IP DAIRY FARMER - August 2018
As previously reported my May article triggered the largest reader response in 27 years of writing this article, closely followed by responses to my June article regarding the lack of dairy farms achieving an acceptable basic standard. Many respondents (including from farm assurance assessors!) talked about useless and dangerous farmers, and all, bar one reader, supported my comments.
Another claimed he knew his Red Tractor (RT) assessor so well that for several years he had done his inspection over the telephone, with no farm visit! If that’s true then shame on the assessor! The farmer claimed assessors have to get in and out of farms quickly because they are paid a flat rate fee per farm, consequently have no desire to spend time checking what’s actually on the ground. This raises the question of consistency, and concerns that some assessors fail to address the key issues. In addition, one assessor commented that he doesn’t believe some of the questions are relevant.
Several claimed Red Tractor farm assurance had “lost its way”, had fallen behind the times, and was “focussed on a paper tick exercise”, with not enough focus on the basics of good dairy farming principles and practice. Other farmers pointed to significant differences between other assurance assessments, and said Red Tractor was the easiest one to pass, and lacked teeth.
Red Tractor is, however, working on strengthening its standards and moving towards a risk-based approach, with changes to the frequency and type of inspection in a bid to improve compliance. It can’t come soon enough. As far as I am concerned until it’s publicised that obtaining Red Tractor dairy farm assurance is not automatic or a tick box exercise, with some farmers excluded and others suspended, twinned with a lifting of standards to either bring the bottom up or exclude the worst, then these standards will always be considered the lowest rung on the ladder. Today processors and retailers are using Red Tractor as a low baseline and implementing their own farm assurance schemes above these. Unless it ups its game it risks being side-lined, or dropped.
I received a couple of emails from Arla farmers who are non-conformers on short notice audits on its Arlagården scheme, indicating that those standards do have teeth. Arla has informed them if they have two non-improving farm assurance assessments in an 18-month period they go onto what’s known as ‘the contract termination risk register’. That means Arla will not collect or pay for the milk, which equals automatic contract termination. These farmers have had improvement advice and given plenty of opportunity to remedy the issues.
I back Arla 100% (and other companies with the same stance) in terminating milk supply contracts for persistent poor compliance, because these farmers pose a reputational risk to the company’s brand and the industry as a whole. I requested more detail from Arla, which they were hesitant to provide, however, to give an indication of just how poor these farmers are all 2,400 Arla members average number of non-conformances is 3 compared to the “on watch group”, who average 13 plus - or four times the average! These farmers are, frankly, hooligans who run the risk of bringing the entire industry into disrepute. There will be casualties because the wriggle room is no more, and it’s time to draw a line in the sand and say enough is enough!
So, lots of support for my views. Except, that is, from one well known 2,000+ cow totally housed Cornish Arla supplier, who gave me the benefit of his opinion as he left the members enclosure on the first evening of the recent Royal Cornwall Show, no doubt having spent the day giving everyone else at the show the benefit of his unquestionable wisdom. He proceeded to warn me “to be careful what I write” and that he was fed up reading my comments which are “constantly running the dairy industry down and highlighting things which should be kept quiet from the general public.” I pointed out my articles are not compulsory reading, which didn’t go down well, and his wife then promptly and tactfully dragged him away - but not before he’d drawn a well-known consultant into the debate by saying “and he agrees with me!”
I decided to meet said consultant who, to my surprise, hadn’t read either of the articles, consequently hadn’t an opinion. He did, however, support the view that there is no place for dairy farmers who disregard and fail to achieve the standards we all expect. Quite why a large, undoubtedly professional dairy farmer appears not to agree is a mystery.
The fact is that highly organised anti-dairy groups are hunting down evidence on poor animal welfare, or on culling bull calves, or on antibiotic use, and processors, retailers and farmers have to head them off at the pass by being more streetwise and consumer focussed. As PETA’s Vice President Dan Mathews said: “Learning of the conditions under which cow’s milk is obtained leaves a sour taste in your mouth. That’s why so many customers are ditching dairy for coconut, almond, oat, hazelnut and soy milks.”
It’s no good believing these dairy free diet groups will disappear and the tide will quickly turn in favour of dairy. In fact the plant based protein market is forecast to grow up to 11% per annum towards 2021. These dairy alternatives have been around for decades but they have suddenly intensified their profile and now we have a trend towards Flexitarians, who actively avoid animal based foods at least once a week, and possibly pose the biggest threat to demand. Germany and the UK have more than 20 million of these flexitarians, apparently, and reduced demand for livestock products is now a mainstream scientific call. Many organisations are insisting global dairy and meat production and consumption must be cut in half by 2050 to prevent greater climate change, for example.
Yes, we still have a great story to tell but the pressure is on. The TV channels are awash with food, farming and environment programmes and documentaries and we can use this to our advantage. But not if, as one reader commented, “they see farmers covered in shit carrying a piece of alkethene water pipe like it is a weapon.” He hit the bullseye.
Both are wrong and a gift horse to the anti-dairy brigade. The dairy bull calf situation is another one, and a topic I aim to return to next month. Incidentally, I do accept the valid point that some have to be euthanized through no fault of the farmer as a result of a farm’s TB restrictions. But more of that in a future article.
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IP DAIRY FARMER - July 2018
As I arrived at this year’s annual Dairy Industry Newsletter conference the first thing I noticed at the coffee station were cartons of organic soya and almond as milk substitutes. Yes, these milk imposters have even invaded a dairy conference (courtesy of the hotel, not DIN!)! It’s a sign of the times but fortunately, none of the delegates saw the necessity to drink either (not least because they don’t actually contain much soya or almonds and are full of, well, other stuff!)
The opening speaker, Brigitte Misonne from the EU Commission, surprised a number of delegates by declaring the Commission was embarking on a “big push” to sell the remaining 300,000 tonnes of aged EU Intervention SMP, with the aim of clearing it all in 2018. That would mean selling an average 43,000 tonnes each month, which could harm farmgate milk price recovery! It’s certainly ambitious and a huge quantity to sell, but Brigitte claimed the Commission is “rational and cautious when selling”. However, she failed to convince me of her claim that intervention SMP has a long shelf life and is as good now as the day it was placed into store. I back Tetrapak’s view that the shelf life of SMP is three years maximum, which is why the Commission now has to push hard. With the trading gap between fresh and Intervention product widening, currently around £300 tonne it is clear traders don’t subscribe to her theory either!
With commodity prices stable to firming there is now a window of opportunity to be seized and the sooner the SMP is responsibly sold the sooner stocks will no longer be guilty of depressing EU and world SMP price recovery. That said, the US and India also now have huge stocks!
I made enquires with Fonterra / The GDT Auction platform representatives whether the SMP stocks could be auctioned, but sadly the auction process would not suit the Commission.
Brexit was a hot topic and Paul Vernon, Chairman of Dairy UK, stated that as far as the dairy industry is concerned we are no further forward than we were two years ago when the vote took place. He is right, and everyone involved in our industry is slowly getting concerned whether it will all end in tears if Brexit goes bad for dairy. The UK leaving the European family is no different to a divorce, when one partner has decided to sow his or her seeds in another field but they both have to live in the same house without the divorce being finalised. No wonder the relationship is getting tetchy.
Conference delegates were constantly reminded that the UK is not self-sufficient in dairy, particularly butter and cheese (only 56% self-sufficient), therefore to terminate existing dairy trade links in favour of developing new ones is “playing with fire”. Throughout my business career I have had a photo in the office stating that it’s easier to look after your existing customers than it is to find new ones. Come 29th March 2019 (less than nine months now) the UK will be non-priority in trade terms to our EU neighbours. Having said that it was clear from an expert on the Asian market that demand for dairy into China is growing at around 7% annually with cheese tipped to be the next rising star to join yoghurt. With limited ability to ramp up domestic milk production those UK exporters who are already in Asia and China, and who have a global perspective, are likely to reap the rewards as consumption grows.
Then came a jaw dropping comment that 10 farmers in the USA collectively farm 1 million dairy cows. The UK dairy cow total is 1.904million, so those 10 farmers own more than half of the entire UK herd! The speaker was clear that the US is focussed on units producing more milk and exporting the surplus. “The US continues to have an outward view looking towards Asia.” New Zealand is similar, of course, with 95% of its milk production exported.
There were several speakers who clearly subscribe to the idea that in the dairy world size matters, and clearly when it comes to the size of dairy units the UK is big in Europe but small compared to the US and New Zealand. Consolidation at farm level will likely accelerate post Brexit, but I doubt our units will ever match their size!
Going forward in a post Brexit world it is clear that placing SMP in intervention won’t be an option to help manage the market in the UK, but if we can get our act together then futures/hedging will have a major roll, and will replace Intervention buying as it did with wheat years ago.
But we have a very long way to go indeed. Another speaker compared three region’s appetites for hedging mechanisms, and it was enlightening. In the US 20% of its 97 billion litre output is hedged; in New Zealand it’s 3.8% of 21 billion litres, and in the EU there’s a miniscule 0.1% of 155 billion litres being hedged. This is despite the fact that both the EU and New Zealand listed dairy futures at the same time in 2010. Yes, the uptake has been very different and for me that’s down to education because most farmers I speak to actually believe involvement in futures trading is tantamount to gambling when in reality it is the opposite. It is a defensive manoeuvre and a case of transferring risk to another.
The importance of the dairy industry was made crystal by a passionate and enthused Nick Whelan, the CEO of the UK’s largest indigenous dairy co-op, Dale Farm. His firm takes 825million litres of milk from 1250 farmer members, and now turns over close to £500million. The company also employs 1250 staff, so it’s simple maths - for every dairy supplying member there is one other person employed by their co-op to add value. Nick was one of several speakers who said that with under half of the food we eat produced by farmers in the UK “can we really rely on the rest of the world to feed the UK?”
It made me wonder what Michael Gove’s answer to Nick’s question would be. Alas, there was no one from DEFRA there to hear the comments, or to be educated on UK in the context of global dairy. Perhaps they know it all already!
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IP DAIRY FARMER - June 2018
Last month’s article triggered one of the largest reader responses in 27 years of writing this article, in particular the reference to the dispatching of male bull calves at birth and prosecutions for cruelty to dairy cattle.
All respondents unanimously agreed the UK dairy industry needs to clean up its act because “we give anti- farming groups two much ammunition through our own acts”.
According to AHDB the numbers of bull calves dispatched at birth is increasing and along with the industry’s unacceptable lameness statistics they collectively put the reputation of our great Industry at risk. “It’s totally unacceptable and must stop”, sums up the view.
There are too many dairy farms that are not up to scratch and are, frankly, an embarrassment. We all know where they are – the ones that we wince at when we see them. Milk purchasers and retailers should run a hundred miles from them. One sent me a photograph with the comment “Some of the conditions that farmers view as being acceptable for keeping cows just aren’t.”
I know all the arguments about milk prices being below some farmers’ COP, and this translating to the welfare of the cows and their environment, but this argument will not be accepted by consumers. It might be a tough pill to swallow, but an exodus or cull of the worst dairy farmers might be a good thing for the industry - and the farmers themselves! After all, the families of the farmers involved might be fed up with the hamster wheel of juggling bills, muck, relentless workload and more, and are suffering in silence. In truth the family, in many cases, would be happier if Dad lived his life without being tied to udders every day.
The Red Tractor scheme came in for a bruising from most of the respondents with regards to standards, and I have written direct to Jim Moseley, CEO of Red Tractor, with some questions which I aim to write about next month. The consensus appears to be that the dairy standards and inspections set by Red Tractor are way too low and need to be jacked up - or binned. As an industry we convince ourselves that we operate some of the highest standards in the world but sadly “not enough dairy farms come close to achieving an acceptable standard.”
One reader went to the top of the class by requesting the industry agrees a single point of contact for all media enquiries, and that body has sole responsibility to put forward media trained, articulate, professional dairy farmer business men/managers with bright, airy, clean and modern units which we are proud to show to the public and TV. For me, AHDB should compile a geographical list of these media friendly farms, which their extension officers have vetted, and which all media enquiries are directed towards. Then ALL organisations sign-up to channelling all enquiries through this, which means no dodgy looking wannabe TV stars suddenly appear. I cringe when I see one particular dairy farm which seems to regularly feature on my TV. Without mincing my words the farm looks like a shit hole, which is a disgrace and an embarrassment with filthy cows milked by a farmer who always plays the whinging victim in filthy overalls and wellies with a hat that should have been burnt a decade ago.
Remember, every dairy farmer is a food producer. As an industry we are trying to portray a wholesome clean image of milk and dairy products, but at times we are let down by a number of dairy farmers who can only be described as a very, very poor advert indeed. For example, I was also sent a photograph of a cow’s udder which was far from clean and looked as if it had been on for days! A few years ago Dairy UK gave me a badge which said “Proud of Dairy”. But I am not proud of instances like these.
Now I return to the Government’s decision to introduce compulsory milk contracts under the EU’s dairy package under the Common Market Organisation Regulation (CMO). The NFU has relentlessly requested milk contract legislation, and its goal appears to be to get compulsory contracts introduced, and then to bolt on additional demands post Brexit.
NFU Dairy Board Chairman Michael Oakes has spoken to me and his view is that it’s an easy option to do nothing, but with the Voluntary Code long since redundant, having been by-passed by all bar a handful of milk processors, the NFU’s is backing compulsory contracts to make them work. Surprisingly, though, he has gone on record stating some milk purchasers “can’t be trusted to deliver fair contract terms and continue to use and abuse farmers …..” This is caustic talk, and doesn’t even imply it’s a handful of processors, it suggests its widespread and all of them abuse farmers.
A consultation on the implementation of the regulation is due any day, when hopefully it will be clear who will act as inspector/relevant authority and I am praying it’s not the RPA.
It’s looking like a big shake-up where basket pricing based on competitors’ standard litre milk prices, 13th payments, seasonal milk and retailer COP models might all have to be ditched or pulled into line.
Soon we will know whether it’s what the NFU hoped for or expected and whether dairy farmers will view it as a step forward. All I hope is that it doesn’t differentiate between plc and co-ops because that’s divisive and will open up an almost healed wound. Equally important is that it doesn’t pitch farmers v processers and return us back to the dark old days. I am afraid the language currently being used by the NFU is pointing firmly in that direction. As I stated two months ago, the NFU and others need to be careful what they wish for. The genie is certainly out of the bottle! But will it grant the NFU the three wishes it wants?
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IP DAIRY FARMER - May 2018
I make no apologies for revisiting the topic of promoting our great industry, and needing to stop and think before we fuel the anti-dairy fanatics.
Some of the vocal vegans are now activists bordering on thugs as they attempt to convince as many people as possible that consuming milk and dairy products is not necessary, not natural, and cruel. They are the equivalent of religious zealots who proclaim the virtues and health benefits of plant based milks, and vehemently hate dairy farmers and anyone who doesn’t condemn meat and dairy farming. Like all zealots they refuse to listen to any balanced arguments.
Almond, coconut, soy, cashew, rice and oat are all described as milks – the name of which I object to as misleading and deceitful, especially when vital ingredients are added during processing. Add to the list hemp milk and even pea milk, although calling it pea milk will present a marketing and branding guru an almighty challenge. Most of these are a combination of clever technology and marketing of what are really water+ juices.
Nevertheless, we are fighting to retain our market share and the competitors are marketing their products under the name of milk, or mylk, or m*lk and using celebrities to endorse them. We desperately need to promote the heap of positives real dairy products and milk provide because, if we don’t, more and more people will increasingly start to believe non-dairy alternatives are better all-round.
Most readers might be under the illusion the average consumer believes real proper milk is the most natural, healthy, wholesome and perfect food nature can produce, and which is full of natural nutrients, vitamins and trace elements, and love seeing cows grazing our green and pleasant land. But those preaching the need for mankind to adopt a purely plant based diet conveniently forget about the thousands of counties / countries / peoples / races across the world who depend on livestock, or meat, or hunting and herding to survive, and thrive. As one journalist recently questioned: “are they are supposed to start living on avocados and coconut milk grown thousands of miles from their homes?” To be specific, what would Ireland do without cows? What would the 1.5 million Maasai tribespeople from Kenya and Tanzania supposed to do, who can’t grow crops and where cattle herding is essential? These and other subsistence farmers are totally dependent on producing meat and milk for survival and prosperity. Are they now supposed to abandon all that and listen to grandiose vegan townies sat on their backsides on comfy sofas thousands of miles away in London?
The journalist’s article I refer to pointed out the “ultimate irony”, that while animal activists correctly decry the encroachment of the Amazon tribes’ traditional rainforest homeland, not one has connected the reality that those who preach vegetarian diets are encouraging the substitution of animal foods with plant proteins such as soya – the cultivation of which is… one reason Amazon tribes are being displaced! (And yes, the livestock industry also needs to get its house more in order on this.)
Cruelty cases fuel the vegans’ publicity because they are convinced that dairy cows are mistreated and abused. Such cases result in more consumers making a move to ditch dairy on ill-informed and mistaken morality grounds.
Recently two US dairy men were jailed for animal cruelty following an undercover video surveillance investigation by an animal rights organisation, where the use of a PVC water pipe to move cows was key to their sentencing by a judge who himself previously worked on a dairy farm. In addition, the footage showed the breaking of a cow’s tail and allegedly a gas torch used for udder hair trimming put to a cow’s head. More similar dairy prosecutions are already listed for trial.
Then, recently, here, Nuffield Sponsored Scholar Tom Levitt focussed attention on the calf culling issue in a controversial article for The Guardian, with the alarming headline “Dairy’s dirty secret: it’s still cheaper to kill male calves than rear them.” He quotes AHDB statistics that 95,000 calves were killed on farm at birth. Really?
Now this comment won’t be popular, but we need to re-think the treatment of bull calves because headlines like this do nothing to promote sales of our valuable product. It’s almost inevitable that more retailers and processors will impose blanket bans on the culling of calves at birth. It doesn’t matter that we may not think there are ethical issues about killing bobby calves, and that it is just a result of market forces, or that we don’t accept the stresses on world resources from meat production is a growing concern. Others DO care. And DO act. Greenpeace, for example, is calling for a decrease in dairy production and consumption for a healthier planet and unless we do they claim we are putting our health, our children’s health, and the health of our planet at risk.
The fact is that some farmers need to wake up and smell the coffee and realise how they treat their animals, and how their farm looks to the general public are all important for the image of Dairy. And some of you need an intravenous drip of coffee, let alone a sniff. Remember, Brexit will hurt but it will come and go, in time. Anti-dairy groups and activists are unlikely to disappear into the sunset and could explode in numbers, so it requires a total industry buy-in, because if we ignore it we will simply get bitten more frequently, harder, and in more sensitive places.
