Cash shortage sinks start-up Organic Dairy

The directors of the troubled New Zealand Organic Dairy Farmers Co-Operative have called in the receivers, leaving 27 suppliers looking for other avenues for their milk.

Receiver Andrew McKay, of Auckland-based Corporate Finance, was called in last week with the news trickling though to farmers at the weekend.

The receivership is yet to be announced on the Companies Office website.

"The directors informed the bank that we could not continue to trade," company chairman and Whakatane farmer Malcolm Campbell said.

The co-operative had made arrangements for either Fonterra or Open Country Dairy to pick up suppliers milk with farmers having a choice.

The receivership was announced two weeks after the resignation of chief executive Patrick Geals following weeks of in-fighting between board members and farmers on whether to try to solve the company's cash-flow problems by asking farmers or external investors for extra capital.

Mr Campbell, who is owed $100,000 by the co-operative in milk cheques, said settling with suppliers would have required outside money.

The receivers were called before a meeting this week with senior executives from Seoul Dairy Ltd who may have been interested in investing in the company. "There was discussion on the potential for an investor, however we could not facilitate that," Mr Campbell said.

Open Country Dairy chief executive Mark Fankhauser scotched the suggestion that his company was looking at investing in the co-operative last week.

In its first season, Organic Dairy $500,000 in arrears by November and by January cash flow was so tight farmers, who had been promised $7/kg milksolids, were receiving $3.03 – about $1.50/kg below break even.

Otorohanga supplier David Miller, one of half a dozen Waikato suppliers to the co-op, contacted the Waikato Times after a fellow Taranaki farmer, who asked not to be named, said he was running from the co-operative.

Mr Miller said he wished to defend Mr Geals, who last week refused to comment on the situation.

Mr Miller said he admired Mr Geals for putting his all into the business and continuing to work with the directors despite unrest.

Mr Miller said Mr Geals had had a good international network for the supply and marketing of organic dairy products. "If you and I were rowing out in a dinghy to fish and we started to fight we couldn't fight and fish," he said. "I want to stand up for openness and integrity."

Charlie Kim, who arranged the sale of the co-operative's cheese in Korea, claimed the co-operative could have doubled Fonterra's payout in five years.

Mr Kim, speaking before the receivership was announced, said the Waikato Times report which quoted the disgruntled farmer, had made it difficult for him to sell the company's organic cheese overseas.

Mr Kim said suppliers needed to understand the cash-flow problems new businesses faced.

"When you start a business things are not easy," he said.

"They should understand and not criticise."

He had expected Fonterra's organic suppliers to switch to the co-op within five years."They will move from Fonterra and make their own icon," he predicted.

Korea imported more than 1000 tonnes of organic cheese annually, and was one of the biggest drivers of the organic market.

Mr Campbell said he believed the co-operative could have survived its cashflow problems.

- © Fairfax NZ News