Dairy profits hit by milkmen payout

GUERNSEY Dairy profits are predicted to be down by tens of thousands of pounds under a new distribution system, which was designed to make its operation more efficient.

dairy

In 2015, the States voted to allow the Dairy to deal directly with commercial customers, such as supermarkets, and, as a result, a year later agreed on a £750,000 mitigation package for milkmen, which came directly from the Dairy’s coffers.

Not a single shop, however, has taken the chance to deal with the Dairy directly and it still has the same number of customers, 20.

There also appears to be no competition in prices to benefit the consumer. A survey done yesterday showed that milk was priced at £1.18 for a litre in supermarkets and small shops.

Profits for 2017 are projected to be £41,000, compared to £133,000 in 2015, when milk rounds were licensed and offered exclusivity.

A States’ Trading Assets spokesperson said the surplus was affected by both changes to yearly income and ongoing or one-off costs.

‘The reduction in the 2017 budget reflects a number of such items,’ it said.

‘For example, the States has resolved to reduce the dairy farm management payment by £1m. over five years, and that annual reduction is being absorbed by Guernsey Dairy. That is an external factor.

‘On the expenditure side, some additional costs have been budgeted for depreciation on capital investment that is being made to improve operational efficiencies. The benefits of that will be seen longer term.’

Comments for: "Dairy profits hit by milkmen payout"

markB

So let me get this straight, The milkmen that where going to loose money by not being able to supply the supermarkets anymore are still supplying the supermarkets? and they also got a payment from the States for loosing the supermarkets, that didn't happen ....or do I have this all wrong?

Salerie Corner Sign

That is right.

markB

well its out of order

Dorf Perfect

And lets not forget that this sorry mess took over 10 years to sort out, have they counted the cost of the civil servants, politicians and crown officers when producing figures for the dairy?

Those of you who think Education and Waste will be sorted anytime soon , think again.

Banned again!

Ha ha ha.....I'm really looking forward to the report on Gavin's £300m+ fiasco. These buffoons are a barrel of laughs....just wait till the taxpayer really gets angry......ha ha ha.

Loveridge

Another stunning example of joined up thinking in action. Not to worry, it's only tax-payers money. Milkmen creamed off this one. Definitely not crying over spilt milk.

Alvin

Milk being dumped and now this ??

Trevor Hockey

Typical States department that would change dramatically if under private ownership.

Jasperino

I am trying to think of something to say to be pragmatic and constructive in my views regarding States decisions of the last several years but I just can't. There seems to be a cock up revealed almost on a weekly basis, costing between thousands or millions of pounds per episode. This just cannot go on. Just fed up with the whole lot of them.

Is this not a job for the scrutiny committee to investigate and come back with a valid report naming names from the top honcho deputy to the top honcho civil servants who came up with these madcap ideas and policies between them. The lunatics are running the asylum now and somebody or someone in the States must be culpable. If these high end civil servants keep getting away with giving bad advice and not thought through policies and decisions heads must roll.

Trevor Hockey

Jasperino

Perhaps time for Scrutiny to be an outside department, run by professional business people who can have some real power over the civil service, because they must be at the heart of all these issues.

Banned again!

Said so time & time again Trev. Scrutiny in the charge of these incompetent part timers? I'm surprised this hasn't been flagged up by now.

Jasperino

As GSP wants more cooperation between the Islands on a financial level how about a totally independent scrutiny Committee formed in Jersey to scrutinise Guernsey and a Guernsey scrutiny Committee to Scrutinise Jersey. Just like putting two Tom cats in a cage and let em fight but along the way some truth might come out

markB

Did anyone from the states ask the supermarkets if they would buy direct??

which deputies were behind this??

#gashtag

Andrew Le Lievre's parting gift, I believe.

Add this to the stack of cash peed up the wall in recent times.

#wegrowmoneytreesinguernsey

Common sense

Looks like milk will be £1.20 per litre soon to cover the cost and the states can do nothing about it as they gave away control of price setting.

Madguernseyman

Can't believe what I am reading, so the milkman have not been affected by the change, but still get thousands of tax payers money, should pay it back.

Lester

Like others I can't believe what I'm reading. I think this calls for an expensive independent inquiry to see exactly how the milkmen screwed us out of £750k.