Finally, at the time of writing this article the news broke on Muller’s new 28p, three-year fixed price deal on up to 50% of the milk for its directs. On first glance it does look a very attractive price, and I expect the take-up will be quite high. But as ever the devil will be in the detail, so I intend to come back and revisit this subject next month. But my initial reaction is that it has upped the anti on fixed price contracts and has given everyone something to think about. Now we just need the NFU, and the NFUS and UFU etc to not drop the Mother of all spanners in the works with its contracts proposals to DEFRA, as per my last article, which might put the kybosh on such deals!
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IP DAIRY FARMER - April 2018
Many moons ago I mischievously posted a picture of skeletons sitting around a table, saying it was the NFU’s dairy teams debating milk contracts because they had been banging on about them for years, and without huge success. Well recently the NFU and others have been asking the Government to extend the role of the Grocery Code Adjudicator (GCA) to farmers and also to introduce mandatory terms in contracts. While the Government decided against extending the remit of the GCA, in what looks like a bit of a sop to dairy farmers, Defra has decided they want to introduce compulsory milk contracts in a way I doubt even the NFU would be happy about.
think most involved in dairy politics agree the 2012 Voluntary Code of Practice
(VCP) was put in place by the industry to avoid
regulation. But it has not been a success and today is almost irrelevant. When
the VCP was last reviewed the number of major processors who took time to
respond was farcical at between 0 and 1. The code has a bad reputation and is
divisive, with co-op members permitted a 12 month notice period, whilst plc
purchasers have one under three months in the case of a downward price
change. These notice periods pitched plc
companies against co-op
So now comes the possibility of a compulsory code coming via the Brexit exit door. This is jaw dropping given the fact our current Secretary of State for DEFRA, Michael Gove and his deputy George Eustace, are ardent Brexiteers. That’s because they head up a department whose intention is to push through compulsory contract legislation - which is based on EU regulations - at a time when the direction of travel is fast reverse AWAY from them. DEFRA’s target is to push this legislation through by July, apparently, and the changes will need to be incorporated into the EU Dairy Regulations, in particular Article 148 which covers contractual relations.
From a farmer’s view point it might appear to be celebration time, given the intention that milk contracts will have to either contain a clear formula, or a fixed price, with the condition that if either changes it will require agreement or a new contract. But I’m not celebrating yet. Such a move needs very careful assessment to determine what this rushed Government legislation might mean to farmers and processors. I am more than a little concerned at the prospect of compulsory contracts with universal terms on prices because I believe purchasers will play safe and lower prices as an insurance against a falling market.
Fixed prices could work for some processors in conjunction with customers, especially if retailers buy in. But will they? Lidl are going down this route with the new Muller contract, it seems, but how will the long-standing and successful retailer COP models fit in? They have provided farmers with stable prices which have protected them through the troughs. Perhaps that can be viewed as a formula.
As for formula pricing based on the market, as opposed to costs, the NFU Scotland launched to great fanfare in spring 2011 a “transparent, market related pricing formula to be incorporated as a baseline into producer contracts”. This was based on an 80:20 split of MCVE and AMPE. At the time NFUS was convinced that if it was adopted it would solve market failure overnight and allow producers to forward plan with confidence and greater certainty. A lot of work went into the formula, but it wasn’t right and it was considered a solution developed by producers for producers. Fortunately, the NFUS formula wasn’t adopted by a single milk purchaser and flopped immediately post launch, rarely to be seen or heard of again. In fact farmgate price through the downturn would have plummeted to 15.6p on the NFUS formula, some 4p and 25% less than the typical non-aligned price. So it’s unlikely to be dusted off the shelf again.
If a formula mechanism is required as an alternative to fixed prices a good starting point might be to look at the index developed by the Ulster Farmers Union, which appears to suit its market and is a useful benchmark. But it has been subject to farmer politics with the UFU effectively forced by members (and against its own will) to pull it when prices were low.
Several milk purchasers currently use competitor basket pricing formulas which are likely to be unacceptable, and they change at such short notice so these will be a headache unless a transition period can be negotiated. Then there is the fact that any independent transparent formula would inevitably be linked to commodity prices and would need to factor in a risk element. The idea that such formulas would be a silver bullet and reduce farm gate milk price volatility appears to be naïve because it would almost certainly increase volatility.
Personally I don’t think there will be a single index or formula solution that is right going forward, and think my mate Walkland has the right idea in taking several different prices, indexes and formulas and averaging them to get a benchmark price for what UK farmers should be getting for their milk. If one index happens to be overly high or low one month it is diluted out by the others.
In conclusion, therefore, I am flagging-up that with compulsory formula pricing farmers have to be careful what you wish for, and we must try to avoid being trapped by the law of unintended consequences.
Finally, there is the question where Producer Organisations (PO’s) and co-ops fit in to the grand plan. As far as co-ops are concerned the proposal indicates they will be exempt from the new written contracts if their rules and regulations clearly show some form of formula or fixed price. That means that all wriggle room, often technically referred to as discretion, is completely eliminated. But does the Government realistically expect Arla to change all of its contracts to suit UK legislation?
And who will pay for all this? There is certainly no proposal for the GCA’s remit to be extended so it will presumably be a new Government agency appointment to check all 94 milk purchasers comply with the new regulation, and issue fines for non-compliance. And that brings little comfort either given its track record on data provision and handling. We shall see what July brings, but my money is on the Government’s meddling bringing a muddle!
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IP DAIRY FARMER - March 2018
It wasn’t meant to be like this. When the EU stepped forward to purchase SMP at a fixed price to provide a floor in the market over the last few years no one imagined the product would still be there now, and wouldn’t have been off-loaded. But the Commission has completely missed both of its major windows for sale, and it is still sitting on 380,000 tonnes of rapidly aging SMP. So what’s to be done with this almighty mountain of powder?
Whatever the Commission decide (and the ONLY outlet is going to be for low value animal feed now) it is going to affect farmgate milk prices and will hurt dairy farmers, especially given that India also now has significant quantities of SMP in store that is anticipated to be “tipped onto the world market very soon”. India’s milk production is greater than the EU 28’s output, and their SMP stocks, plus the EU’s, means we are heading for an even bigger mess this year than last.
Milk price reductions are one of the major talking points for most dairy farmers, with some pessimists still bracing themselves for prices of 22p or lower and a repeat of 2015. In truth I expected some of the March cuts to be deeper than they have been, however while I anticipate prices will continue to drift down I am certainly not expecting anything as low as that. But a non-aligned price of around 26p to 27p by May/June still seems inevitable right now, and it might even be less unless the current and very welcome market rally continues. Below 25p will be a real test because it’s a significant psychological threshold, and I believe a price even fractionally below 25p will result in consequences for future supply.
Many farmers haven’t recovered from the financial straight jacket they bore in 2015/16 and at under 25p will likely throw the towel in not wanting to do another wet cold winter milking cows for a negative return. At the end of the day all you can do to affect your milk price is to produce what your contract pays for, and to make sure you bag any goodies going on collection, volume, seasonality and the like. But long-term the sector shouldn’t be about survival it should be about being long-term cost competitive. It’s the only option.
But I do despair at some of the comments made by some famers on milk prices. For example, farmers who don’t supply Arla but whose milk price tracks the Arla price frequently ask me why, when the UK is not self-sufficient in dairy, has it dropped its UK milk price. Simple – Arla’s milk price is linked to the European market, which is affected by global milk prices, it is not linked to the UK’s market directly! If you don’t like your price’s linkage to Arla then try and get your processor to use another processor in the basket. But I bet they won’t!
Then we have farmers on straight forward ingredients contracts that are fully exposed to the market (unless they have forward contracted), and most of these contracts are really transparent and similar in principle to selling livestock by auction i.e there’s a spot price on the day. That means you will likely receive pretty much near the average of those spot price for the month, and there’s no doubt these contracts command the best and worst milk prices. And yet STILL some farmers don’t understand them!
I purposely try to avoid writing about Brexit because there’s so much we don’t yet know about it. However, that doesn’t mean I don’t think it’s the most important short to medium term issue that we have to wrestle with. Whatever happens with Brexit we have to be on our guard for changes in the rules and regulations that affect our industry. And there will be many. Some big, some small, some seemingly insignificant.
For example, Dairy UK, the industry’s major trade association (which many farmers do not fully understand nor appreciate what it does on behalf of the Industry) has recently had a major success in defending the industry over the rights to use the name “cheese”. Basically, the UK Intellectual Property office (IPO) accepted a Trade Mark application from a non-dairy cheese called ‘Kinda Cheese’. Quick off the blocks Dairy UK objected on the grounds that EU law prohibits the use of the term cheese for products not made exclusively from milk. Thus the IPO was rejected. It’s unlikely to be the only issue the dairy industry will need help in fighting going forward with Brexit, so well done Dairy UK and more power to your elbow going forward.
What we do know about Brexit is already is that our already significant labour problems will get worse. On that score we’ve just phoned and internet surveyed over 1000 farmers covering 2.2 billion litres of milk for Kite and the RABDF, and the results are sobering. More than half of dairy farmers are experiencing “difficulty” at some level with recruiting staff, with a quarter of farmers facing “significant” or “intense” recruiting problems. Overall the survey indicated that a total of 11% of employees were non-UK nationals, and almost 17% of dairy businesses have foreign workers within their workforce. 40% of farms with a total of five employees or fewer rely on at least one non-UK worker in their team.
The RABDF is commendably banging the drum louder than most on the labour issue, and the survey results will now be submitted as part of evidence to the EFRA select committee looking into the availability of labour on dairy farms. Let’s hope that someone, somewhere in the corridors of power takes note.
Finally regarding the RABDF I hear congratulations are in order for its new Dairy-Tech event. I couldn’t go, but I heard several reports that it was a very successful and positive event that showcased the best of the industry in a positive, informative and innovative way, and without any dairy cow beauty parades to take punters away from the stands either!
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IP DAIRY FARMER - February 2018
Last month’s article about the new industry dairy promotion campaign and the innovative Department of Dairy Related Wholesale Affairs prompted a flurry of supportive emails, especially regarding my observations on vegan groups and the rise in popularity of non-dairy alternative drinks and products.
One sarcastic reader suggested that if I were to become a big Twitter user it would likely result in it requiring a separate server, and would slow down the internet! But in all seriousness, the vegan movement has been ignited by social media, which they have capitalised on. It is their loud hailer for their cause and messages. For example, two vegans - Ian and Henry - have 1.5 million followers on Facebook and claim they haven’t spent a single pound on advertising. They also have 144,000 followers on Instagram for their “attention grabbing vegan recipes”. Note, they haven’t mastered a vegan Yorkshire pudding and I hope they never do! Then there is a “Fat Gay Vegan” (his words, not mine) called Sean, who has also written a book, and has 35,000 Facebook followers.
Another reader stated “I have a house in London occupied by five 2 to 35-year olds. There is never any milk in the fridge – only soy ‘milk’, oat ‘milk’ or almond ‘milk’. This is urgent.” Another said “That’s a brilliant article I immediately sent to my sister in London. Although not the target age bracket she’s in the £200 grocery spend/week but only spends under £5 on milk and other dairy, which racks me off and causes arguments. She gets her food information from her peers and the Sunday papers/magazine supplements.”
Susie Stanndard, AHDB’s Senior Customer Insight Analyst, also emailed me with several key facts on dairy alternatives and the impact they may have, several of which are worthy of a mention alongside further research by me. Whilst dairy alternatives are witnessing impressive double digit annual growth rates, they are from a very tiny base. However, that doesn’t mean we can ignore the 7% market share they enjoy of the UK dairy market.
Whilst animal welfare is a concern for consumers Susie says it doesn’t come close to concerns over health perceptions, which must be the main focus of industry campaigns.
Evidently, the decline in dairy consumption is from consumers switching to black tea/coffee, and from a move from eating sandwiches to wraps and fries with no dairy ingredients in them. This eclipses lost dairy sales derived from any trendy switch to veganism. Consumer researchers Mintel predicts that dairy sales will drop by 11% in Western Europe by 2020. In contrast plant-based milk sales in Europe rose almost 20% in the last 12 months. At the same time Mintel research states in the USA “Dairy hasn’t lost the battle to plant based alternatives.”
We have to accept the vegan groups are no longer a flash in the pan, and are gaining popularity mainly through social media. Only 2% of consumers are vegans, but they collectively punch way above their weight and do have a big, and growing voice. Some organisations are also well-funded, and there are also more and more dedicated on-line magazines and websites catering to the cause.
In the past many vegans were viewed as being a bit, well, unconventional at best, odd at worst. Now, though, in every restaurant you go to there are now numerous vegan dishes on offer. I don’t mind those who feel the need to be ethical vegans, believing there are environmental and animal protection benefits from going vegan, but I do object to the emotive lies, falsehoods and propaganda of the zealots. If they believe it’s healthier and more ethical that’s fine, but why do they need to shove their views down everyone else’s throats? The billboard posters show what our industry is up against.
The overwhelming conclusion is that we need to talk positively, and to counter the barrage of negative publicity. And we have to stay confident and positive. Kantar World Panel have calculated in the three-month lead-up to Christmas the total dairy market grew by 6.3% in value compared to a year ago and dairy penetrated 98% of households which they say is a higher penetration than toilet paper – I still can’t figure out how that works though! The biggest contributors to the 2.6% total dairy volume growth was in cheese and yoghurt.
And now for something completely different. Wednesday, 7th February, will see a new event, Dairy Tech. It will be an important day in the dairy calendar, with the exhibition booking over 250 stands. This has blown away all RABDF’s predictions. The event will be one for progressive dairy farmers who recognise that technology and science will be at the centre of dairy farming progress and future growth, including disease and illness diagnostics and treatment as well as helping reduce dairy farming’s environmental footprint. I wish the event well and hope it gets a good turnout of visitors.
Finally, as this article lands it will only be a couple of days before up to 106 Arla chairmen and vice chairmen vote on Jonathan Ovens replacement for what I believe is the most important democratically elected farmer job in the UK dairy industry, and which certainly affects more than just Arla suppliers.
Ovens’ boots are very, very big ones to fill in terms of representing 25% of Arla’s total milk and being able to debate, discuss and direct Arla’s governance and decision making. It’s a huge job and it’s time for the farmers to forget personal allegiances, opinions, and who said and did what. Instead they must focus on the right person who can lead farmers through Arla’s next phase of development, and, crucially, Brexit (which could still end in tears.)
It needs to be a special person who understands the business, the development of retailer contracts and their requirements, and is professional, diplomatic and savvy. And, above all it needs to be someone who GETS RESULTS for UK Arla farmers, and indirectly, all UK farmers.
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IP DAIRY FARMER - January 2018
My last article was devoted to the new dairy promotion campaign, and this triggered a flurry of emails to me including this one: “Ian, that’s a brilliant article and I immediately sent it to my sister in London. Although not the target age bracket she’s in the £200 per week grocery spend, but spends less than £5 on milk and other dairy which naffs me off and causes arguments. She gets her food information from her peers and the Sunday papers / magazine supplements.” Another reader wrote “I have a house in London occupied by five 25 to 35 year olds. There is never any real milk in the fridge, only soy “milk”, oat “milk” or almond “milk”.
The joint Dairy UK/AHDB promotion is targeted at young parents age 18 to 36, who will be big social media users, which is now by far the largest anti-dairy communication means. This has revolutionised how professionally run and well-funded anti-dairy groups communicate, comment and advertise. And they know which buttons to press.
I am not a big Twitter user but it took me five minutes to find these postings: “Ditch dairy. Go vegan” plus “Milk is unhealthy” plus “Now Jo Public is waking up to the darkest parts of dairy farming” plus “Drinking coconut, almond and soy milk is better for you than cow’s milk”, and finally “Drinking cow’s milk causes osteoporosis, blocked arteries, cancer and contains pus and hormones”.
Plant based milks and activists are chipping away at our customer base. The anti-dairy groups are not going to disappear and will mushroom. This means the industry has to fund one central science-based organisation to respond to the anti-dairy claims and to responsibly strive to correct the misinformation and to counter the negative discussions, especially given the fact most revolve around animal abuse. We must not ignore the threat because, if we do, we will continue to be bitten hard. Regrettably I constantly see messages that dairy products are bad for animals, dairy farms are bad and you should go vegan, which is supposedly environmentally beneficial.
Groups like PETA UK are always seeking fund-raising attention, and thrive on alarmist images and information. Christmas is a bonanza for them in terms of cash raising opportunities, promoting “delicious vegan Christmas roasts” and their own extremely biased view of turkey “facts”. They are also extremely PR opportunistic. For example, a catastrophic cattle lorry crash, which resulted in the death of 80 cattle in the US on November 22nd, was quickly jumped on by PETA who will “memorialise the dead cattle with a giant billboard near the site featuring a calf and the words “I’m Me, Not Meat””.
On top of that we have claims that the animal activist group, Mercy for Animals, are openly recruiting undercover investigators to go on to dairy farms to expose animal cruelty. We also now have World Vegan Day to compliment World Milk Day, which to be honest; most dairy farmers don’t even know exists!
Believe me these issues desperately need a total industry buy-in if we are to maintain and hopefully grow our dairy markets. It is partly our fault that consumers have switched off to dairy and milk because we haven’t told them how great it is for years!
In terms of farm gate milk prices 2017 was a good year, and for sure it looks like a party compared to what’s in store for this year, because believe me farm gate milk prices in 2018 will be extremely challenging. The NFU has recently slated commentators for telling you what their milk price predictions are. That’s ludicrous. You need to know what’s coming down the line. One thing is certain the supermarket aligned milk price premium only disappeared for a handful of months in late 2017, and will quickly be re-established in early 2018.
As a result of the Voluntary code compliance Muller broke cover first with a 1.5ppl January 1st price cut, which was never going to be popular, but the big surprise was for NFUS to issue a press release trumpeting a milk price “hold” from First Milk, and in the same release lambasted Muller’s cut. First Milk members’ milk price topped at 29.09ppl to 29.56ppl on a liquid standard litre price, when the equivalent Muller price was over 30.5ppl. Its stand on price hardly warranted a fanfare.
In its frustration at the Muller price cut NFUS proceeded to dig an even bigger hole for itself stating that it did not accept that the price cut was due to “softening markets and market competition.” Either this was a typo or NFUS were on a different galaxy with regards to understanding the market. If I can keep abreast of the challenges from part time research from Stanton, NFUS has no excuses. Surely the NFUS Dairy sector read the signals months ago, and discussed with processors and traders what it might mean at farm level?
