DETAILED proposals to build a major dairy co-operative have been released by The Milk group and Zenith Milk.

The plan would allow the merged businesses to invest in the supply chain and enter into significant processing.

The proposals have been circulated to the combined membership of more than 4,000 producers, who will be asked to vote at members' meetings on June 10.

If approved, the new co-operative will start operating from July and will be called Dairy Farmers of Britain.

David Stern, chairman of The Milk Group and chairman designate of the new co-operative, believes the new business will be able to unlock substantial amounts of capital and be in a position to act quickly to make the right investment decisions in processing.

"By becoming a significant processor, as well as a customer-focused supplier, we will have the ability to take out costs, add value beyond the farmgate and return a greater share of the retail price to producers," he said.

"At a point of crisis, with milk prices falling nationally, no one can deny that the time has come to move on and strike a better deal for UK dairy farmers.

"Do we stay as we are and continue in this unsustainable cycle of roller coaster prices? Or do we take a stand and join together to invest in improving our situation?"

The new generation co-operative might not provide overnight answers to all of the industry's ills, "but we firmly believe it represents a major, positive step forward which will help to underpin milk prices in the longer term, and provide a more stable and secure future for our members."

Dairy Farmers of Britain will be modelled on European-style co-operatives - drawn on the expertise of the Dutch co-operative bank, Rabobank - and will handle more than 2bn litres of milk.

It is proposed that, to build a capital base, a small percentage of the income available to members is retained on a monthly basis. At the end of the financial year, subject to the member council's approval, that income will be allocated among a thirteenth payment, general reserves and a member capital account.

In addition, after July 1, members will be invited to sign up to a members' financial agreement. Each member can decide whether to sign up. It will provide a members' guarantee, which is a contingent liability of 5ppl based on the previous year's production, or investment in a member liability loan of 1.25ppl in cash.

The main role of the agreement is to allow the co-operative to increase its borrowing potential substantially. It also qualifies members for a member capital account which grows within the business in the member's name and accrues interest annually.

The processing arm of the new co-operative will initially consist of The Milk Group's subsidiaries, Nene Valley Foods and Lubborn Cheese, and will focus on expansion through joint ventures and acquisitions in the fresh and value-added sectors.

Chris Bird, managing director of Zenith Milk and chief executive designate of the new co-operative, said many European producers had invested money year-on-year in their own co-operatives to be able to secure large-scale processing and capture more of the added value when milk was turned into products.

"With the strong backing of our combined membership and our excellent relationships with customers, I am confident that Dairy Farmers of Britain will be able to play a major role in the development of the dairy supply chain," he said.