Le Goubert

And this is what happens when the Government interfers in the free market.

The only good thing about capitalism is it allows the economy to follow an evolutionary processs by chopping out the deadwood that allows new businesses to flourish.

And people want the Government want to help first time buyers....and exactly the same thing will happen again. A small group of people will make a nice little profit from a tax payer handout.

Buyer beware folks!

Vraic-eater

I think most people outside the States realised that governmental interference in the free market was likely to end in tears. The power of being a deputy seems to make some people lose clarity of thought. Now we have no milkman, he took his £40k and ran before anyone came to their senses. The only good news is that we only buy about half as much milk as before because we have to go out and get it. Whether that was what the dairy wanted, I do not know.

davegorvel

Vraic-eater

Totally agree with you.

When you change something you should ask if it will be better.

Is this change needed, cost to set up, will it give better service and will it make a bigger profit?

As you said less milk sold now, £750,000 to retailers, with effectually 25 less paying tax, insurance and expenses.

Supermarkets as with all food controlling 90% of milk and paying no tax under 0-10.

Their employees mainly non local on zero contracts paying little tax and insurance.

All together less tax, less sales and less profit.

markB

Was Deputy Queripel not involved in this in some way? if so then, Laurie??, can we have our money back please.

The way this should have been handled was that if any Milkman could prove they had lost money due to the States decision then and only then could they claim compensation.

The milkmen still supplying to the supermarkets should either give back the cash of give up the round. It would also seem the Dairy has not been proactive in promoting itself as a supplier to the supermarkets, why not? and who is in charge of marketing?

Laurie Queripel

Hi markB

Just let me get past the States meeting and I will come back with comments. Suffice to say, the summary of the Press article at the top of this thread does not tell the whole story and neither does the article itself, selective reporting.

markB

excellent, well done

Laurie Queripel

Hi markB/all

As some of you will know, I have contributed lengthy posts to TiG threads on many occasions in the past in regard to this issue to try and explain the background/history of it. I think the best thing I can do is to reproduce here the bulk of the email (very slightly amended) that I sent to the Press in response to a request for comment.

As follows-

I will try to answer your questions in my response (which unfortunately could be quite lengthy!) but there is a fairly basic misunderstanding of this matter which means the history of it has to be revisited to some degree. Context is essential.

So, it was not only about compensation for possible future business/customer losses, mitigation (the more accurate term) certainly played and does play a part but it was as much to do with the businesses being immediately devalued by the proposals being accepted (and in fact long before that, ever since the new system was first mooted, thereby visiting stress and uncertainty upon the milk retailers for several years as a result, some would argue with quite profound health and emotional consequences).

The closed and regulated distribution model that existed prior to the recent changes was very much the creation of the States and the Dairy. Before that there was an open, commercial, free market approach (similar to what is in place now) but ironically it was considered to be inefficient by the authorities of the day! Hence a system of licences, regulation, conditions, zones, exclusivity (the convenient argument put forward by the Dairy and the then Commerce & Employment Department before the debate was that exclusivity was not explicit, but I suggest you try to view one of the licenses, besides which there was never an attempt on their part to grant another license to a second milk retailer to operate in an existing zone) coming into being.

Under the closed system rounds increased greatly in value, to such an extent that large loans were taken out in order to purchase them, even homes were re-mortgaged, all with the awareness, oversight and approval of the Dairy. Occasionally the Dairy even offered loans themselves so that rounds could be purchased. This massive hike in value was almost solely due to the certainty that came with the closed and regulated system (the exclusive right to delivery zones/areas), a system instigated by the States. It could perhaps be said that milk retailers licenses were issued in perpetuity as, unbelievably, they did not/do not display an expiry date (I have heard that at least one former Royal Court judge was of the opinion that this alone would provide the basis for a strong legal challenge). Most of this value fell away as soon as the Dairy review process began. This made it much harder to sell rounds (if they could be sold at all), even at far lower purchase prices, the result was/is financial loss. All that can be sold on now is the vehicle/equipment and goodwill, the real value was in the round/zone. The Dairy and C&E wanted to move the goalposts, back out of a system that they had devised and overseen (knowing how and why the rounds had increased in value) without obligation, that didn't seem to be an acceptable or morally right thing for government to do and the majority of the Assembly agreed. The money came from the Dairy reserves and I would suggest that nobody, including me, would have agreed to that lightly or without serious consideration of the issues and facts.

