FIRST Milk is to defer payment of itsJanuary 12th milk cheque to dairy farmers for two weeks.

The payment will not be made until January 26 and all future payments will also be delayed by two weeks as the co-operative battles cash flow problems.

The Board said it will reverse 1.1ppl of its planned February milk price reduction for its liquid and manufacturing pools, which will still see them cut to 21.2ppl and 21.57ppl respectively.

It also announced an increase in its members capital investment from 0.5p to 2ppl for milk supplied from December 2014 up to August 2015, and an increase in its members capital investment target from 5p to 7ppl.

The announcement led to an angry response from the NFU.

Meurig Raymond, president, said: “This is a wholly unacceptable announcement from First Milk coming after last week’s announcement of a milk price cut, which I understand is partly to be reversed, with members now being asked to fork out an extra 1.5ppl in capital investment as well as receiving a delayed payment for milk already supplied.

“The NFU’s first priority has been to get a meeting with First Milk to seek answers to very specific questions about how this will impact on our members.

“It is quite clear that this announcement will be a serious burden for farmers and will be damaging to cash flow at an expensive and demanding time of year for costs. It is essential at this time that banks understand and are supportive of our farmer members so they can continue to finance their businesses.

"I will be personally contacting all the main agricultural banks to ask them to do so. It is so important at this difficult time for the dairy industry that the financial health of First Milk is secured.”

Sir Jim Paice, chairman of First Milk, said the moves would deliver a cash injection into the business and play an integral role in putting its finances and business on a stronger platform.

He said: "We understand that the milk payment deferral will cause concern for members as direct debits and payments will have been lined up against milk cheques. On that basis, we are working with all major banks at national, regional and local levels to explain the rationale around this decision. That way, bank managers should be well equipped for any conversations they have with First Milk members."

The company said 2014 had been a year of volatility for dairy companies around the world that had never been seen before. Returns from globally traded products were at record levels 12 months ago, but have more than halved since then, leading to a steep fall in milk prices. It made aligning incomings with milk price payments extremely challenging each month.

At member meetings in November, the Board had been open about losses that were accrued in the early part of the financial year caused by the rapidly falling markets. But despite aligning milk prices with market returns to balance the books since October, there remained a gap of 1 pence per litre on an annualised basis due to the earlier losses, which had restricted the cash available to the business.

Sir Jim Paice said: "While our lenders have been supportive as we've dealt with this volatility, with the added uncertainty of the imminent EU quota removal, the Board has taken the decision to re-build the fundamentals of the business ahead of the spring flush.

"We are a business owned by dairy farmers. The Board are acutely aware of the difficulties this current extreme volatility is causing First Milk members and the UK dairy industry.

"We don't know how long this current market downturn will last, and we are aware that hundreds of UK dairy farmers are unlikely to find a home for their milk this spring. Our priority is to make the business and our processing assets as secure as possible in order that we can continue to process and market every litre of our members' milk."

He said they were working to better align its collective milk supply with market demand, and looking at other strategic moves.

First Milk's annual meeting is at The Holiday Inn, Haydock, on January 30 and a series of member meetings will be held around the country in February.