Due to space restrictions and timing I have decided not to write this month about the farcical, botched and legally flouted termination by Johnny Russell of Jonathan’s Ovens’ Arla membership, milk contract and directorship. There has been enough on my website (www.ipaquotas.co.uk) of the “Arla Farmergeddon” story for now. Assuming the planned district chairman and vice chairman meeting takes place on 11th January by the time you read this article Arla/UKAF will have smoothed over the issue or it will still be bubbling away like a poison broth, depending on the severity of Ovens’ (as yet unknown) crimes and the outcome of the outstanding HMRC investigation.
Three things are looking certain, though. 1) is that Arla members will be financially worse off over time without Ovens as no one will fight their corner harder, least of all Russell. 2) is that it looks as if the farmers only pay lip service to democracy and 3) more and more farmers are starting to believe that behind Ovens’ removal is a master plan to push through adverse changes for UK farmers which they know he would disagree and block! If so Russell will have simply been the Danish “puddelhund” (Danish for poodle) to ensure it happens. More on this in a future article, when we know more!
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IP DAIRY FARMER – December 2017
This month sees the launch of a humorous - but actually very serious – industry-wide dairy promotion campaign in a joint effort from Dairy UK and AHDB which will involve posters, digital advertising and social media (mainly Facebook and Instagram). So raise your glass to the all-new Department of Dairy Related Wholesome Affairs!
Some of you will no doubt chuckle at the creation of this fun but fictitious department and its recruitment for six wholesome passionate dairy lovers! But please note, all of you serial committee people who hop from one Board to another (you know who you are!): IT’S JUST A JOKE! YOU DON’T NEED TO REPLY!
Some of you won’t like the adverts, or the campaign, but for me that’s a positive. If all dairy farmers instantly thought the idea and visuals were great I would be very worried indeed. What matters is what consumers think, not you lot!
The objective is to emphasise all the positives that dairy products deliver. The forerunner to the campaign was a very comprehensive 195-page Dairy Market Development report in January of this year by Edelman Intelligence, who are described as “tech geeks, political junkies, branding experts and media movers” all rolled into one. So they tick plenty of boxes.
Their advice was that any collaborative UK dairy campaign must be positive, simple, and loud, and must bring back customers, be visible to dairy farmers, create value for producers and processors, as well as support all dairy categories equally. I took time to read the weighty tome, and one line particularly caught my eye: “If we want to change consumer’s behaviours, we need to change how we behave as a category.” That means all of us have to change. Including you lot!
The report emphasises the point that any campaign must be supported by all players in the dairy supply chain so we need farmers to ensure good behaviour such as not, for want of an example, sanctioning poor animal welfare behaviour.
As regular readers will know I have for decades supported the funding of carefully thought out generic dairy campaigns to promote and defend our products, and for us all to be seen to be proud of what we produce. “Proud of Dairy” still is a great Dairy UK initiative (and NOT, as some think, an NFU initiative). The report is clear that one of the industry’s problems is “the entire dairy category is suffering from a lack of unified communication”. In other words, we are in-fighting and blowing the candles out on the cake whilst everything around us is burning down.
It points out that a minority of vocal players, including animal welfare activists, vegan groups and non-dairy alternative brands are questioning the industry’s credentials and that the consistent anti-dairy messaging from these groups has triggered doubts amongst some of our younger consumers to the point some believe even their most extreme comments are true. And the environment that dairy products operate in is becoming more hostile all the time, as anti-dairy groups turn up the heat.
The report also stated that we must all stand up for dairy’s heritage and future, and avoid the pitfall of constantly apologising and defending in response to dairy free diet conversations. In fact, a section of the report comes under the heading of “A category under attack” because that’s what it is when those researchers monitored online discussions. Out of 7.2 million dairy postings/conversations there were 172,000 vegan and dairy free threads, 14,200 lactose intolerance and 2,700 dairy alterative threads.
There is also a lot of misperception about milk. When questioned about the fat content of whole milk the average answer was 37% fat, with over a fifth of those surveyed believing milk’s fat content was between 80% to 100%! Only 12% got the correct answer of 3.6%. That is an industry failing in its education.
Turning to other concerns, over half of respondents “worry about nutrition when buying or eating dairy products” with 58% having health concerns over dairy. And whilst doctors, nurses, NHS, dieticians and health-related literature are the most trusted sources of information for consumers, out of 1000 surveys 60% of consumers said they trusted dairy farmers to act honestly and responsibly. Thus you are clearly critical influencers!
The campaign’s priority target audience is young parents, age 18 to 36, who regularly examine their eating habits on behalf of the family - and especially on provenance and naturalness. This group are foodie trendies and four out of five enjoy trying new things. It will be a challenge to get our message across with these so called millennials, but we have to start somewhere and now because with half of them supposedly attempting to reduce dairy product consumption if we do nothing this could rise to 60%+ in ten years’ time. The campaign is designed to surprise and excite consumers, in particular to make them re-assess the positive role dairy products play in their diet. With 81% saying the most important thing to them is that food is tasty, you can see why this campaign has a heavy focus on taste and connecting the consumer with the enjoyment associated with eating dairy and having it as part of their lives. It’s time to kill the anti-dairy myth and to stand up and trumpet the industry’s dairy promise with the help of some endorsements and medical experts.
It won’t be easy because, whether you like it or not, statistically half of young people apparently have positive perceptions of veganism and almost 1 in 5 now claim they are lactose intolerant.
But it’s up to all of us to get behind it, and give it a good go. The campaign has kick started on social media right now. From February it will also go out of home to spread the word about the natural goodness that you produce every day to ensure more consumers and families fall in love with dairy products. The budget isn’t mind blowing at £1.2 million, but it’s a good start and it has taken a lot of effort to make it happen. Doing nothing is not an option.
So for 2018 let’s tell our great story and hold on to and increase the 63% of consumers who still love the taste of our great selection of dairy products.
Merry Christmas and a Happy 2018 to all of you!
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IP DAIRY FARMER – November 2017
Don’t shoot the messenger, but the milk market is tanking down now! For example, cream was comfortably at £2.95 to £3.00 and is now trading at £2.25, which is still a good price but a 70p plus drop in cream is roughly a 7ppl milk price reduction in income!
In my opinion, any milk processor who didn’t achieve increases with its customers by October 1st has missed the boat and will find further upward price discussions extremely difficult, if not impossible. That boat has sailed, with some purchasers having accurately read the market while others appear to be reactionary and leader-followers. When those driving up the price (aka Arla!) increase prices for November, December and possibly even January the followers have little option but to say “we can’t recover any extra money, so we can’t continue to increase farm gate prices”. At the same time, they will waiting like vultures for the first opportunity (or excuse) to cut farm gate milk prices.
Since its launch in 2007 I calculate the TSDG cost to Tesco taking its TSDG price compared it to the average DairyCo price (which actually includes the TSDG price) indicates Tesco’s financial investment in terms of the additional money paid to farmers is £300 million+, with minimal benefit to Tesco.
Back in November 2015 Tesco announced the introduction of QVIS (Quality, Value, Innovation & Service). QVIS basically drives efficiency and is a scoring mechanism, which indicates whether a farm is operating to a satisfactory standard as per the retailer’s Code of Practice. At the time I commented it would result in “opportunities for the best performing farmers and casualties in terms of the loss of their TSDG contract for the worst performers” as Tesco keep the best and shed the worst.
Almost two years later and 40 (5.7% ) of Tesco’s worst performing dairy farmers have been served six month’s notice because their QVIS score falls into the bottom 5%. Those scoring in the top 5% have been allocated an extra 100,000 litres with the remaining literage to be allocated to a waiting list of new TSDG suppliers including young and/or new entrants.
Each of the 700 TSDG farmers now has their own first year’s QVIS score out of a maximum 100, with the best in class achieving 89 and the top 5% averaging 81. Shockingly the worst only achieved a miserable score of 29 having failed to meet the standards in a combination of areas including animal welfare, milk quality, carbon foot printing, environmental management. In fact, on analysis, if a producer scored maximum points in the health index or carbon foot printing it is highly unlikely they would figure in the bottom 5%. Sadly several farmers in the exit pile have failed in terms of their farm’s tidiness and cleanliness and allegedly some don’t even understand why their farm’s image is relevant to Tesco! For others, it has come as a big shock that they are relatively poor performers, some of whom were high profile and almost sitting with their feet up.
Some of the farmers will appeal and will try hard to improve their performance and score in a short three-month window. For those who appeal they need to be confident their inclusion in the 5% is temporary, and it doesn’t happen again in 12 months’ time. I accept it is possible the odd farmer will successfully appeal on temporary grounds, which were beyond their control. Those who exit will then need to meet Arla, Muller and Red Tractor standards or face being forced to leave the industry. From the information I have some would perhaps be better out and will struggle with any standards, let alone Tesco’s! Those who don’t want to engage will silently surrender their TSDG contract and may even be under the impression that, particularly for Muller Tesco suppliers, they will be financially better off! Trust me that’s unlikely to be the situation come the Spring flush in 2018 when my money is firmly on the TSDG price (29.45p) easily top-trumping the Muller Direct price.
The remainder need to digest their weaknesses and aim to up their game and improve their rating in a year’s time, especially those in the 6% to 20% relegation zone. No doubt the Tesco Dairy Conference on the 22nd November will be a full house as producers secure two bonus points for attending and learn of the tweaks to QVIS and how they need to do more.
The detail in the recent Old Mill and The Farm Consultancy Group accountant’s dairy farm incomes report is worthy of a mention, especially the gap between Old Mill and The Farm Consultancy Group’s top and bottom 10%, which is massive with the average COP ranging from 20.04ppl to 39.62ppl - a difference of an eye-watering 20ppl! In addition, the Old Mill and The Farm Consultancy Group’s comparable farm profits range from +8.94ppl to -13.06ppl, another eye watering difference of 22ppl.
The differences are nothing to do with the milk price achieved or milk yield per cow because the worst performers produced 1100 more litres per cow and achieved a 0.77ppl higher average milk price. The differences point to ability, attitude and control of costs. The Old Mill and The Farm Consultancy Group’s average COP for 2017 is 29.20ppl, and for Tesco from November it is 29.45ppl, so almost identical. If Tesco’s range of farm profitability and COP are similar to Old Mill and The Farm Consultancy Group’s the worst dairy farmers will either have to change how they operate or suffer in silence with their loss-making hobby. Clearly some require an intravenous injection of support and assistance because in a post Brexit world it’s going to be a lot more competitive and tougher. Some need to learn from their peers and VERY quickly! Doing nothing and plodding on is not a profitable option. Oh, and remember, the 29.45ppl Tesco COP is the average for 700 farmers, which means 50% are below it and 50% above!
While I might have a very different view to Old Mill and The Farm Consultancy Group’s budgeted 2018 average milk price of 29ppl I have to agree with its plea for dairy farmers “to continue to focus on making their business more efficient”. That’s a given!
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IP DAIRY FARMER - October 2017
Recently there have been too many negative anti-dairy media stories and campaigns, and they are not good for our image, or for hard working dairy farmers’ morale.
In the past couple of months anti-dairy groups have ramped up their publicity and propaganda, especially the vegan fanatics. It’s clear the most vocal groups have no desire to engage with the industry or dairy farmers and simply have declared war on the sector. They have what I would describe as a fairy-tale dream to close down livestock farming irrespective of farming system. Consequently the whole livestock sector and milk and meat related food industry is their target, and all systems are demonised from large indoor herds to very small extensive herds, from organic to conventional.
The one organisation charged with investing dairy farmers £7 million a year levy contributions to best effect is AHDB Dairy, and it falls to them to take the lead alongside the likes of Dairy UK to promote quality, trusted British dairy products as well as defend the positive image of our industry from the farm to the fork.
To be fair AHDB as an umbrella organisation for all its divisions is doing things. It has partnered with the British Nutrition Foundation in a new education programme, including teacher training. Education is an area where anti-dairy campaigners and vegans appear to be extremely busy and well-funded and have the ability to influence children to young adults. It’s down to our industry to do likewise and you all have a duty to demonstrate how proud you are of the part you play and to ensure the handful of irresponsible farmers who ignore the rules and run the gauntlet of bringing UK dairy farming into disrepute are ousted or kicked into line. That said, it isn't only the bad or the stupid. Errors on really good farms are inevitably made and have been jumped upon by the anti’s. We must be pro-active and not defensive, and influence consumer preferences for British dairy products.
Fortunately, there are plans afoot for a major promotional campaign for dairy. I don’t know the details but it has been reported there’s a £1.2m campaign in the pipeline. As soon as this hit the headlines the veganites jumped on it and accused the industry of being panicked. However the reality is that the campaign goes back to AHDB’s strategic decision last year to do more promotional activity with Dairy UK / The Dairy Council and it has taken this long to get something sorted. Quite why it has taken this long is another matter. I am sure that when the campaign is announced farmers will moan and groan and criticise it because it doesn’t appeal to them. Frankly I hope it doesn’t appeal to them, so long as it does so to consumers and educates them about the merits of the industry and helps put us on the front foot. After all, that’s what matters.
Farm gate milk prices for October 1st based on a liquid standard litre are essentially at 30ppl and if yours isn’t you should be demanding an explanation as to why not! Farmers are understandably critical farm gate prices haven’t moved up quickly enough, and buyers stand accused of holding out whilst commodity prices have rocketed to new heights.
As to my crystal ball, don’t shoot the messenger but the indicators are that 2018 is likely to see prices head south, so buckle up. Only last week, Stephen Bradley was quoted as saying “Therefore, we’re in the potential drop zone now, milk volumes will inevitably start to move higher on the back of increasing producer milk prices, if nothing of significance now then possibly moving into a fresh season next spring, depending on the weather of course.” I agree. My expectation is that EU dairy prices will come off their astronomically high peaks with milk prices easing in 2018, but certainly not to the ridiculously crippling lows seen in 2015/16. There should be a tempering, not a crash. Others are echoing this view as well.
For sure at current prices milk will start to flow in the UK, EU and New Zealand as at 30ppl plus it is human nature, especially for cash strapped farmers, to increase milk production and with a good spring the ride could easily be bumpy again! No wonder a number of farmers are saying “I’m out” as dairy cow prices rocket up on the back of the economic injections of farmer confidence. Getting out now for some will be a smart move, especially pre-Brexit.
Thus it could be time for some of you to have another family meeting to discuss your objectives for the next 10 years and to take charge of your farm’s future, as opposed to sitting back and waiting for others to map your future out for you. Basically, the time is right to make decisions whilst you are in control of the situation and while the financial situation looks better.
As a farmer with an interest in dairying and a businessman, I urge you all to have a clear 8 to 10-year vision and be confident you can achieve your goals, both personal and in business.
A lot of you I know feel uncomfortable discussing the alternatives to continuing to milk cows. Most of you have had the same daily routine for years/generations.
I know farming is not a normal day to day job with emotional ties to the animals and the land/farm. In my experience some of you do need help to reach the right decision for you and your family, but struggle to ask for help from responsible, trusted friends or colleagues. Different support and advice for different situations is required to ensure you reach the right decision for you and don’t continue to talk about surviving, because in a post Brexit world you will need and want to do more than that! It’s another task, me thinks, for AHDB Dairy and other organisations and companies in the sector.
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IP DAIRY FARMER - September 2017
Last month’s comments of show fixing and cheating, in particular my letter to retailers, stimulated a significant response – but only one direct comment that claimed I was wrong. Subsequently, though, the writer retracted his position. The other comments universally condemned the practice. In addition to writing to retailers, though, I also wrote to major dairy show sponsors to clarify their position. I’m sure, though, that others will think that I have lost the plot on what they see as an unimportant subject, and now view it as a personal crusade (which I can understand.)
It was the view of Nigel Gibbens, Chief Veterinary Officer for DEFRA, though, that has reinforced my efforts.
“Defra’s view is that the use of teat sealing is totally unacceptable,” he told me. “Keepers of animals have a duty of care and if exhibitors at shows are undertaking this practice then they are failing to comply with the Animal Welfare Act 2006, which makes it an offence either to cause any captive animal unnecessary suffering or to fail to provide for the welfare needs of the animal.
Show veterinarians are required to report suspected breaches of the welfare rules to the Animal and Plant Health Agency so cases can be investigated and the appropriate action can be taken.”
Barclays, the sponsors of UK Dairy Day, made its position clear, stating that “we would not condone cruelty or mistreatment of livestock – for whatever purpose” and “would review our involvement if any instances are brought to light”. It would review its sponsorship and stand presence in light of evidence of such practices, it said.
The Farmer’s Guardian takes a similar robust position regarding its show sponsorship and presence. But feed manufacturer Carrs Billington was certainly the most direct and prompt in its response. “We would fully expect all shows where we are a sponsor to have robust and open veterinary inspection of in-milk dairy classes and it seems sensible that this should ensure free milk expression. With regard to a show that was found to have allowed a practice to take place that compromised animal welfare and caused unnecessary pain, we would certainly be prepared to withdraw future sponsorship on these grounds.” And Anglia Farmers stated, robustly, that it would not want its name associated with any event that didn’t have the highest animal welfare standards. There has been no word from another sponsor, Cogent, though.
Several stewards and exhibitors have asked whether I have received a response from Holstein UK, whose UK Dairy Day Show is imminent, of course, and where the Holstein and Ayrshire classes will be judged. I can confirm that no response has been received because, during a brief, tetchy email exchange with its CEO, Richard Jones in 2016, a final communiqué to me stated that “we now consider this correspondence closed” (which I didn’t) and “we will provide no further responses on this issue.” This was with reference to Holstein UK’s own show rules and whether it condones this type of cheating and whether the society would provide a statement in relation to the Great Yorkshire Show’s second disqualification involving one of their society’s members. It didn’t answer my questions remotely satisfactorily, and consequently I couldn’t see any point in writing to them.
So, to summarise, most, if not all, of Britain’s biggest dairy retail customers would take action and if the type of cheating/cruelty described above was found they would immediately distance themselves from that farm’s milk. Equally, sponsors are certainly prepared to withdraw support if evidence of cheating is detected. Oh, and retailers are not stupid and realise that it’s possible for a dairy farmer to claim it’s not really “his cow” on the grounds that he might own it, but it was being shown by someone else. That will not wash. Retailers have already spotted that ruse!
