The collapse of a major dairy co-operative, with the loss of 250 Midland jobs and millions of pounds for farmers, was the result of over-ambition and poor decisions, according to MPs.

Dairy Farmers of Britain (DFB), which collapsed in June 2009, had 1,800 farmer members supplying more than a billion litres of milk to the food and drink industry, comprising 10 per cent of UK production.

More than 1,000 jobs were lost across the UK, including 250 at Fole Dairy near Uttoxeter.

The Environment, Food and Rural Affairs (Efra) Committee said a major factor in DFB’s failure was its purchase of a processing company, Associated Co-operative Creameries, for which it paid too much.

While the co-operative wanted to add value to its farmers’ milk by expanding into processing, the committee said the purchase of the creamery business was over-ambitious and locked DFB into a loss-making contract which cost millions.

An Efra committee report into the collapse also pointed towards a lack of capital, problems with communication and governance and an increasing loss of confidence in the co-operative by its members, suppliers and eventually customers.

But the committee said the Environment Department (Defra), which helped farmers in the co-operative find a new buyer for their milk, acted “positively” in response to the business’s collapse.

It said DFB did not fail because it was a co-operative, but urged the Government to look at measures to help strengthen agricultural co-operatives, including changes to the tax system and insolvency legislation.

The committee’s chairman Michael Jack said: “The harsh reality of a cruelly competitive liquid milk market exposed the inadequacies of DFB’s senior management as they sought to put the business into the ‘premier league’ of Britain’s dairy industry.

“By paying too much for tired processing assets and the customer base of Associated Co-operative Creameries, they sowed the seeds of their eventual downfall.

“Members’ trust in their management was rewarded by personal losses totalling millions of pounds and the fractured dreams of a better milk price.

“Defra must now exercise its duty of care for agricultural co-ops and ensure that future governance and capital funding arrangements are updated to minimise the risk of this type of business failure in the future.”