I would say that it is too early to make a judgement but as far as I am aware some milk retailers have ceased to trade mainly due to a loss of commercial customers thereby undermining the viability of their businesses, others continue but most have lost larger outlets. The system in Jersey changed many years ago, to my knowledge there are now very few small/independent milk retailers there and only one or two offer a limited doorstep service, it (doorstep) just doesn't seem to be viable, not really a victory for consumer choice. This may be what the future holds for us. Putting aside the mitigation issue, I'm not saying it was either right or wrong to change the actual system.

The packages varied from retailer to retailer. Was it enough to make up for the capital/asset loss? I don't know. I do know that they were taxed 20% at source, an unprecedented action as far as I can tell.

One could perhaps turn the questions around on the architects of the new liberalised system. The changes were meant to herald a brave new world of lower retail prices (nobody really seems to have blinked first), competition, direct access to the counter/products and consumer choice. Have these things emerged? Has there been improved efficiency? Has it been worth it?

That is, by and large, the email that I sent to the Press, hope it helps.

Rupert Walthumstow

So, the States allowed a system to exist and people purchased businesses on that basis and when they wanted to change the rules they compensated them?

Taking that in another field, if the States decided to change 0/10 and finance businesses, as an example, were likely to suffer, or they relaxed regulation to enable more competition in finance, even if the businesses ultimately didn't suffer, as seems to be the case here, would the States be offering to pay them compensation? Seems very unlikely to me.

Laurie Queripel

Rupert

I have explained the situation as best and honestly as I can, what you consider to be unlikely or not is a matter for your judgement.

Bibbit

Well we'll Laurie, the GP not reporting all sides of a story?! It's happening far too often.

For what it's worth, I think it's about time we saw if Scrutiny have any teeth, because all of this asking questions of ctees seems totally pointless to me unless some proper investigative work is done when problems are raised, and the relevant deputies/civil servants brought to task. In no other job would an employee or department constantly making costly or outside-of-procedures mistakes be allowed to get away with it. If Scrutiny don't have the mandate to enforce change or set dismissal procedures in place what, really, is its purpose? They can find out all the info they want. And then what do they do??

Laurie Queripel

Bibbit

One of the purposes of the hearings is to assess whether more comprehensive investigations could be launched on the back of them. Larger pieces of work have been commenced (the Bond for example) into financial and policy matters.

You are correct, the SMC do not have any executive powers, findings are revealed and recommendations made but cannot be enforced.

Agreed, there is only so much value in retrospective scrutiny. I said during debate this week (once again not reported by the media) that the SMC should receive all project business cases at the same time as P&R so that real time scrutiny can be applied.

Donkey Boiler

Laurie

I hate to disagree with you, as I have more respect for you than all of the other incumbents of the house combined. However, the fact is that the milk roundsmen regularly bought and sold 'rounds' for ridiculous sums in a reckless gamble against something that in truth did not exist. They were buying a secondhand van, a fridge, and a list of customers, that's all. Any customer was at liberty to cancel or change their milk roundsman whenever they chose, it's just that most simply stayed with the next incumbent when a round changed hands, although there was never any guarantee of that. This flawed decision to pay out £750,000 of our hard earned cash could open us up to further claims from other groups in the future. (When I say our cash, even though this was paid by the dairy, the dairy is states owned, therefore it's our money).

Bibbit

Laurie thanks very much for replying. The more that comes out, the more it seems the States want to be seen to be doing the right thing (e.g. having scrutiny in place etc) but in actual fact it's pretty pointless if there are no enforcement rights. Doesn't all of this just take up more and more of people's time to achieve not a lot?

I have to say that for me, only a handful of Deputies (including yourself) seem to actually be working extremely hard for the little person of our island, and as time goes on and I get older, the feeling of gloom is certainly getting much heavier than I'd like. I never thought I'd leave this island but I'm struggling to see what the "good" things will be in say 15/20 years time other than it's very picturesque and surrounded by sea.

Laurie Queripel

Bibbit

Thanks for coming back and you do make some valid points. I (and there are other deputies) am not satisfied with the current model of scrutiny (plus of course other things) and as you say, am trying to push for improvements. I'd be the first to acknowledge that I won't always get it right, who does, but I always approach issues with good intent.