Inevitably a handful might yet decide to play Russian roulette with a show’s image, or sponsorship, or their own milk contract or the image of the dairy industry in pursuit of winning at all costs. Given the emails from exhibitors, vets and others claiming they intend to operate as unofficial undercover spies at major shows it will be interesting to see how long it is before this matter rears its head again. I hope my comments (yes, ranting if you like) put an end to it all and fair play ensues.
Now volatility. All of us accept we are exposed to volatility and price risk, for example with energy, oil and currency. Reducing farmers’ exposure to volatile milk prices is extremely important, and a hot topic.
Muller has invested time and money to bring 700 or so of its non-aligned farmers, now to be known as Muller Direct, a futures contract to enable them to hedge up to 25% of their milk production forward at fixed prices. Full details of how it operates are on www.ipaquotas.co.uk news, 9th August.
Muller is clearly focussing its attention on securing long-term commitment, confidence and volume amongst all 1900 of its supplying farmers, particularly to improve the deal for its Muller direct farmers.
Mechanisms like its futures trading are a big step, giving farmers the ability to make decisions on milk price and to decide when to sell. For Muller its aim is that, in conjunction with training and education, all its direct farmers understand the mechanism. There are costs associated with all futures trading and it will take a bit of getting to grips with. Let’s hope it will help dilute the widely held belief that UK processors don’t want high prices for their farmers.
Another option to help smooth out the vagaries of the market is Dairy Vol, which I wrote about in my June article, and which is the brainchild of a former banker. It’s not futures but a simple smoothing mechanism. It’s extremely cheap to run and very simple to understand and operate. Once again it’s transparent and several milk processors are in detailed discussions with Dairy Vol with a view to offering it to their farmers. In fact, of all of the mechanisms I have studied Dairy Vol appears to be the most transparent and fair to farmers.
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IP DAIRY FARMER - August 2017
The exceptionally strong cream, butter and spot markets are the main talking points and how long they will last before coming off the boil.
Arla believes butter and cream markets will remain strong until the end of the year but my guess is that while they will remain strong in historical terms they will come of the boil, if only because those in food manufacturing will have to substitute butter and that will curb high prices.
All milk purchasers are under pressure to raise farmgate milk prices – and quickly! My hope, and I accept this won’t be popular in some quarters, is that prices stabilise at a decent, fair price and don’t go overly high - other than for ingredients’ contracts maybe. Once prices go much over the 30ppl level common-sense goes out of the window with many farmers expanding to ridiculous levels and the bubble bursting. You are better off taking a moderately high price for a long time, compared to a very, very high price for a shorter period.
I do hope lessons have been learnt from the last boom and bust milk cycle. For a significant number of UK dairy farmers putting on extra cows will NOT result in a better lifestyle, in fact, recently it brought pain and misery. Many expanded during the last boom and they still have the hangover. They need to pay off a lot of debt and build a war chest now.
It’s human nature to want to expand when milk prices are above the cost of production and rising, but remember bullish predictions don’t fund expansion, only cash does! Think of big ideas for expansion as like peeing your pants – it gives you a nice warm feeling but eventually it can become uncomfortable! That’s unless you genuinely are a top operator.
Dairy UK Chairman, David Dobbin, used the organisation’s annual conference to bang home the message about how important the dairy industry is, and that it needs to be a government priority during the Brexit negotiations. The UK food and drink Industry is bigger than our car and aerospace industry combined, he claimed. He went on to say that 13,000 farmers’ milk results in 73,000 families depending on dairy. He pleaded for a planned approach and not to see the industry taken to “a March 2019 cliff edge deal”. At the same event Commissioner Hogan could easily have fired a few terse shots our way, but instead he chose, diplomatically, to offer the hand of friendship, wanting to “retain a strong healthy relationship with the industry”. Sceptics would say he would do that, though, given how important the export of Irish dairy products to the UK is!
Now to the show ring. I make no apologies for re-visiting the highly dubious, unnecessary and potentially pain-inducing practice of teat sealing, which occasionally happens in the show rings of our specialist sector and county shows. Frankly I despise this practice which has, in the past, heaped VERY bad press on the industry. It is cheating and very ethically dubious on an animal welfare front.
I have personally written to our top 10 food retailers and the main (non-conflicted) sponsors of some of our key dairy shows to canvass their views on the practice. I intend to publish the letter on my website but to give you a flavour of it I highlighted some of the practices which are illegal, against show rules and veterinary advice. Aside from the cheating the potential welfare issues have been confirmed to me by vets as a serious industry time bomb.
In recent years The Great Yorkshire Show has been bold enough to stand up to the cheats and disqualify two exhibitors, which is the opposite to some breed societies who have completely failed to take action or police their own rules. As the GYS commented to me “it has been a team effort between good vets, good stewards and the society being firm in their opinion about show rules”.
The question I asked retailers was: “What action will you take against a UK dairy farmer who supplies milk to you, whether for liquid milk, cheese, yoghurt or other dairy products, in the event that he/she is found to have deliberately embarked on a practice that compromised animal welfare, and potentially caused unnecessary pain to one or more of his animals? Will you, for example, turn a blind eye like most, if not all, of the societies seem to do, or terminate your relationship with the farmer if he is in one of your direct or indirect suppliers or educational “pools”, or instruct the farmer’s processor to segregate the farmer’s milk and not supply his milk, or products made from it, to you.”
Whilst one or two retailers have yet to respond it is clear that most will take a very tough line.
Tesco’s were already communicating at all its farmer meetings and commented that: “If one of our TSDG farmers was found to be breaking the law with regard to ‘Causing pain and suffering’ of any animal especially at a public event then we would have no hesitation to have such member and their milk suspended pending a full investigation and, on a negative outcome for the farmer of that investigation, look to have the farmer removed from the Tesco supply-chain.” It also thanked me for my activity on the issue, which helps to avoid “own goals with the consumer”.
ASDA said that “We do not tolerate any compromise of animal welfare and/ or breach of animal health and welfare legislation” while Sainsbury simply stated that “if an SDDG member was found to be ‘cheating’ they would lose their SDDG contract.” Morrisons comment was that “We take any act that compromises animal welfare seriously. Any farm that is found to have compromised animal welfare is investigated which would lead to appropriate action. This could be prosecution, loss of farm assurance status or termination of supply to Morrisons.”
Other retailer responses will feature next month when I will also confirm the responses received from key show sponsors and vets. Maybe the threat of losing their milk purchaser will get the message home to these self-interested show cheats. I hope so!
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IP DAIRY FARMER - July 2017
There were two main industry hot topics at this year’s Dairy Industry Newsletter conference namely volatility and Brexit, inevitably.
On volatility US speaker Eric Mayer declared that volatility was “going to get nasty in the coming weeks/months” and to expect “vicious turns”. Farmers should “hope for the best but prepare for the worst”, he added.
How perceptive he was! That’s because as I write spot prices are rising and not because of a shortage of milk but because this market is exclusively commodity driven, with prices determined by the demand for fats. Thus the current 30p spot milk price is determined simply by how much traders can achieve in the commodity market, plus a margin.
One UK trader described the market to me as being “extremely dangerous and aggressive”, and the type that results in bankruptcies. In other words the speed of the upturn is meteoric, and it’s a certainty it will catch some out. Farmers can only hope they have a financially astute and nimble milk purchaser!
Volatility and price risk management are testing this industry, but it is responding. Yew Tree Dairy, for example, has concluded several two year fixed price back-to-back deals on a number of contracts at a net farm gate price of 27.328ppl. This covers the next two spring flushes to July 2019.
In addition Muller is on the brink of launching an ingredients contract that similarly allows farmers to hedge and fix a percentage of their production based on back to back deals with customers. Both are taking a lead in respect of helping farmers manage volatility and it is great to see.
At the conference, Bruce Turner from Fonterra made me sit up when he stated that dairy products are now recognised as some of the most highly volatile products in the world, with the price range to around 2005 running at an average deviation of +/-10% from the average, and from 2006 to 2017 that percentage rocketed to +/- 30% and rising. According to IFCN from the time commodity prices last surged up it was 10 months before EU28 milk production rose by any significant degree. If that happens again it will be early 2018 when we feel the draft.
In this day and age keeping tabs on EU milk production is key. And there is the EU Milk Market Observatory (MMO) in place to collate and publish this information. But it is not that timely!
Yours truly probed speaker Sophie Helaine, from the EU Commission, as to why, with modern technology, the MMO had still not released the EU 28 milk production figures for March in mid May! And the answer? Countries are late in the submission of the information…and the UK is the main offender!
Timely submission and release of these figures is critical. What chance do we have of sorting out sensible trade deals as part of the Brexit negotiations when we can’t even get DEFRA to collate and submit the UK’s production figures until six or seven weeks after the month end?
Turning to Brexit, not one speaker put forward a positive for the UK dairy industry. In fact, Aaron Forde, Chairman of Ornua Foods (formerly The Irish Dairy Board) stated he could see nothing other than downside from Brexit and went on to state “we need to manage the downside as best we can and mitigate the risks”. A sobering statement for delegates to stomach.
The Irish certainly have a lot at stake, given that 90% of its milk production is exported and there are plans to produce 7.5billion litres of milk in less than three years time. Its 13,000 dairy farmer owners know that 26% of Ornua’s total sales, including a staggering 60% of its cheddar sales (60 containers every week!) come to the UK. We are a key player in the future of those 13,000 Irish farmers.
Muller’s Commercial Director, Sean Whitfield, stated that Muller did not view Brexit as a positive. Sean also commented that one year on from the Brexit vote, did the UK dairy industry know anything about where it is heading? “Will the government consider agriculture sufficiently important to protect it?”, he asked. The answer to both questions is likely to be a big No!
Richard Clothier of Wyke Farms said the best way to live with Brexit is to have a low cost of production (COP). He then majored on Promar research stating that the bottom third of producers had an average COP of 31.7ppl and the bottom third 20.2ppl. As Richard stated a world class dairy farmer has to be low cost. That said, and irrespective of how low your cost of production is it’s likely that the first opportunity our friends in Europe get to exclude our products due to diseases like TB they will put the shutters up and close us down. That’s certainly what they did with BSE, for years!
The message from Richard Hampton (OMSCO) was that ensuring equivalence of standards on imports was a bigger challenge to global dairy trade than trade tariffs. He could be right because trade deals which allow dairy imports that are produced to a lower standard than ours will be crippling.
However, to balance that view George Paul, boss at the UK’s largest independent cheese distributor Bradbury’s, stated that “the UK is not even self sufficient in dairy so what do we fear?”
And the last word went to John Allen of Kite when he hit a reality bullseye: “Good dairy operators (i.e low cost) will manage in a world of reduced BPS payments. Whatever happens currency could eclipse any loss in BPS.”
Finally, The Great Yorkshire Show is almost here and I know its stewards and vets will continue to take the lead in keeping an eye out for, and potentially eliminating, the few dairy show cheats who artificially and deliberately seal cows teats to enhance the look of the udder, and, in so doing, potentially heap bad press on the industry. In the next two articles I will share with you what I have done to support those crusading Yorkshiremen, and to try to ensure fair play in the show ring and head off those negative headlines.
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IP DAIRY FARMER - June 2017
Most dairy farmers and certainly those on non-aligned contracts now accept that farm gate milk prices will be a very bumpy and an unpredictable ride - a bit like riding in a car with worn out shock absorbers. If you get the shockers repaired the ride will be smoother. Alternatively you could change the route to avoid the bumps and potholes. For most, though, the solution will be to get a car that’s capable of dealing with the best and the worst roads. And that means sitting with the buyer best suited to your farm and milk profile or quality. That’s if geography and farm size allows, of course. Not all farms are lucky in this regard.
A much-debated topic is how can dairy farmers build in stability to farm gate milk prices, which is especially important when the market pressure is downwards. Some of the ways on offer to manage price volatility and risk are rather complex. However, I have some good news: the industry is soon going to hear about a new, simple mechanism being launched for the UK industry which I believe will result in a significant uptake by farmers. That’s because all it does is simply smooth out the peaks and troughs on prices.
The new kid on the block is the brainchild of a former city banker, who is a dairy farmer and originates from a dairy farming family, in conjunction with two well known dairy industry personalities who have spent several months helping prepare the launch. Unlike some of the complex mechanisms on offer (i.e linked to futures) this is so simple it’s embarrassing that no one has thought of it earlier given the thousands spent on meetings, seminars and market intelligence! This innovation is cheap to operate, totally transparent to both farmer and milk purchaser, and should help build farm price resilience. And it doesn’t involve speculators either. I think it’s going to work!
That, though, is all you are going to get for now. Due to confidentiality reasons I am unable to go into any more detail until my next article, but by the time this article lands on your doormat the launch might just have taken place. If so, then the details will have been posted on my website (www.ipaquotas.co.uk).
It is hoped that all UK milk buyers will eventually want to offer the new mechanism to its non-aligned suppliers. Note, however, it will be optional whether individual farmers sign up or opt out. This is important because the decision will be in farmers’ own hands. It is understood that the “inventors” have already taken out a European patent for the idea, and that at least one milk buyer is known to have been involved in the evaluation and is keen to be involved in offering the mechanism after the launch. When all is revealed I would welcome any comments, irrespective of whether you are a dairy farmer, milk processor or from the allied industry.
At first sight, though, it looks to be a smart response to smoothing out the feast and famine in a bid to help processors safeguard their long-term supply base and to move the industry forward with a constructive idea. It’s not the only solution in town, of course, but it looks to me to be a great starter for 10 to smooth out the ride of farm gate prices, and to avoid that uncomfortable bumpy ride.
Returning to my comments last month regarding what could be a hard Brexit, Nick Whelan, the CEO of Dale Farm - incidentally the largest indigenous UK dairy co-op - is banging the Northern Ireland farmers’ drum hard and loudly through the trade organisation Dairy UK for continued farm support.
Whelan recently stated “The complete removal of SFP could take the equivalent of 5ppl off local producers’ income” and “could wipe out dairy farming and processing as we know it.” He then went on to comment that “even if the direct payment reduction came in at the equivalent of 2ppl many local dairy farmers could not survive.”
For me he is bang on the money, and Brexit is looking like a slow train coming towards dairy farmers and when it hits you it will hurt most of you. So why are so many so called industry leaders almost on mute, I ask. Remember the English Government might decide to phase out the SFP, whilst the other three devolved regions could decide to keep it, with minimal change. That would be a hard Brexit for the English. It’s time to engage and to try to influence future policy before it’s too late and others ear mark the post Brexit savings with what many will see as more deserving causes than agriculture.
I am pleased to confirm there are good grounds for short and possibly medium term farm gate milk price optimism. Rabobank for example, reports that China’s imports will increase by 20% in 2017 and that trusted EU origin dairy products are increasingly becoming the preferred choice of Chinese importers. Pre and post Brexit we could do a lot worse than forge even greater links with what, one day, will undoubtedly be the world’s largest economy with its current 1.4 billion population (and rising!) and become more globally focussed reducing our exposure to our “friends “ in the European Union.
As I write spot prices are at 26ppl and steadily increasing daily and we haven’t knowingly yet reached peak daily production and if we have some are even suggesting a second peak coming post any rain. Numerous traders are talking of a 30ppl spot price, with the most optimistic suggesting 30p by early June and others by July. Much, though, will depend on what you do as far as milk volumes are concerned.Without wanting to set hares running the UK market is warming up and cheese wise is almost on fire.
Irrespective of who might be correct the confirmed early June farm gate milk price cuts increasingly look likely to be the last for 2017, as the market has certainly turned another corner. Many farmers will rightly question why some of the recent price cuts were declared and no doubt some will suggest it was the last chance some buyers spotted to cut the price. Let’s hope the European Commission follows the market up when it comes to offloading its 350,000+ tonnes of aged SMP, and that it continues to be a strong seller.
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IP DAIRY FARMER – MAY 2017
Arla stunned its 2700 UK members (and the industry!) with its 1st April price cut of 0.79ppl, and it is widely known that a similar cut may be on the cards for May 1st. To be f
air, though, Arla was one of the few who pushed through a 1st March increase of 0.25ppl when others stood on. Rumours suggest that Arla needed to plug a hole created when it paid the 13th payment. Others say the market is pointing to the levels that it is now paying. Whatever the reason it has put the kibosh on farmer enthusiasm. What added insult to injury was the fact that in the same week Arla said its brands were named as recording the largest growth out of the top 100 UK grocery brands, achieving growth of £37m in 2016! That’s a fantastic achievement, but understandably a number of Arla members are questioning whether such impressive brand growth is translating into a better milk price for them, with the profits returning to members. Questions are also increasingly being asked about whether the current musketeer price (aka “all for one, one for all”) for the 13,000 Arla members can continue - especially in a post Brexit world. There are already some pushing for Arla’s milk pricing to be devolved.
But while Arla gets red pen strokes and a “must do better” comment for its milk price it secures full marks for lobbying government on Brexit, to ensure it safeguards the UK dairy industry during the negotiations. It also highlighted that milk from the 2700 GB members is responsible for a staggering 119,000 jobs, and that Arla’s economic footprint equates to £6billion. In other words for every £1 generated by Arla’s business some £15 are generated further upstream. It’s a powerful message.
Now milk volumes. An analysis of the figures confirms that production in the first three months of 2017 is down compared to 2016 (although it has caught up this week on a like for like basis). At least two milk buyers are concerned about the effects any spring price cuts will have on production in the second half of this year, and the potential permanent damage to their supply base. To my mind ALL UK milk purchasers must recognise they are on a knife-edge in terms of safeguarding their long-term milk supply base.
Couple that with volatile milk prices and the almost inevitable hair cuts to farm income that will come after Brexit and I reckon the next two years will see a serious exodus of dairy farmers who have either had a guts full of working for less than nothing, or will have an exit managed by others to whom they owe substantial amounts of money.
Only today I read an extract from a recent dairy farm administrator’s report of a typical farming family. It made for sobering reading:
“The farm continued to trade and milk prices have gradually increased since the beginning of 2016,” it went. “The long period of low milk prices has, however, led to a build up of historical debt to suppliers which the business was struggling to service despite achieving a reasonable price for its milk supply”. Prior to taking the decision to appoint Administrators the partnership had been affected by TB testing issues, as well as receiving as low as 21ppl for its expanded milk production. This story could be applied to anyone of hundreds if not thousands of dairy farms, especially if we are about to embark on another price collapse which sadly will put many of you on life support (again), and which will eventually sap your fighting spirit.
Many farmers are simply on their knees unable to cope with the wide swings in volatile milk prices. You haven’t even started to recover from the last slump! Then there is the scourge of TB and the fact the image of our industry is constantly under attack from powerful well funded anti-milk and anti-livestock farming organisations who are chipping away at demand for our fresh products - especially among the easily influenced young people.
