Epsilon Archive for Student Projects

Abstract

The purpose of this study is to investigate why dairy co-operatives in the UK are weak or have had problems historically. The thesis contains necessary background information about the dairy co-operatives and their current scenario. The Milk Marketing Boards (MMBs) were set up in 1933 to ensure the fair milk price to dairy farmers. These boards purchased all milk from farmers and paid an equal milk price. In 1994 these boards were disbanded and Milk Marque came into existence. However, in 2000 Milk Marque was divided into three co-operatives. Two of the successors of Milk Marque in the later stages merged with other dairy co-operatives. One of the successors of Milk Marque, Zenith Milk merged with Milk group to form the Dairy Farmers of Britain (DFOB). However, DFOB collapsed in June 2009.

A number of studies on co-operative failures have been carried out worldwide. Each one of these studies raises particular points or reasons. When these reasons emerge it makes the future of any co-operative uncertain or most likely to collapse. However, the reasons mentioned in these studies apply only limitedly to the UK dairy co-operatives. Some unique features have been found which contributed to the demise of the UK dairy co-operatives. Most of the data for this study was collected during a visit to the UK in October and November 2009. The data for empirical findings and analyses was collected through interviews.

If looking into the factors behind the weak position of dairy co-operatives in the UK it turns out that the ideal time to form and develop the co-operatives through merger and vertical integration has been lost due to MMBs. Capital constrains restricted the co-operatives from vertical integration. Consequently, dairy co-operatives could not reduce the high transaction costs of farmers. Therefore, these co-operatives perform inefficiently to add value in the business for farmers. Hence, all the dairy co-operatives are comparatively small and weak than dairy plcs in the UK. The marketing mechanism is also not functioning well in the UK. A small number of very large retail chains are enjoying enormous power and making the maximum profit due to poor competition among supermarket in the UK. High value added products are rarely seen in the portfolio of dairy co-operatives. Cultural values have also contributed negatively towards co-operative formation. Divergence of interest between members and management also appears especially on short and long term objectives.