Your point about the little person is well made, many islanders do not feel properly listened to or represented, this is reflected in the amount of case work I have at the moment.

I do hope for the best but have to admit to sharing some of your gloom and frustration.

Laurie Queripel

Donkey Boiler

Thank you for your kind comments and I do respect that on this particular matter we have a different view, which doesn't seem to happen very often.

I did a lot of research, saw many documents (licences, maps of zones drawn up by the Dairy, reports, letters from the States confirming arrangements etc) and based my conclusions on that.

Minnie

So they can pay a bunch of delivery boys off, despite them suffering no hardship but they let the place go to ruin, scrape a 2 star hygiene rating and chuck milk down the drain. I think £750k would have gone a long way towards sorting the dairy out for the benefit of the whole island rather than a chosen few. Shameful management.

This is unacceptable States of Guernsey.

Trevor Hockey

Minnie

Seems a very fair point and this is what happens when civil servants try and run what is effectively a commercial operation.

In the old days you would have Deputies heading a department who often had some kind of business background, sadly all gone to pot as half the Deputies couldn't run a business if their lives depended on it.

Rupert Walthumstow

The jokers who voted for this can be found at https://www.gov.gg/CHttpHandler.ashx?id=101305&p=0

For simplicity though, the deputies still standing after the election and who voted 'pour' for this nonsense are:

Brehaut, Gollop, Lester Queripel, Le Pelley, Fallaize, Laurie Queripel, Lowe, Green, Dorey and Paint.

To be honest I am only surprised / disappointed by one or two on that list. The rest I already knew were a bit daft.

markB

Brehaut had to be in the list!!

Jasperino

Barry Brehaut. The Deputy who always falls in a barrel of ni***es and always comes out sucking his thumb. I will leave you all to work it out.

Lester

OK so none of the supermarkets or other major customers are buying directly from Guernsey Dairy. This MUST mean that Guernsey Dairy isn't offering any incentive to those major customers to buy the milk directly from them as opposed to from the milkmen. So is Guernsey Dairy just being naive in hoping to pocket all the savings from cutting out the middleman or is there collusion between the milkmen and the major customers i.e. the milkmen will match or better the Guernsey Dairy direct price? I'd be interested to know.

markB

very good point, I ask why the Dairy hasn't promoted itself and a new delivery service.

Laurie Queripel

markB, you make a good point.

Jersey milk is outselling coca cola as a drink of choice in Hong Kong!

davegorvel

Milkmen are not delivering to supermarket's and my milkman gave up.

Island Wide Voting

Come to think of it my milkman has also sold off his round in the last five or six weeks

Guernsey cgull

The dairy ,and its management are a complete ,incompetent bunch of idiots.

The tipping of gallons and gallons of milk down the drain is through their own mistakes.

Read Farmer Rob Walters explanation in Guernsey Press of this expensive error ,he was correct, and nobody has been made accountable, at the dairy.

Add in the frightening low score from BoH inspector, now they announce this huge loss , thanks to our States handing out money to our poor old milkman ,what a B---dy mess .

On top of all this the management ! Are still there !

In the real world somebody ,at least one ,would have been fired, but no, don't worry, tax payers will foot the bill for your wages and your pension.

Lester

Laurie - according to the GP article all the supermarkets and shops are still buying their milk from the milkmen. There have been NO new customers since the implementation of the new system. Is that correct or not? As you haven't addressed this point I suspect that it is, in which case you have to wonder what was the point of implementing the new system. It's cost us £750m for no benefit whatsoever.

Laurie Queripel

Hi Lester

I make similar observations towards the end of my main post (what has really changed, was it worth it etc).