I reckon a brief period of spring and summer price cuts will confirm to many silent farmers that it’s time to quit, whilst others will bury their heads in the sand convincing themselves and their family that it can’t get worse and that the next 10 years will be more profitable than the last. The only factor which may stop the exodus is whether alternative enterprises are even worse!
For those who stay you will have to be internationally competitive as UK milk prices converge with world dairy prices. To survive and prosper you will have to continue to cut costs and be on top of your game or… have deep pockets!
Now a warning and a plea that I hope will help many non-aligned farmers. From 1st May Muller will have almost all of its producers on its new single supply contract. However for various reasons such as imminent retirements, or the member of The Awkward Squad (i.e those who will not sign until they are forced to) means the existing contract will still run parallel until Muller “persuade” them that it’s this contract or no contract! That leaves the likes of Steven Bradley and AHDB with a dilemma on their league tables. Do they quote the old or the new Muller price? For my money, given the “seismic” sign-up that Muller claim, they must drop quoting the old price from May 1st. This means all those contracts who include the Muller price in their basket will also have to accept the new contract price. Why is this important? Because if I were Muller and I wanted to “persuade” the stragglers to sign the new contract I would eventually go for differential pricing and widen the price paid between the old and the new contracts. As one farmer suggested to me: if Muller have 500 who don’t sign they have a problem, if they have 50 who don’t sign those farmers have a problem. If the tables quote the old Muller price and it is eventually reduced then it would deliver a blow to a heap of non-Muller farmers who are likely to get caught in the cross fire and suffer financially.
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IP DAIRY FARMER – APRIL 2017
Ronald Akkerman, aka The Flying Dutchman, was last seen in the UK milk industry back in 2007, when he returned to Holland having sold his milk field to Meadow Foods. This included around 200 producers, and solved Meadow’s recruitment ambitions in one hit. Well, now he is back on the UK cheese making industry’s radar, having confirmed his role in designing, building and operating a new state of the art farmer co-operative cheese plant in Bangor, North Wales. This will have an initial processing capacity of 40 million litres year (circa 5,000 tonnes of Welsh cheddar), aiming to grow towards 100 million litres (13,500 tonnes). The plant’s focus is the domestic cheese market, and helping to address the UK’s somewhat embarrassing balance of trade on cheese, whereby we import far more than we export – notably from Ireland. A cheese plant was far more preferable to powder, as if they had opted for that they would have to export and that comes with risk exposure to exchange rates, post Brexit tariffs and trade agreements. Plans also include a visitor centre, café and shop to tell the whole cheese making story from farm to fork on similar lines to the popular Wensleydale Creamery site at Hawes.
Around 20 spring grazing farmers have been invited to form a co-operative supplying milk to what will be a seasonally operated factory. In building it they aim to “take charge of their own destiny”. The contract will be a transparent formula using the published MCVE, less transport. Any profit will be shared across the co-op’s members pro-rata to milk deliveries, as the business aims to pay the maximum value to its owners. The co-operative members will own 40% of the business, and will be entitled to 40% of any profits.
The proposed retention is 0.5ppl for up to five years to facilitate members buying their share in the business, and the aim is to attract some Welsh Government finance to assist with the project. The business also plans to eliminate seasonality penalties in favour of transparent pricing – thus demonstrating the factory passes on the full value of solids delivered.
Akkerman is clearly frustrated that GB dairy farmers, in his opinion, have, by and large, never received the market value of the milk solids produced and that there is minimal, if any, evidence of a correlation between prices paid to farmers and what’s achieved in the market place. This, he says, is particularly the case when the weighted average seasonality penalty is 2ppl, and increasing.
There are three basic elements to the project: (1) the supplying farmers, (2) Akkerman & team in building it, and the day to day operation and (3) Bradbury’s, who have sole distribution and sale rights to all the cheese as well as being part owners for the facility and partners in the project. The somewhat ambitious objective is for the factory to be operational by spring 2018. Good luck to them I say!
In last month’s article I referred to the uncontrolled expansion of volumes, which resulted in an additional 1.9 billion litres (+14%) coming from UK producers as being a costly disaster.
One reader emailed me saying that “we were told to expand and processors were signing up more milk. Even the NFU were saying produce more milk to replace imported product.” He has a valid point.
At the time the odd processor got greedy and tried to play the market by terminating contracts… only to buy milk on the spot market at prices close to 14ppl to begin with, and then as high as 40ppl! This serves them right for trying to be smart!
Contracts are changing in response to this feast and famine on production, and the new Muller contract contains a requirement to submit a rolling 15-month production forecast each quarter, with a penalty-free allowance for forecasts within a 7.5% tolerance. Similarly Barber’s new contract offers an 8% tolerance which, in both instances, should provide sufficient headroom. For those who struggle to meet this both processors plan to give one to one assistance to eliminate future penalties.
Brexit is looming ever larger in the minds of some dairy farmers. Post Brexit farmers won’t have intervention safety nets, and with quotas gone it will be the farmgate milk price that controls output. That’s challenging, and will likely result in extreme volatility!
Sadly I fear a large number of livestock farmers will be forced into retirement unless they can think outside the box and be open to new ways. Many don’t appear to have read the tea leaves yet!
Some have, though, and one clued up farmer posed the question as to whether AHDB, in particular AHDB Dairy, will survive post Brexit. For sure its income has recently crashed as volumes have plummeted. But will the levy carry on? Should the levy carry on?
I am not convinced AHDB’s compulsory levy will be affected by Brexit, but perhaps moving to a voluntary charging structure might be one way forward. It’s not a daft suggestion – in fact one of the first to suggest it was the organisation’s former chairman, Tim Bennett, who once stated that one day he hoped the dairy levy would be voluntary. And let’s face it - every other organisation is in the commercial world! A levy body isn't - as was recently stated in an article on the Political Concern website, which stated that “those who talk of allowing markets to provide higher farm incomes are the ones who get assured salary packets every month (with some even paid from a levy on farmers)!”. (Thanks to Barbara Panvel for alerting me to this.)
AHDB Dairy is constantly and rightly put under the spotlight, especially by some farmers who are quicker to disseminate the facts than it is. Farmers are not stupid and have access to a wealth of accurate up to date information. What they need from someone like AHDB, especially re Brexit, is the best interpretation of the information they have to enable them to plan and adjust. And it must not duplicate other industry activity and research carried out in the UK or other parts of the world. In addition, it must stop making Peter and Jane gaffs like its ‘important finding’ in a report which read “there is a big gap between current farm gate prices for aligned and non-aligned fresh milk.” No shit Sherlock! Farmers won’t continue to sit back and see their levy money spent on stating the bleedin’ obvious, or wasted, or be constantly lectured to be more competitive.
One thing is certain with Brexit - agriculture and dairying desperately needs leaders who can leave a lasting legacy by achieving what is right for the sector. As Meurig Raymond stated in his closing speech at last month’s NFU Conference: “We will only get the right deal if our voices are heard” and “what we (The NFU) say really does count in Westminster and Cardiff”.
Now is the time for all organisations – AHDB, the NFU and others - to come to the fore and prove it!
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IP DAIRY FARMER – MARCH 2017
There are fears that with a good early spring we could be in for another rollercoaster farm gate milk price ride as milk volumes increase further.
There are milk processors, particularly on the liquid side, who gave numerous reasons as to why producer farm gate milk prices lagged behind the 2016 rapid increase in spot, commodity and cream prices. For many farmers their prices moved at a glacial pace as they struggled to make ends meet. The issue now is whether processors will attempt to reduce the price in reaction to falling cream, commodity and spot prices quicker than they put them up! (That’s assuming they are not on a contract which tracks the prices up, that is. Farmers should certainly be ready to challenge their purchaser if they do!
If the various co-ops operate as they should I expect one or more will try their hardest to increase farm gate milk prices in March and April, with the aim of getting and holding prices through the flush at around 28-29ppl. Whether the others take a similar line will be interesting to see.
In the case of our biggest co-op, Arla, now is the time to demonstrate that its UK model works. The numbers show that the currency smoothing mechanism has held back farm gate milk prices by around 2.5 , and that means this extra money should flow to members during the next 18 months. In fact, given where the Arla milk price is today it would comfortably be over 2ppl higher were it not for the currency smoothing mechanism.
There has been lots of talk about how to smooth out the tops and bottoms and this model is the one farmer’s who joined Arla signed up to. Hopefully further increases from Arla will filter through in March and April, and if they do this should confirm to members that the model does, indeed, work and will ensure they are no longer behind the curve. It’s unlikely to end up being the top price in a league table, and it is often said and proven that only fools chase the top prices.
Finally on prices I wish farmers would focus on the independent facts and not the rubbish pedaled by some spin-doctors as to what their firms’ milk price is. For many years Dairy Farmer has featured Steven Bradley’s www.milkprices.com and in my weekly bulletin I only refer to his numbers. Unless Steven verifies the numbers to confirm what a purchaser’s milk price is and what their ranking is I ignore it, and so should farmers who are being courted!
Now Muller. Its ambition is to be the biggest and best milk processor in the UK and the buyer of choice for dairy farmers in its catchment fields. As part of this ambition its producer communication is now focused on developing the best supply group relationship, having lost ground in 2016 following the acquisition of Dairy Crest’s liquid business. It wants, it says, “a mature and trusting relationship” along the lines of the one the former Dairy Crest producers had with Dairy Crest Direct.
The cornerstone will be electoral accountability, which is fundamental to dairy farmers as it gives them a say. Muller have listened to feedback from its first series of farmer meetings with its 1900 or so suppliers, and it’s now down to those farmers to elect 21 farmers to a forum who, in turn, will then elect seven to represent them on the board.
It’s no good some big shot farmers thinking this is an opportunity to kick some back sides and get stuck in to Muller’s management. It will require farmers who understand the brief and the responsibilities and, for me, ones who are open minded and can think outside of the box and – believe it or not - respect non-disclosure! We have seen too many boards and directors full of farmers who were self-denying in their competence in such positions, some of whom simply wanted to feel important when in reality they were impotent.
Muller’s plan to change the directors by rotation over a three year period is excellent because, just like nappies, representatives all need changing regularly… and sometimes for the same reason! It’s now down to Muller farmers to put the best candidates forward. From now on there’s no point standing on the sidelines throwing bricks if you supply Muller. It’s time to put up or shut up!
It’s a fact that post quotas UK dairy farmers are competing at world market prices and to do so profitably will require a clear plan of action. The same will be true post Brexit.
The UK is the largest cheese importer in the world and 98% of our dairy imports come from the EU. Yes we can do a huge amount to replace imports of dairy products to become more self sufficient. However every man and his dog, and led by our close neighbours from Ireland, will be banging on our door to get their product into the UK, especially post Brexit. Then we are unlikely to have the cushion of intervention storage, which prevents prices falling lower.
Uncontrolled expansion of milk production to the tune of an extra 1.9billion litres (+ 14%) in less than three years was a costly disaster for all of you. There was no increase in domestic demand to soak up this extra supply. As supply plummeted prices consequently recovered because the recovery was supply led NOT demand led. I still hear from milk purchasers who struggle with the fact that some producers believe it is their divine right to increase and decrease output without giving any early warning to their milk purchaser. But on the flip side some milk buyers think it’s their automatic right to operate discretionary and even discriminatory pricing.
In farmer language the best analogy I can come up with relates to feed purchasing. If you order 20 tonne of bulk feed and the driver arrives and blows in 23 tonnes and you will go mad because the bin is over flowing. Then, four months later, you order 20 tonnes and he only delivers 17 tonnes because he’s not making any money from the 17 tonnes. That’s a 15% variation to what you ordered on both occasions… a similar variation to the average farmers additional output in three years!
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IP DAIRY FARMER – FEBRUARY 2017
Recently I spoke to a couple of prominent dairy cow auctioneers to try and determine whether the run of price increases had resulted in a noticeable reduction in the number of dispersal sales compared to 2015 and 2016, on the premise that some farmers perhaps have decided to carry on now that better times have arrived.
I was, however, slightly surprised to learn that the majority of farmers wanting or needing to exit accept that volatility is here to stay, and that many are now seriously considering getting out now cow values are higher. When values were around £750 a head - just £100 to £150 above the cull value - they wouldn’t sell, but values are up around £300 - £350 to around £1100 now, and this is encouraging many to consider quitting. Others only just managed to keep afloat, particularly when prices dropped below 20ppl, and it is now clear terminal damage was done.
The feeling is that significantly increased herd values will result in some going into early retirement, or at least hanging-up the clusters, especially those with no one following on. That last price slump went beyond the feeling among many farmers that quitting was in some way letting the family down. Many sons and daughters witnessed what their parents went through, and they don’t want to go through it themselves.
The good news is that if this is going to be the direction of travel at least the farmers involved have control of the situation and their destination, rather than waiting for crippling prices to force a decision on them. So my message to those sitting on the fence is this: please don’t suffer in silence, and if you decide to quit then treasure the memories before it is too late.
I hope lessons were learnt from the last slump and that farmers don’t have short term memories as to what happened, especially how their milk purchaser treated them.
In addition, now that prices are knocking on the door of 30ppl, please think twice before you swallow the idea that putting on extra cows will automatically translate to a better lifestyle, even though it is in a dairy farmers nature to expand.
For those who remain in the industry what is needed now is discipline. Most of you have ruthlessly reduced cost and maximised milk from grass, so don’t throw that knowledge and experience to the wind now that milk prices have increased, use them to regain lost income and start to build a war chest for the next big downturn. It will come sooner than you expect, it will hurt, and it could easily be another three year slump.
The liquid premium is a rural myth and an unfortunate hangover from the old MMB days. Retailers, together with some processors, have certainly put the final nail in its coffin, ensuring liquid milk is commoditised with limited opportunity to add value. Every man and his dog processor fights for every litre of liquid business, and for those involved with the likes of Tesco it’s even on open book accounting terms. The retail giant knows exactly what other contracts its processors have and at what price (or at least it thinks it does!).
One idea to restore a liquid premium is the recent launch of free range milk and its intriguing idea of a ‘Black Top promise’. I am not a marketing guru and personally I struggle with the Black Top idea because to me the colour black conjures up images of death, funerals and darkness. However, the launch has certainly stirred things up a bit in the industry.
I was surprised to hear that the people behind the launch categorised our main retailers into “good, bad and ugly”, having accepted that in order to sell volume they need to sell via retailers. I don’t believe it’s a good idea to openly criticise established retailers when launching a new product, especially if you want or need them to open their door to you. Morrisons was classed as “ugly” at the launch, on the basis that their Milk for Farmers initiative does not see all of the 25ppl going back to British farmers. There is no need to debate that further as you all know my thoughts. If I were the sales person for Black Top milk I think I would delete Morrisons (“ugly”), ASDA and Co-op (both “bad”) from my contact list because their response is likely to end with the word “off”.
Now Brexit. Every paper you open has an article on it. As we negotiate trading terms post Brexit for the dairy industry a key goal has to be to replace imports, particularly of cheese. That sounds straight forward but remember we have a processing industry dominated by non British influences and connections e.g. Arla, Muller, Glanbia, Paine & Partners (AKA Meadow) and First Milk (who have a sales deal with the Irish).
On the cheese side we have a selection of quality farmhouse cheese producers to be proud of, and who should be looking to scale-up to replace imports from mainland Europe and Southern Ireland. But having stated that let’s face reality - those imports are mainly from importers who have what some would term an unhealthy hold on our cheese industry. That makes displacement of foreign cheese more challenging.
Finally, following the release of Meadow Foods annual results for the year end 31st March 2016 - in which MD Simon Chantler received a thumping £2.3m for the second consecutive year - numerous readers suggested I compile league tables showing which milk processors make the most profit per litre of milk (Meadow’s is 2ppl), and another one for the top paid person in each business. Thanks for the idea, but no thanks! Perhaps AHDB would like to pick up the challenge?
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IP DAIRY FARMER – JANUARY 2017
As I write the glacial pace of milk price improvements from mainly liquid milk purchasers is understandably attracting huge criticism from those affected. The liquid market is now almost a millstone, with the liquid premium long gone. The market is being led up by butter and cheese and the liquid buyers might have their work cut out to match cheese prices going forward.
On previous occasions like this producers have blamed imports as the culprit but not this time. Many farmers are convinced their processor is continuing to squeeze its farmers simply because it can.
The differential in price is staggering. For example, the November AMPE was 31.5ppl and the November Muller non-aligned standard liquid litre price was 20.94ppl (plus 2.623ppl retail supplement) making 23.56p. Similarly Arla’s member price was 23.14ppl (including a forecast 13th payment) and some of those on basket prices were under 20ppl. Is the market - particularly the liquid market - functioning so poorly that it warrants an outside investigation / review I wonder. Yes, I hear you cry!
Resignations to some milk purchasers have rained in, and while it has taken time for the penny to drop the affected processors realise they cannot recruit at their current milk price. Sadly for them the loss of large volumes of milk, in addition to the loss of trust and producer support, has resulted in permanent reputational damage. Their only option is to try to retain their remaining core farmer suppliers.
But farmers are not all saints! Listen to these stories of the ultimate milk tarts! The farmer signs a new contract to commence supplying purchaser X before his existing contract to supply purchaser Y ends. But if that wasn’t enough he then decides he wants to supply an ingredients processor, and contacts everyone to say he hasn’t delivered any milk to X, so he can go where he wants – despite having signed the contract! Another had his business rescued by processor Z when he had no milk contract, but as soon as that processor was 1p off the pace to a rival the farmer jumps ship! That’s loyalty for you! Not. Processors should take a very hard line on tarts like this, in my opinion.
How dramatic the U-turn has been on price this year, assisted by the Yew Tree factor. In May at the DIN Conference two respected industry experts commented that “a big milk price recovery was unlikely in 2016” and “the current down cycle will continue into 2017 and beyond”, with a third saying “we won’t see 30ppl for a long time!”.
If prices continue to head north in 2017 and above 30ppl over the spring period and beyond I fear another wave of milk will flood the market like a tsunami, and swamp all but the strongest, financially sound farmers again. Will farmers and processors learn from two years of painful crisis and chaos? I fear they won’t! But uncontrolled expansion, whether it be processor, producer or representative organisation driven should not be repeated. For the UK the recent expansion was a whopping 1.9 billion litres in less than three years…but with no similar, sustained increase in demand.
