 13^th payment could be in the region of 1.5ppl. 

It is planned that AMCo will merge with the existing Arla Milk Link co-op in 2016 to form a single UK co-operative once both groups of farmers have contributed equal amounts of capital. 

The proposals look pretty attractive.  Those on a Tesco or Sainsburys aligned contract perhaps have the most difficult decision, giving up a cost of production linked contract for one which is likelyto be more volatile and influenced by the global markets.