Sales overall are declining. I suspect that over time there will be a shortage of distributors willing to carry out doorstep deliveries as commercial customers cross subsidise these and the trend seems to be that outlets (supermarkets/shops) are moving away from milkmen and towards the larger distributors (we probably all know the names). But yes the commercial customers still have their products delivered (albeit by a changing and more select/limited group of distributors, another type of monopoly in the making?) and have not (as yet) taken the opportunity to access the counter directly.

les pets

Please don't blame the dairy for all the loses and changes. Look at all the over paid deputies and civil servants who make these changes etc . Did they talk to or approach any one at the dairy to ask for guidance, Did they ask anyone in any deptment about any thing, So easy to sit at a desk and tell people what to do .I sit at a desk and get paid loads so I know what I'm talking about. Stop this,

Lester

Laurie - thanks for your reply. I have a few follow up questions. Presumably Guernsey Dairy have spoken to the supermarkets/shops about the prices at which they would be willing to sell to them directly under the new regime, right? So since the changes can the distributors sell to the supermarkets/shops at whatever price they want or are they contractually bound to sell at a specific price? The fact that none of the supermarkets/shops are currently buying directly from Guernsey Dairy indicates that there is no price incentive for them to do so. If the distributors have the right to fix their own prices to the supermarkets/shops then they are always going to undercut the Guernsey Dairy direct price. If that's the case then Guernsey Dairy will never have any direct sales. So did Guernsey Dairy just not understand the basics of business and have effectively just chucked away the £750k?

Laurie Queripel

Lester

The Dairy could probably answer some of these questions better than I but there are two fixed prices. The wholesale price (i.e. what the Dairy pays to the farmers for the raw milk) and a gate price (what the distributors pay the Dairy for products). My understanding is that after that the amount that a supermarket/shop/hotel etc pays is a matter of negotiation between them and the distributors (so the distributor has to cover costs and factor in a margin), there is no longer a fixed retail price.

If the Dairy can beat the distributors offering (the Dairy has to make sure they cover their costs and make a profit of course) then direct access should, in theory, be an attractive proposition for commercial customers. It may be that they (supermarkets etc) still find it more convenient (or cost effective) to have it delivered and are prepared to accept that expense.

Donkey Boiler

At last assessment out of the 6/7 million litres of milk produced by the Dairy annually about a third was being delivered to doorsteps (2 million or so). As far as I am aware this figure has remained fairly consistent for a few years. Of course in many cases it isn't just milk that gets delivered but by-products as well (so butter, cheese, cream and so on). For some people (elderly, infirm, disabled etc) it represents quite an important service, less goods to get via other means.

Would the loss of doorstep deliveries contribute towards the continuing decline in sales?

I do accept your points though.

Vraic-eater

Well it already is contributing to the decline in sales. We have lost our milkman due to the States decision to pay him off and are buying less milk as a result. Many others in the west of the island are in the same boat and we have had to pay our share of the £750k for the privilege. Thank you very much Deputy Queripel.

Laurie Queripel

Vraic-eater

I think you have fundamentally misunderstood something. I wanted the system to stay as it was, I wasn't at all convinced that change would bring about anything meaningful or beneficial and I said so repeatedly during my time at C&E and since on many forums.

As I pointed out in an earlier post, commercial customers cross-subsidise doorstep deliveries, if milkmen lose them the viability of their businesses is undermined. You could contact another distributor to see if they are willing to doorstep deliver, there are no zones now. I could enquire for you if you want to get in touch with me.

Please see my Feb 18th 10.28am post.

Donkey Boiler

Surely the daily doorstep deliveries were gradually becoming a thing of the past in any case? The shelf life of milk, every kitchen having a fridge, the availability at multiple outlets, the fact that obtaining milk without the doorstep service really is not a problem for most, means that if the service is not there it is easy to do without it. I accept that for some it may be convenient, but how do those people get the rest of their groceries and provisions? It's just one of those things that is not essential in the modern world. However, the dairy should be proactive in promoting a better distribution service to outlets which could lead to better prices. Maybe the dairy still have a cosy relationship with the roundsmen?

Lester

Laurie - what you didn't say was what was the price that the Dairy would sell the milk directly to the supermarkets/shops for? If the distributors can undercut or match that price or even slightly exceed that price bearing in mind delivery charges and still make a reasonable profit then the direct sales will be zero as they are now. I would suggest that the only way for the new strategy to work is for the Dairy to sell milk (and other dairy products of course) directly to the supermarkets/shops at a price that would be unattractive for the distributors to match. That presumably was the original plan but it hasn't been thought through properly.

Laurie Queripel

Lester

I presume commercial customers would pay the same price as the distributors (the gate price) if they accessed products straight from the Dairy counter but I don't know what that figure is.

Agreed, that would appear to be the only way to entice supermarkets/shops to deal directly with the Dairy.