The implications of this expansion are serious and costly. In the liquid sector many processors on A&B and basket pricing have had to review their offering and have given additional financial support in this fast moving market. Others have introduced penalties for wild fluctuations in forecasting.
One major problem is that some farmers see it as their right to increase milk output without notifying their milk purchaser whose job, the farmers think, is simply to deal with whatever milk comes along and to find a profitable outlet for it. But that isn’t always possible. Processors had to buy large quantities of milk in spring 2016 at 23/34p+, and then sell some of it for 10p to 12ppl! Then the opposite happened – they had to buy at 40p+! Both were financial suicide.
This comment won’t be popular but dairy farmers should not have the freedom to significantly vary the quantity of milk they supply to their processor without agreeing it in advance. Neither should a milk contract force a purchaser to collect 100% of the milk without an idea of the quantity. And the flip side is that processors should not have the freedom to discretionary price.
I believe we have to develop contracts that are geared to a volume and price say +/-5%. Yes it could be a variation on A&B but the fact is processors cannot live with unspecified milk volumes and profiles, and farmers can’t live with unspecified, unpredictable prices. If things don’t change then two or three big buyers will get bigger, because they are potentially better able to shoulder the financial pressure.
Everyone wants maximum flexibility to change what they want with limited price risk, but surely in a mature balanced relationship the dairy industry can crack this simple conundrum and not work on short-term smash and grab rules as they are now. I will be returning to this in a future article, and I thank consultant Norman Oldmeadow for his input so far on these suggestions.
Now First Milk. This time around the firm do not appear to be the main resignation target, having dramatically re-structured the business following the dismissal of the incompetent individuals running the business and the parachuting in of Mike Gallacher. Out went loss making activities and the air of arrogance First Milk once had. Then came major surgery at board level to leave predominantly commercially savvy people who have the ability to seriously challenge the management and who fully understand balance sheets, accounts and cash flows.
Two years ago First Milk tried to keep up with competitor milk purchasers in a rising market by paying a milk price it failed to recover from the market. But then the milk price tanked. Somehow its members clung on by their fingertips, and today many believe Gallacher and his board actually know what they are doing and have faith in them. It’s easy to say but all First Milk needs to do now is produce consistently high quality cheese, particularly for Tesco through the Ornua (formerly Adams) relationship. I wish them well and sincerely hope they succeed.
Finally, all the best for 2017! Whatever comes, it can’t be as bad as 2016 for most farmers!
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IP DAIRY FARMER – DECEMBER 2016
If you heard an unexplained thud recently that was my jaw hitting the floor while I read a recent article in The Grocer magazine relating to Morrison’s Milk For Farmers initiative.
The article quoted AHDB Dairy’s senior analyst Patty Clayton stating that it had crunched the numbers and concluded that the extra 10ppl paid by shoppers had only amounted to an additional £290 per UK farmer. She then went onto refer to these returns as “questionable.” The article did not look at the benefits UK farmers get from income into the business from similar schemes or from brand income from Europe through the likes of Lurpak. On further investigation The Grocer confirmed that it was approached by AHDB and offered an exclusive on the article. It didn’t ask for it.
The article effectively belittled the additional £3.7million additional income, over 12 months, that the scheme had brought to Arla farmers. That figure, though, represents 57% of the total annual £6.5 million levy that farmers pay to AHDB Dairy!
By default the article also criticised Arla’s branded “Farmers Milk”, launched at the Great Yorkshire Show in July, which pays an additional 11ppl back to farmers and has resulted in an additional annual equivalent of £2.2 million going into farmers’ pockets. So the combined annual equivalent going back to farmers from these two initiatives is a not insignificant £5.9 million.
AHDB Dairy takes around £6.5m from dairy farmers, a quarter of whom are Arla farmers. AHDB claim it “provides independent evidence-based information” in four key areas, one of which is labelled “Market Intelligence”. Well there wasn’t any intelligence here! It’s a mystery to me why it believed it was a good idea to pen the article because it certainly doesn’t help move the industry forward. That, of course, is unless its remit has secretly changed to become a lobbying organisation under Peter Kendall’s captaincy, aka him leading the farming Referendum Remain campaign.
What chance does this industry have when its own levy-funded organisation throws hand grenades at an idea that is delivering significant amounts of additional money into farmers’ pockets! It’s worse than the remarkable events that took place at the launch of the scheme when two Tesco producers – one the chairman of the Muller farmer’s group! - went on National television and branded the new product “a shambles” before a single bottle had hit the shelves!
Any initiative that gives consumers a choice whether to pay extra money to dairy farmers has to be applauded and should not be criticised or belittled, least of all by an organisation funded by farmers.
The industry needs more initiatives like these for the non-aligned and should not have successful ones criticised. It is hard enough generating additional revenue to come into the supply chain, so I am now looking forward to AHDB’s “Market Intelligence” department coming up with an intelligent suggestion. I fear I might have to wait a while on this evidence.
And I continue now with Arla, but in an altogether different vein. Like many (all!) Arla owners (and many other farmers whose price isn't going up because their buyer hides behind them or basket pricing!) I am questioning why its farm gate prices isn’t increasing at pace.
Aside from the forward selling issue and the market lag that is affecting everyone (disproportionately, too) Arla’s price is, of course, affected by its currency smoothing mechanism. On analysis of the numbers it is clear that as milk prices were falling between April 2014 until early 2016 the smoothed price was higher than the monthly price so there was a price advantage. Now, though, it’s a different matter: the current farmgate milk price without any currency smoothing – i.e on a floating month by month rate - would put the November price at a very respectable 27ppl plus – i.e a 4ppl premium above the Arla standard litre price of 23.14ppl!
In reality the Arla mechanism is similar in principle to a fixed rate bank loan or a futures contract, in so far as it smooths out volatility. The mechanism is depressing prices today, but there has been an advantage over the long term. That said, the price is the price and it ain’t good enough! No doubt there will be some interesting dialogue when the firm’s boss is quizzed at January’s Semex conference, together with its markets expert from Denmark who will hopefully be giving out some VERY good news for 2017.
The big question for non Arla farmers is this, though: what’s the reason for your farm gate prices dragging their heels when you don’t have a currency smoothing mechanism? Or is it the case that Arla sets the UK milk price for the majority, if not all, non-aligned producers?
By the time you read this article Christmas should be a few days away. If anyone is looking for a £10 stocking filler for someone then the book “Cows and Catastrophes” written by Cornish dairy farmer Brindley Hosken, is one farmer’s story that many will relate to. It is a good read and available from Old Pond Publishing. Alternatively if you are married to a Muller supplier for the same money you could always buy your other half a gift voucher for their first month’s suggested membership subscription for the new Muller Board and representative structure, made out to a Mr Sooty of Aberdeen. But please, if you do, send me a video when they unwrap their gift!
Finally, may I wish all my readers a very Happy Christmas and a more prosperous New Year, which let’s face it, wouldn’t be difficult compared to this one!
And I do appreciate all your feedback, comments and tip-offs. It is, I have to say, telling, sad and shameful that many farmers feel that they can tell me things that they do not feel they could tell their milk buyers for fear of discrimination or reprisals. Keep your comments coming!
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IP Dairy Farmer Article – NOVEMBER 2016
A recent newsletter from Muller’s (former Dairy Crest’s) Direct Milk DPO secretary pulled together some interesting facts on commodity prices v milk prices.
Since April cream and butter returns have more than doubled, and are now at all time record levels. Processing milk into ingredients under AMPE would pay 28.5ppl.
The newsletter was spot on to draw parallels between 2007 and 2016. In 2007 farm gate prices were at 18ppl, and a consequent drop in production resulted in a sudden 7ppl lift to 25ppl. This time around the lift has come from some processors, while others are leaving their farmers scratting about for every crumb like a hen in an abandoned farmyard. The NFU have stated that in just four months farmers have been short changed by £200m+. And this figure is rising!
Yew Tree Dairies (AKA Woodcocks) ingredients contract continues to lead the way, on what most farmers regard as fair and transparent milk pricing. It has declared a minimum 30ppl October milk pay-out after haulage, for example.
Suddenly producers across the UK are sitting up and taking note of Yew Tree. Numerous disgruntled farmers on non-aligned milk prices of around 21ppl or less for October have emailed me claiming that their existing milk buyer has rubbished Yew Tree’s pricing and suggested they wait to see what the price is in the flush - implying it will be under 25ppl. And yes, an AMPE related price WILL be more volatile, for sure. Hence Yew Tree’s forward selling risk management offer.
We could all speculate on what that spring price will be, but the processors who rubbish Yew Tree are naive and miss the point. It has sneaked up on them, hit the fast lane, and the evidence points to a processing business run by a dairy farming family who are honest and up-front. Those processors who are praying for Yew Tree’s price to collapse to make theirs look better by the spring are being stupid and complacent.
I have met several Yew Tree suppliers and future suppliers and the message is clear and consistent: they will accept a poor price if it’s an honest, market related and justifiable poor price and that they know that as soon as things improve they will reap the benefits.
Yew Tree’s monthly statement shows in detail how the milk payment has been arrived at, detailing the cream value, liquid value, processing charge, and individual haulage charge in ppl. In addition, it states the percentage of the milk which has been brokered, and the price. There’s no smoke, no mirrors, no bullshit!
Note Yew trees liquid contract didn’t go under 20p at anytime in the past two years with a straightforward 95/5 AB the B price is at similar levels the ingredients contract.
And that’s where several (mainly) liquid processors get it wrong, because they are not transparent and are simply buying cheap milk from loyal producers because they can. In many cases they have forward contracted too cheaply, and those forward deals are delaying milk price recovery.
An advert in Northern Ireland’s Farming Life seeking large daily volumes of Red Tractor Assured milk prompted the NFU’s Dairy Advisor to criticise the importation. That’s perhaps understandable, but NI is part of the UK and we can’t criticise when milk flows in and be happy when Dale Farm exports the other way at a time when there was no home for the surplus milk being produced - as happened previously.
I genuinely sympathise with those facing an October milk price of c.21ppl or less. In 21 years of writing this article I don’t recall seeing so much pain and anger from so many farming families, with most of the emails coming from women who simply want to help the farming business move forward. Well here is my blunt message: many of you would be better off biting the bullet, cutting the stress and pain and selling up. That’s already happening, and my hope is that several greedy processors - some of whom who have had stupidly low milk prices recently - feel equal pain when they have much reduced milk and higher costs. Below is a flavour of some of the emails I have had in recently:
“One of the reasons farmers struggle to exit is that a farmer knows nothing else. He has likely milked cows since he left school, has no other interests and no idea what to do if the cows are sold.”
Well I say don’t stick with a milk purchaser who promises jam tomorrow! Most of them won’t change their spots. Either bite the bullet and give notice, or sell the cows. Take charge of your own destiny and don’t wait for it to get better.
Another farmer who did bite the bullet commented: “There is life after cows. It might take a while to figure it out, but there is.”
Another said: “I am stuck milking 48 cows for my father and I start at 7am, finish at 11pm, seven days a week without a day off. I used to be proud of this but I am a tired fool with no family time, a lot of debt, milking on a tenanted farm on a non-aligned contract to one of our biggest liquid processors. Help on how to exit would be appreciated.”
And here’s two contrasting emails to end on:
“My husband sold the cows and chose me, our family and our health. We are all so glad about that choice.”
“I refused to sell the cows because the farm had been in the family since 1924 and my father insisted we stay in milk. Now my wife and children have left and moved 200 miles away. I wish I could rewind and have another go but can’t. I am, like my father, a fool married to the cows.”
Now to everyone’s favourite retailer Tesco. An eagle-eyed researcher spotted that all of Tesco’s own label lighter (30% less fat) mature cheddar is displaying a small wording confirming it’s Irish cheese whereas the Tesco normal cheese is all British, presumably from First Milk’s Haverfordwest factory. At the time Tesco moved to First Milk for its cheese it struck me as odd the Irish were on mute. Were they content to lose the business, or is the reality that they lost very little tonnage? Maybe this lighter labelling is the answer and Tesco should be “persuaded” to source its lighter range from the UK!
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IP Dairy Farmer Article – OCTOBER 2016
Several milk purchasers are concerned as to when UK milk production will turn the corner and head north again from its 7% decline against last year. I am sure there are a dozen theories as to why production is dropping, but top of the list by a country mile is this one: A CRAP AND UNJUST MILK PRICE for the bulk of producers! And a price that is being paid at a time when the cream income alone has soared to record highs.
The upward trend in prices has been on-going and obvious since April, and farmers are right to be screaming for significant farmgate price increases. But expectations and trust are being wrecked because there is a monumental disconnect between the farmgate price and commodity prices. With a milk price around or under 20p for some still - when they should be 25 to 28p - it’s no wonder farmers are beyond furious and looking at taking the EU’s 12ppl volume reduction payment. Others will continue to cull cows if only to pay bills, as most continue to suffer in silence. Less milk means less work, less bills and more money. I mean, why would anyone produce expensive winter milk for such a pittance? The fact is milk purchasers can and should be paying more RIGHT NOW! and prices should reflect the seismic improvement in the markets.
The UK is milking fewer cows and next time a milk purchaser, organisation, consultant etc. tells you to invest and expand for a better lifestyle challenge them because this has resulted in the opposite this time, for the non-aligned. Equally important is to remember whether your milk purchaser has treated you fairly, or deluded you. For me, one or two milk purchasers have a case to answer and haven’t treated farmers either equally or fairly. Farmers have largely paid the price for the cost of processors either defending or winning new business at knockdown prices, especially those who scandalously used cheap B milk to mount smash and grab raids. Some processors don’t seem to worry about the number of suppliers they are sacrificing.
One interesting analogy put to me recently concerned aligned contracts. It was suggested that there was a similarity between Tesco, Sainsburys plus the other retailers with aligned suppliers and the best buyers around a livestock auction ring. The aligned retailers and contracts have removed the strongest buyers from that ring. It’s a fair point, I think, because once these were removed the non-aligned among you are left with the other buyers whom - just as in the auction ring - can be poor or bad payers, or just a little bit dodgier.
To really rub salt in the wound it’s a fact the two forces driving the GB spot milk market are Muller and Arla. But neither appear to see any benefit in encouraging existing producers to supply more milk. And yet instead they are likely to be paying 40ppl for spot milk by the end of September, while continuing to pretend they have no milk supply issues. If that wasn’t enough some of Arla’s Board of Reps (BOR) farmers saw this shortage coming in July, and put forward a proposal for Arla to pay a 5ppl bonus on every additional litre delivered over and above the corresponding month a year earlier. But the plans were killed by the top brass, apparently.
This has resulted in pretty widespread criticism from Arla’s own BOR farmers over their company’s “One Settlement” rule, which applies across all of its seven supplying countries. Consequently there are some member calls for Arla to effectively re-nationalise each country’s member farmgate milk price, because one size does not fit all.
The big unknowns in the market right now are how much of the upturn is down to a worldwide drop in milk production, how much is down to rejuvenated Chinese demand and last, but not least, intervention. At what point will the European Commission start to offload SMP from intervention stores, which will dampen upward price movements there, or individual companies move butter out of PSA.
According to AHDB Dairy cull numbers between February and June were 17% up on the same period a year earlier. Their rough calculation shows that the extra animals will result in 310 million litres less milk, and while replacements are in the system they will come nowhere near to compensating for the 17%. In addition, German slaughterings are up 16%.
Now to the thorny issue of credibility and good governance practice. This month the spotlight is focussed on Muller again, and the England and Wales NFU Dairy Board.
Both boards should provide the strongest representation for the interests of all its producers and be accountable to members. But they don’t.
The NFU Dairy Board is heavily co-op, and in particular Arla, weighted. It is not good representation to have both the NFU Dairy Board’s Chairman and Vice Chairman both supplying the firm, and a total of seven out of 12 dairy farmers on its board supplying Arla.
With Muller the feedback to me is clearly that non-aligned farmers feel they are not represented in any shape or form, and that the Muller board is not even in a position to organise their own independent producer meetings to allow producers to express their views. The view from one particularly colourful e-mailer was that if the Board and Muller aren’t careful, and play it right for ALL farmers they will end up looking like the characters from Sooty (farmer chairman) and Sweep (any nominated aligned deputy), with Sue being Lyndsay Chapman and me Butch, the nasty Bulldog. But that can’t be true as no Dutchman or anyone from any nationality will get his hand up my backside and work me like a puppet! I can envisage Muller farmers jumping up and down in uproar at this image of their “representative” Board. But – and this says it all – it will only be those on cushy aligned contracts doing the jumping!
Following on from a recent article I am pleased to see that Yew Tree Dairies (aka Woodcocks) will, by the time this article is out, have launched the first farmer orientated futures trading price contracts. Well done, and about time too! There will be more on how it works in a future issue.
My comments on fixing cows at dairy shows and Holstein UK’s vow of silence kickstarted a debate around issues a few farmers would rather not discuss, or have aired. Needless to say I intend to re-visit that area again soon.
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IP Dairy Farmer Article – September 2016
Last month’s article on futures and hedging produced a basket of emails and all (bar one – staggeringly - from a farmer representative on an aligned contract), believed hedging mechanisms for dairy should be developed.
Several pointed to the fact the former Dairy Crest Direct (DCD) formula contracts has been one of the few successful hedging tools. But this will be axed by Muller on January 31st 2017, because it, and members of its Muller farmer board, want it finished!
On the formula DCD farmers could choose whether to sell a percentage of their milk through a transparent formula contract. Thus it’s a surprise that some of Muller’s customers don’t want to take advantage of the mechanism in a bid to smooth the market volatility extremes, and be seen to pay a fair price. A similar formula has been very successful with Glanbia in Ireland for its farmers and customers.
It is also staggering that the decision has been made by a farmer board where the majority are on cushy retailer aligned contracts which bear little relation to the market. They appear to be more than happy to benefit from a cost tracker like Tesco’s and the Co-op’s but against their fellow non-aligned farmers who they represent taking advantage of similar mechanisms!
Previously I have referred to Ronald Ker’s mission statement of wanting to be the biggest and the best UK dairy processor. Frankly I think there is a lot Muller can, and should, do to develop hedging tools for its non-aligned farmers if it wants to realise the dream. The same applies to Arla.
Lots of ideas are emailed to me each month, but one from Clynderwen and Cardiganshire Co-operative MD Keith Gosney particularly caught my attention.
He has written to both NFU presidents suggesting the legal eagles at the organisations should analyse the main milk contracts and produce a farmer friendly review of them, with the pluses and the pitfalls. He also would like the unions to publish actual payouts for six month to five-year milk periods “to allow farmers to make informed judgements of the likely ability of the buyer to deliver a consistent price”. I support both ideas, although for me the best independent person to produce the averages is www.milkprices.com’s Steven Bradley. Farmers desperately need help in both areas and should not to be seduced into the latest headline deal which will soon be on offer.
Muller, for example, is currently under attack for failing to offer any non-aligned price increases before October 1st. A comparison of their six month to five year paid-out average would be a useful tool to judge their performance by and could provide a solid basis for them to counter the awful PR they are getting now.
Now to Holstein UK.
And the second embarrassing disqualification at this years Great Yorkshire Show (GYS). This involved a different herd with direct connections with the farm which was given a life time ban following disqualification by the GYS in 2013. Once again it was the Holstein Breed Champion which failed to pass the show’s stringent veterinary inspection, hence the disqualification and note no appeal against the disqualification from the offending exhibitor.
A couple of retail milk buyers were quick to ensure the offending exhibitor was not supplying them with milk. They exhibitors weren’t, but if they had been then that would have been their contract terminated.
I have tried to get answers to questions from both Andrew Dutton, Holstein UK Chairman, and Richard Jones, CEO, as the show would have been conducted under Holstein UK rules and codes of practice. The response from Jones can be summarised fairly easily: “F-off.”
But I didn’t, and won’t, and emailed both again (twice). I know the emails were read (by someone), but there has been a deafening silence and no response in more than two weeks.
My questions were pretty simple, I thought:
1) Does the Holstein Society condone cheating, or of practices that could be construed as animal cruelty, by cattle exhibitors in a show ring? If it doesn’t then I asked if I could have a statement to that effect in relation to the GYS disqualification. It hasn’t provided one, which is strange as failure to provide one could, of course, be interpreted that the Society is willing to condone them.
2) I then asked whether any investigations over possible cheating, or possible animal cruelty, were being carried out at the GYS by Holstein UK? After all, SOMETHING on those lines MUST have happened or else a competitor would NOT have been disqualified! And Holstein’s rules (clause 1.4 actually) clearly state such practises will amount to misconduct and disciplinary proceedings against the member.
3) If there aren’t any investigations, then why? A failure to investigate suspicions, or accusations, is tantamount to turning a blind eye, surely! I mean, why have rules and disciplinary procedures if they are ignored?
From the wall of silence I am getting I think the position Holstein UK’s Chairman and CEO is taking on members who cheat is clear: sweep it under the carpet and hope it goes away. But why? Surely it cannot be because one of those banned exhibitors happens to be a Holstein UK Board member who represents Holstein UK and the British flag in European Shows where it would appear Holstein UK’s show rules are ignored by the society. It’s the Dairy show equivalent of cheating at The Olympics.
It will be interesting to see what happens at its own up and coming UK Dairy Day!
Well one solution which merits consideration is that the night before each show all exhibitors dairy cattle are milked out and a vet verifies this by a deadline time. If it’s not milked out it’s disqualified. Do this and every exhibitor who shows in the UK is on an even playing field. "Those who don’t like it can take their cheating, evasive tactics abroad.". Do you have an alternative solution?
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IP Dairy Farmer Article – August 2016
This year’s Dairy Industry Newsletter Conference was titled “Managing the Extremes of Dairy Market Volatility”. It’s a big issue for the sector, given that since 2009 we appear to be on three year peak and trough cycles, and they are likely to continue.
Up until 2007 the tops and bottoms for EU SMP prices were + or –10%, so within a 20% band. Now it’s nearer to + or -50%, according to FC Stone, and this has accelerated since the removal of quotas. Dairy prices are now one of the most volatile of commodities.
This brings me onto the management of volatility and price risk. Basically I’m talking futures, which is a contract to buy and sell dairy products at a price agreed today for a fixed date in the future. Usually this is with no physical delivery of products, but with cash settlement instead. Futures markets are very useful and add price certainty for buyers and sellers, enabling both sides to budget. This is especially important for those who plan to invest.
Few, if any, individual dairy farmers will trade in futures but processors, PO’s and co-op’s could hedge on behalf of farmers to help them fix prices. Trading is NOT about trying to pick the tops and bottoms, it’s about locking into a profit margin in a bid to protect against adverse price movements. Inevitably you will miss the highs…but you will also miss the lows! And it’s those that do the damage! Futures can only succeed if there is a medium to long-term approach, and a mature relationship between the farmer and the person trading on his behalf. It’s about safety and margin for your business. The bottom line is it’s about being able to sleep at night!
Some ill-informed people get hung up about the possible involvement of speculators, as if they are evil people who will wreck the sector. To me the speculator makes for active markets as seen in oil, wheat and cocoa etc. Daily volumes traded in these markets are significant. The reality, though, is there aren’t any speculators in dairy.
Today we have independently verified formula prices, which have been successful for the likes of Dairy Crest suppliers/Direct Milk DPO. Surely the time is right for processors to develop simple contracts with fixed volumes (and solid levels) for fixed periods of time, say a year, for a fixed price.
Farmers cannot manage this price risk but milk purchasers can. GB milk purchasers have been slow to explore this opportunity and I can’t figure out what the barriers are. Perhaps it’s simply education and the need for a team launch effort. It is a fact that, if the UK aspires to be a significant world dairying region we need to develop mechanisms to cope with wild volatility in world prices.
Futures market price reporting is constantly updated and a fantastic source of information for farmers to see what’s happening at the coal face on the farm. Just take a look at www.directmilkdpo.co.uk to see their futures section, which is a must read. Dairy farmers need to be aware of futures market trends just like they are on milk price trends.
That brings me neatly onto DEFRA and (sigh, again, AHDB). DEFRA should, in my view, be a central, transparent, neutral, trusted and accountable source of accurate statistics.
Back in April I, along with fellow hack Chris Walkland, lambasted DEFRA for publishing a February UK average farm gate milk price up by a ludicrous 10.8% (+2.48ppl) from 23.09ppl in January to 25.57ppl. In fact, if you removed the Northern Ireland average February milk price it sent the GB average to a whopping 26.9ppl! This was because DEFRA lumped all of Arla’s 13th payment bonus into a single month!
We challenged DEFRA over what was a misleading and irresponsible calculation, but it dug its heels in and refused to back down. AHDB wouldn’t get involved either saying, basically, that “we can’t influence DEFRA” and that Chris and I were “making a mountain out of a molehill”. The only other person who pushed for a correction of the figure was George Dunn of the TFA.
Chris was so incensed, and could see the long-term implications, that he made a formal complaint to The National Statistics Office, who oversee the DEFRA stats. It duly investigated and concluded that “we agree that the presentation of the statistics was materially misleading” and that “in the light of the lack of contextual information to explain the implications of the inclusion of bonus payments in the February estimates, we have concluded that the statistics do not reflect the highest standards of trustworthiness, quality and value.” It was an emphatic damning of DEFRA. The full letter from the DG for Regulation to DEFRA can be seen at https://www.statisticsauthority.gov.uk/wp-content/uploads/2016/07/Letter-from-Ed-Humpherson-to-Ken-Roy-140716.pdf
This is a serious issue on a number of fronts. First the figure itself. It has already appeared in an official “state of the industry” document in the House of Commons library, which all MP’s – and anyone in the world, in fact – has access to. It shows that your price is over 5p more than the reality for most farmers! It is also known that some land agents are using the figure to justify rent standstills or even, remarkably, increases. That’s instead of what should be the case now, which is rent reductions.
The second major issue relates to AHDB “having no influence with DEFRA”. Blimey! Its recent post-referendum headline was “AHDB leading agriculture through Brexit!” As Chris commented, “if AHDB are leading they way on Brexit negotiations with DEFRA, and it can’t influence change on such an idiotic figure as this, then God help us!”
AHDB’s market intelligence budget is massive, and with levy payer’s money it is supposed to solve market failure. Instead it did nothing to rectify a situation whereby DEFRA had monumentally screwed-up on basic UK monthly milk price reporting, and “materially misrepresented” the facts.
Perhaps the real issue is that DEFRA is in full control of AHDB and is instructing it to toe the line! With humbled AHDB chairman Kendall having led the farming “in campaign” for Brexit (who failed to have much influence on farmers at all, it seems), and with George Eustace who led the “out campaign” (and won) keeping his job at DEFRA, it will be very interesting to see how much influence AHDB really does have going forward.
IP Dairy Farmer Article – July 2016
At the recent DIN (Dairy Industry Newsletter) Conference, which had the title “Managing the Extremes of Dairy Market Volatility”, David Dobbin, the current but soon to retire CEO of United Dairy Farmers, commented that farmers must to be able to survive deep and extended milk price cycles, and that this current down cycle is set to continue into 2017 if not 2018.
He also stated that the survivors will have either low cost or production, or deep pockets. Those with high debts and/or high cost of production won’t survive, and this unfortunately means some of the most efficient who have ended up in the wrong place at the wrong time.
Conference speakers and some delegates were asked by me for their predictions and forecasts as to what the “average” farmgate milk price is likely to be in the next five years, and the answers ranged from 21 to 25ppl with most in the 22 to 23p bracket. This is exactly the price I believe farmers need to budget on.
The European dairy industry has changed since the end of the 30-year quota regime, during which time farmers couldn’t respond to increased milk prices. Now 28 member states can respond to milk price signals as quick as anyone in the world and whether you like it or not the likes of The Netherlands and Ireland intend to fully exploit this opportunity. With quotas gone the only output control is the price. But this hasn’t worked during this downturn yet!
At the Conference Jim Bergin from Glanbia, who processes a third of Ireland’s milk, amplified the Irish (ROI) target to increase milk output by 50%. The example he used was that the average producer in ROI has around 60 cows. To expand the typically mixed farms simply cuts beef back numbers and put an extra six cows on a year for five years. At the end his milk output is up by more than 50%, especially so when combined with genetics and technological advancements. Consequently the 50% target is one they expect to exceed by 2020.
Across the world different dairy organisations and processors are keen to support and relieve a little of the pressure this crisis is putting on dairy farmers and their families at a time when they desperately need it. For example Glanbia is supporting farmgate milk prices by €23 million (at a rate of 1 cent/litre). In Victoria, Australia, there is a $1.5 million (£750,000) support package in place, of which almost £500,000 is directed to counselling services for dairy farmers. My recent involvement in the Dairy Allied Industry forum was in the hope AHDB would acknowledge that funding in this area is necessary, and could help save families’ marriages and lives. This funding, alas, has not materialised and AHDB dairy decided it wanted to focus on better returns, improved feed utilisation and producing the right milk for your contract - as is the case with its current series of workshops. It’s not the key message which came out of that meeting so far as the majority of the delegates present were concerned, including David Handley.
I know I can be accused of being a stuck record but some farmers have to read the tea leaves and decide whether they have a profitable future in this industry. Only recently I was interviewed by BBC Radio Cumbria along with an anonymous South Cumbrian Farmer. He claimed his average milk cheque was just over £9,000 month and his “essential” average bills £14,000 month with another price cut confirmed for June. His position is simple to analyse, because his milk cheque needs to increase by a whopping 50% just to breakeven and pay his essential bills. Whether he is on 18p or 21p his milk cheque will NOT go up by 50% in 2016 or 2017 to cover his outgoings on a monthly basis. He is digging himself and his family a very big hole and must make radical changes or he and his family will continue to haemorrhage cash and asset value and be extremely pressured. He, like many others, needs some independent guidance as to the right road for him and his family to take. That’s the sort of help I hoped our organisations would champion. Again at the conference John Jordan, CEO of Ornva (formerly The Irish Dairy Board) stated that “Everyone has a duty to support dairy farmers in this crisis.” He is right.
Recently there has been discussion about member state compensation to farmers who reduce milk production. In my opinion it would be a nightmare to police, and won’t have any impact on the huge financial hole many farmers face. In the UK one group is even proposing getting 20ppl compensation for litres NOT produced! The problem here is that while the EU have approved the measure it is down to member states to provide the funds from national coffers, and there is Bob hope and no hope of the UK coughing up even so much as £1.
The consensus at DIN was that the troughs are getting deeper and appear to be on a three-year cycle. Volatility is increasing and pre 2007 SMP prices varied by + or – 10%, but now it’s close to + or – 50%.
Futures markets might help. They aren’t for farmers but they give better early warning signals than some of the other rubbish farmers are presented with. It’s a topic I will return to at some stage.
On the second day of the conference there was almost a beauty parade of big hitters giving their views on the industry and the direction of their processing businesses, pointing out that neither processors or farmers are making money. All of the speakers with the exception of one, Andrew McInnes of Muller, referred to the financial pain their supplying farmers are experiencing.
However while the three co-operative head honchos (David Dobbin, Jim Bergin, and Peter Giortz Carlsen of Arla, focussed on inadequate returns to farmers McInnes did catch my eye when he said his question to suppliers is “what are you doing differently?”. He stated that most give no answer. It’s likely to be the same for a significant number of dairy farmers who sadly keep plodding on, burying their heads in the sand hoping things will improve. They aren’t prepared to play their part and make any changes to become world competitive and profitable and will, in many cases, wither on the vine and loose more than money.
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IP Dairy Farmer Article – June 2016
Good news! Milk production is easing across the UK, and most importantly, across Europe and globally! UK volumes are dropping by 4% and 5% against last year, equivalent to around 2 million litres/day. Futures markets and auction results are slowly trending up, and WMP and cheddar prices are nudging North. Cull cow numbers are up 20% in March and, according to AHDB Dairy, are at their highest level since 2006 - the time OTM cattle were allowed into the food chain.
We are, I believe, at 6.35 on the clock having already passed the bottom at 6.30. The trend is now up, but remember intervention stocks are worringly high and the increase in Europe SMP intervention stocks is scary ! It’s only a slight U-turn and a distant glimmer of hope in a market, which some analysts are now predicting will not pick up until late 2017 or early 2018. Remember a pick-up does not, in my opinion, mean a return to 30ppl.
There is now the option for EU member states to provide state aid to dairy farmers for up to three years to a maximum of €45,000 (£35,000+), which could be directly linked to a freeze in production on a farm. There is even talk of financial incentives to those who cut milk production. Just don’t bank on DEFRA doing this and paying out any money!
AHDB has published an activity review report, which confirms it has a lot of work to do. But at least it accepts its shortfalls and recognises it needs to demonstrate a return and a benefit on the investment made by levy payers.
Under the heading of “Communication” the report refers to “A very strong view expressed across producers about AHDB’s communications…”. On reading this one dairy farmer commented that AHDB Dairy “is guilty of producing masses of information, which us dairy farmers pay for and don’t use or understand. It’s about as much use to my business as tits on a bull”.
The report also acknowledges that “the organisation should provide more forward looking market insight and analysis in addition to historic price reporting”. That’s a bulls eye for me, and I, for one, was very unhappy that AHDB Dairy shied away from giving dairy farmers strong signals on dramatic milk price falls months before farmers realised. It remained in hibernation and failed to give notice to farmers to prepare for a downturn while others, including me, were lambasted for talking the industry down.
AHDB Dairy has to think differently, be brave and communicate the signals - both positive and negative - to farmers whether the medicine is tasty or bitter. Just for the record, and no doubt to the delight of one or two top brass in AHDB Dairy, I have confirmed that if they communicate more hard hitting commentary on the industry I’ll shut up shop and retire! Finally, on the topic of export development the organisation has realised it needs to do signficantly more work and the budget has been boosted. That’s good news too!
First Milk’s fortunes, under Mike Gallacher’s captaincy, have improved and in the last year the business has moved from a £20m loss to a £4m surplus, before one off restructuring costs. Critical to this is the cost savings made. Yes there have been milk price cuts, but mo more than others and its price is comparable to other commodity buyers now.
Gallacher inherited hundreds of members who desperately wanted to leave First Milk but couldn’t, and staff who feared they would have to. It was perilously close to having its doors closed.
But the senior management has focused on how it can mitigate the impact of the market on members’ milk price – a tough job in the current market. His predecessors got away with paying one of the lowest milk prices for years, but at least today the business no longer suffers the pain of balancing on behalf of the industry now that it is out of Westbury. He has made the big plays and now the focus needs to be on the simple stuff. The signs are cautiously encouraging. He will have to continue to find further cost saving and efficiencies across all areas of the business, which will be tough and painful.
The recent move by Tesco to dump its COP cheese model, which automatically encouraged farmers to increase production, has received limited analysis. When TSDG piloted its cheese group with Parkham Farms’ producers in 2012 the premium was 1.6ppl above a ‘top secret’ undisclosed basket price. Today it’s allegedly 2ppl.
Parkham backed Tesco to move from COP as it was convinced the new model is more sustainable and, on balance, I tend to agree. Yes, the move is a financial blow to the farmers but sensible farmers involved with Parkham and First Milk are likely to support the move and want a long-term direct relationship with the retailer, and will listen to Tesco’ s requirements. The reality is that if Tesco offered the same 2p milk for cheese premium today First Milk and others would grab it with both hands.
But the Tesco move to have dedicated First Milk suppliers to the Haverfordwest Creamery, and the switch of 200 million litres of liquid milk from Arla to Muller, sends a clear signal that Tesco doesn’t want to share their premiums across all co-op members.
So where does the cheese model leave TSDG liquid suppliers currently on a COP model, which is now not market related? The producers involved will fight to retain the status quo, but will surely acknowledge the warning signs and clear direction of travel in that Tesco wants to slash the costs of its TSDG pool. And quickly!
It may pay well at the moment, but the price gap between the non-aligned is narrowing fast! When Arla opened up a final window of opportunity for its members supplying Tesco to leave the co-op and become Tesco directs, few farmers actually jumped ship. For me this sent a powerful message that those farmers joined Arla to be part of a 13,000 strong EU co-op which owns brands and invests heavy in new product development. They declined the invitation to have all their eggs in the Tesco basket and I reckon they were right!
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After a clamour from the industry, AHDB Dairy have revised their three-year strategic plan and given the green light to invest up to £3.5m in market development. The result is they are now working with Dairy UK to maximise the bang the industry gets for its combined bucks for this area.
The money has come from freeing-up some of the levy money, dipping into reserves and squeezing cost savings, and it’s a great start. The two organisations are aiming to put forward a robust plan to support an application for EU co-funding by February 2017, which could boost total funds by 70% (80% for a multi-country campaign) and could create a fund worth more than £20 million. Now that would achieve something REALLY positive! That’s, er, provided the UK doesn’t go it alone on a Brexit!
Securing the funds won’t be easy, and it will be a competitive process, but promotional funds is what many producers wanted to see; is (I think) essential, and is a joint collaboration. As Minette Batters commented recently, though, such development money has to be targeted at specific areas, and the industry “has to inform its customers why they should stay loyal to buying British Red Tractor Food.”
Heaven knows we need to do something to encourage consumption and to promote our high quality dairy products both at home and abroad - if only to defend our corner against the Government’s (first) bombshell of the Eatwell Guide that stunned the industry last month. Just when most dairy farmers are struggling to stay above water because of the economics along comes the Government to dunk you under with new National dietary guidelines for health professionals, stating the recommended dairy intake should be halved. So instead of promoting and celebrating our great products there is a new public health campaign to ensure consumers eat less dairy, we sell less and the industry suffers more! With friends like that who needs enemies!
My recent articles have produced a much appreciated flurry of mostly short but well thought out emails. All bar one agreed that producing more milk to maintain a high value milk cheque was a financial disaster. Sadly one reader stated his cost of production was 21ppl and his “modern day Robin Hood of a middle ground processor milk buyer” was intending to pay him 9p on his B litres. He commented “I don’t understand how cutting my production would make me financially better of.” It would be interesting to see him present his case to Peter Jones and his associates in The Dragons Den. They would take him to the cleaners!
Next month I aim to review the multitude of emails I received under the heading of “is there life after milking cows, and does giving up mean you will be badged as a failure.” (Which it doesn’t!) In addition, I aim to look at the significant role women play (or should play) - and I don’t mean cooking, cleaning and ironing for grumpy dairy farmers. As I’ve said before, behind every successful man there’s a woman booting him up the arse.
The drop in average farm gate milk prices between 2014 and 2015 is 7.2ppl and still increasing. That’s as near as dam it at £1.1 billion cut in turnover for dairy farmers in the last twelve months alone. Note for every 1ppl drop the cost is £150million. That’s some serious money. For those of you anxiously looking to spot the first signal that UK processors believe we have reached the bottom watch out for one or more of them announcing that prices are fixed for the next two or three months. That’s when they have calculated we have hit rock bottom.
If the Eatwell Guide was Bombshell number 1 last month then Number 2 was the utterly jaw-dropping number crunching by DEFRA where, for February, they added Arla members’ 13th payment to record a milk price increase for the month of 2.48ppl. Despite widespread ridicule and anger DEFRA dug their heels in and stood firmly by their calculation. But despite it making them a laughing stock it’s serious as these figures feed into the Commission’s Milk Market Observatory.
The Intervention Board made a similar gaff in 1996, however they did subsequently issue an apology. Well many in the industry are up in arms at DEFRA’S refusal to back down, and also at industry organisations for being impotent to change a wholly misrepresentative calculation. We will have to see what happens ultimately because my often partner in crime and industry hack Chris Walkland has lodged an official complaint with the National Statistics office, which is presently under investigation (pending, probably - and knowing civil servants - it all being swept under the carpet.)
According to my calculation if you strip out the published Northern Ireland February farmgate milk price of 18.54ppl the GB February price, on DEFRA’s methodology, was a jaw dropping 27ppl (26.9ppl). That’s the aligned price PLUS the non-aligned, but that’s another segmentation story for another article.
That brings me onto current league tables, which are today simply “smoke and mirrors” and in no way reflect the real situation. Even if we ignore the ridiculous DEFRA figure we have aligned prices making the average price look significantly better than it is. Then there is alphabet pricing with A, B and even C milk prices, yet published prices do not reflect the real money received. I accept it’s a big project but surely its high time there was a wholesale review of our published milk prices to ensure they are real and relevant.
Finally, and to try and brighten up an otherwise gloomy industry, I conclude with a genuine complaint to a local council: “The toilet is blocked, and we cannot bath the kids until its cleared,” they wrote. Brilliant!
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The recent announcement by the EU of a doubling of the intervention ceiling for SMP, plus the additional 40,000 tonne ceiling increase for butter, are useful market management tools. However, at an Intervention farmgate equivalent price of around 14ppl or less this is unlikely to encourage many European dairy farmers to produce more milk but will help us get through the flush, hopefully avoiding distress milk returning under 10ppl. It’s a safety net that is significantly below any UK farms cost of production.
Intervention buying for the Commission has previously proved to be very good business. Last time it offloaded its stocks it netted around €1.5 billion profit, and I hope it delivers similar winnings this time so they can be invested back in the sector at some stage.
and our near neighbours in Southern Ireland has already declared that it’s highly unlikely it will have sufficient processing capacity to handle all its milk and it will have to ship some to the UK. Meanwhile the UK processing industry has calculated that we are unlikely to have sufficient capacity - hence the talk of distress milk at 6 to 8ppl. What a mess!
Even the most efficient sharp-eyed cost conscious non-aligned dairy farmers are struggling with a milk price under 19ppl. For most, continuing to produce milk at under 19ppl means more losses, which will simply take longer to recover from. And remember, come April, some farmers might be receiving only 11ppl!
On the back of a high milk price, a lot of dairy farmers found expensive ways to produce more milk. Sheds were erected and land rents and land values rocketed. It was a great party when prices were high, but we’ve one hell of a hangover now!
On top of this the more competitive milk producers in Ireland, Holland, Germany and Denmark are unlikely to pull back on production and will continue to grow their dairy businesses. This leads me to conclude that this crisis is more of a structural change in world dairying and NOT simply volatility. I believe we will eventually see a five-year “average” non-aligned milk price to 2021 of around 25ppl. In fact it could be quite a bit less than 25ppl, having averaged 28ppl in the past five years.
I don’t want to be negative but it is better to be a realist than a fantasist. The worst any commentator or analyst can do is to give dairy farmers false signals, to build up expectations that they can ride it out, and suggest a recovery to near 30ppl is down the line. It’s not any time soon!
In fact I’d say that farm gate milk prices have not reached the bottom yet, and there is certainly more pain on its way especially in the cheese world. However - slowly but surely - falling milk prices are starting to control supply.
It’s going to take skill and guile to manage this situation at farm level, and some different disciplines will come to the fore. In one instance I know of a bank agreed an extra facility with a farmer to pay his silage contractor, but only if the bank paid him direct.
A period of 12-18 months at under 20ppl will take several years to recover from. It’s for this reason I have suggested to AHDB that as well as milk price league tables what’s required is a tool farmers can use to calculate a worse case scenario. Call it a “What if and a milk price stress test”, which could give answers to questions such as “if I receive 18ppl for 18 months what average price do I need over the next four years to cover my average COP of xppl…”.
My last article triggered the most responses I have ever received in 25 years of writing!
Several respondents were concerned that some of the allied industry representatives, who are asked for help and advice, will shy away from suggesting that exiting the industry could be the best outcome for some farmers. Others aired concerns that a delayed decision would seriously erode net worth, that family relationships would break down under the stress, and the feeling of failure would weigh strongly on individuals (or even worse there could be lives lost).
Husbands and wives emailed me (with some in their 40’s and 50’s) saying that fathers, mothers and in-laws still dictate what happens in the business, and exert pressure on the farming family.
And I was delighted that the overwhelming response was the recognition that family, health and happiness must come before the cows, the farm and what parents might want.
Sitting down with the family is key, and having a third party involved in family meetings to me is essential because they bring a structure to the decision making and in their absence the likelihood of fur and feathers flying within 30 seconds of the start of any meeting is usually high. It doesn’t need to be a professional, and can be a trusted unbiased family friend.
How would I start if I had to do it? That’s easy: I’d give family members a pen and a blank sheet of paper on which they write what they want to achieve in the next 10 years. Then I’d compile the lists, find common ground and pin the combined list up in the board room (AKA the kitchen) and everyday work towards the delivery. Writing the list is step 1, step 2 is far harder to implement!
The crux is, though, that if some farmers don’t decide on their future then their future might be decided for them. Many face the prospect that they will be removed from the industry, and going voluntarily might be less painful than being forced.
To conclude, I leave you with the words of one reader: “There is life after cows. It might take a while to figure it out, but there is and more often than not, it’s a happier life”.
1. Have you the mind-set to take control of your own destiny? Or do you feel bewildered and a hopeless victim of circumstances?
2. Is dairy farming right for you and your family? What are your plans for inheritance? Are you doing the right thing for your non-farming family members?
3. What will you need to invest in your facilities in the next 10 years? How will you fund it and justify it?
4. Do you REALLY know your cost of production?
5. What is the realistic future milk price? Are you looking at the evidence or living on hope?
6. Have you worked out whether you are producing what your milk purchaser really wants? i.e. Are you maximizing your return under your milk contract?
7. What are you really paying yourself per hour? What can you afford to pay yourself and remain competitive? Would you be better off paying someone else and trying to add value to other parts of the business? What are your other skills? How much could you earn off farm part-time or full-time?
8. Might there be a day when you will find yourself stranded without a milk purchaser at all?
9. Are you buying all your inputs at best prices, and when did you last check alternatives?
10. Are you ruthlessly and honestly benchmarking your performance and constantly trying to identify ways to incrementally improve performance?
11. Have you got your eyes open for niche opportunities even if they start small?
12. Do you have the right skills for the technologically and market driven global dairy industry of the future?
I suggest every non-aligned farmer living in the real world goes through those questions with your partner and family members.
Today, most dairy farmers face the most financial pressure they have ever encountered, with income crashing. Individual performance may have improved, but workload and bills are increasing.
Dairy farming and life on a farm is full of pleasures and challenges and for many it has been a dream of a profession and an ideal place to bring up a family. But now it’s time for many to face up to the fact that their lifestyle is under threat and it could be the end of the line.
It’s no longer possible to succeed by getting up earlier, staying out on the farm later and pushing yourself harder. The number of hours you work outside will NOT determine your success or failure as a dairy farmer, but it will push you and precious relationships to breaking point. Faster or harder working hands are unlikely to turn around a loss making situation, and to those of you who have asked me when prices will return to normal, and quoting figures of 30 to 35ppl, I say this: you could be in dreamland. Nothing, but nothing, says normal will be 30 to 35p. Normal could as easily be 24p going forward.
Too many farmers I know, if they were honest, are married to their cows and the farm and in second place comes the children, followed by the wife and the marriage unless (as in some cases) the dog comes in at number 2 position!
At what cost do you intend to keep the family dairy farm going? Are you prepared to sacrifice everything – for example your own health and happiness, your family’s happiness, your marriage or will you sacrifice the dairy unit to retain them all? It’s a massive decision to give up dairy farming but it’s not the end of the world. It’s more you taking control and having a change of direction with new opportunities and challenges. Sadly, recently I have heard of dairy farmers cashing in their pension just to keep the wheels turning. Please… don’t be afraid of change, its part of surviving.
Oh, and if you are aged c.40 plus and still reporting in to your father, who realistically still looks upon his son or daughter as a glorified farm worker who still needs his guidance, then my advice is to not put up with this situation and get out now. And don’t get me started on those who have never had a proper holiday away from the farm, thinking that 30 years or so of consecutive milking is a badge of honour. Frankly that is tragic.
One dairy farmer once said to me: “When I drive my car up hill I simply push down harder on the pedal.” To do that in an attempt to maintain your identity and dignity as a dairy farmer is unlikely to succeed. Another reader asked me this: “Do I listen to my heart, my accountant/consultant or my family?” Easy answer this one: your family.
The questions and this article won’t give you all the answers but I hope it stimulates debate and questions for you and your family. Remember, you are NOT letting anyone down if you change and get out of dairy farming. But you will be letting you and your family down if you don’t change and do the best thing for your family. Whatever you decide to do, good luck and I hope it works out for you.
IP Dairy Farmer Article – February 2016
IP Dairy Farmer Article – January 2016
IP Dairy Farmer Article - December 2015
Things are on the up! Alas, though, not milk prices. It’s the level of fighting, bickering, name-calling, threats and plotting between farmers I’m talking about. Farmers working AGAINST other farmers, for example, exemplified by one farmer who, for some inexplicably stupid reason, stuck a spanner into the incredibly successful Morrisons “Milk for Farmers” brand.
Whilst FFA and others push retailers hard for every last 0.1ppl a Mr Richard Brown - a farmer “with a lifetime experience” from Derby, and believed to be aided by a dairy nutritionist from Nantwich, has complained that Morrisons has misled the public, through the fact Arla is a co-op and not all of the extra money goes to British farmers.
He was dissatisfied with Morrison’s position, so complained to the Advertising Standards Authority. In addition ‘a shopper’, named “Mr H”, but possibly Brown himself or the nutritionist, sent an email chain of his dialogue with Morrisons to The Farmers Weekly which regurgitated it in full under the headline “Morrisons slammed over ‘misleading’ milk for farmers?” The opening two words of the article were “A supermarket shopper.” On top of that, and much more significantly, The Sunday Telegraph picked-up on the article and printed the same anti-Morrisons angle.
How the hell did just ONE complaint result in The Farmer’s Weekly deciding to publish this article and potentially undermine everything going on in the industry to get more money from retailers? It is irresponsible, and FFA and all other dairy farmer organisations should ask questions of it.
Thus, while some dairy farmers work hard during the day and stand on freezing cold, wet picket lines at night to try and get extra money, others are undermining successful initiatives. It is staggering! Perhaps Mr Brown & Associates would like Arla to repatriate back to Denmark the share of the profits from Lurpak, Castello and other EU retailer’s money which UK farmers enjoy a share of. The fact this happens was conveniently overlooked in The Weekly’s article, though.
Now, it’s nearly 2016, so what do I predict for next year? Following the sale of its liquids division to Muller I bet 2016 will see Dairy Crest’s remaining cheese business taken over. My money is on an Irish flag flying over Davidstow, with 2nd favourite being a French, and a German flag more of an outside punt. If I were the Irish I would want the Cathedral City brand because, as I have previously said before, the brand doesn’t actually have to be made with British milk.
Milk price wise, you all know it is going to be a long haul. Global production needs to fall in line with demand, but it is currently still increasing. The EU28 are producing 3% more milk, for example. There is no shortage of milk in the world, and the buyers know it.
For First Milk 2016 will obviously be a very tough and pivotal year. Last January CEO Kate Allum stated that “First Milk members should be confident” and that “the business is in very good shape”. She didn’t tell the truth, though, and the financial situation was serious with no basis for any improvement. The first hurdle is for it to negotiate its re-financing with its main bankers Barclays & Lloyds, but it is confident. I wish Gallacher and his new commercial team the very best. May the force be with it! (to quote a film out soon.) For the members I guess having your milk collected and being paid for is a bonus compared to those who have no contract.
Finally, AHDB Dairy. And I make no apologies for being like a terrier with a rat on this. I am getting a LOT of emails on the subject. A former vice chairman of a major farmer organisation sent a two word email (which summed-up what many others went to great lengths to say): “Scrap it”, he said. Another stated that if AHDB Dairy were privatised or the levy was voluntary it would struggle to stay in business.
On recruitment, for example, I was surprised to learn that AHDB Dairy do NOT follow Government guidelines (either by law or in principle or spirit) and the Board decide who is employed and on what pay package. My concern was whether its recent appointments process had followed approved guidelines, were fair with open competition and that there was accountability. I was, for example, utterly staggered to see that it will “produce a recruitment policy shortly”. In other words it ain’t got one NOW! This is unbelievable given AHDB’s total wage bill is £22 million – a whopping third of its income!
The job as head of AHDB Dairy was ONLY advertised on FWi (Farmer’s Weekly Interactive) and promoted via AHDB’s internal intranet and website for three weeks, as well as AHDB alerting sector board members and senior management to the position. Not surprisingly this flaccid advertising campaign resulted in only SIX applications, and just TWO interviews, and in front of a panel of four AHDB senior people. Interestingly, and more professionally though, a further nine senior director and senior positions were more widely advertised in the Irish Farmers’ Journal, The Economist and Guardian online.
Its duty must be to strive to find the best talent in the country. In its response AHDB stated that “The online advertising route (for the Strategy Director for Dairy) was pre-evaluated as the most cost effective route for these parts.” Maybe so, but cost effectiveness isn’t what’s wanted here. The best talent is! It is little wonder that the acronym “FOP” is now gaining traction to sum-up the requirements for anyone who wants to get in, or on, at AHDB: FOP = Friend of Peter! (as in Kendall, the ex NFU chairman.)
Finally, Merry Christmas to all readers. Despite everything, I hope you have a good one. Heartbreakingly and tellingly, I have more than one or two emails saying they’d like their AHDB levy to go to putting more food on the table for their kids at Christmas, or buying them more presents. And that explains why I’m like a terrier.
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IP Dairy Farmer Article - November 2015
Following my last article on AHDB and a subsequent flurry of interesting emails in response, I was encouraged to look into the background behind AHDB’s free consultancy for farmers who have a cash flow or liquidity problem.
In order to qualify for a share of the £300,000 pot, farmers had to either be unable to pay invoices, about to breach their borrowing limit, or have no idea of their financial current position. Of the £300,000, however, only £120,800 was utilised, and by just 151 farmers, all of whom used the maximum £800 + VAT available. In total 27 consultancy firms were engaged, with one accounting for 18% of the jobs (27 forms).
Few farmers, I hazard to guess, actually knew about the fund. However it was publicised on the AHDB website (not that anyone would find it there unless they knew about it) and in the First Milk newsletter. Questions have been asked whether this is the role of AHDB and a good use of levy money; whether the cash injection helps professional farmers or was just social help for inefficient ones; and whether the money will actually change how they operate and/or help create the right conditions for them to prosper, or just help them limp on for another month or two.
Yes, farmers’ cash flow is the big problem, especially for those on a very poor milk price or with high costs. Most farmers will be eager to receive an early, vital, December SFP payment. It’s staggering that last year 42% of dairy farmers’ net profit came from the EU subsidy, and this year the percentage is sure to be well over 50%.
Currently the vast majority of EU dairy farmers cannot survive without that money, but economists like Sean Rickard regularly highlight that part of these payments end up capitalised into land values and rents. A few who are aggressively competitive are quietly suggesting a dramatic reduction in EU payments would shake up the industry and allow the competitive farmers to grow quickly. Those same farmers also hope the recovery is slow for the same reasons. These farmers are unlikely to back AHDB’S support fund.
The emails (from some very high ranking people too) also suggested I probe further into recent AHDB appointments, and the process adopted, and I certainly intend doing so.
AHDB Dairy has also recently recruited six new members to their extension officer team. This is also on farmers’ radar’s because they are taking on more staff at a time the industry is seeing farmer numbers reduce and processors cutting jobs e.g. Fonterra cutting 750, Muller 486, First Milk more than 70, and Arla 100. The board’s income has increased to £7 million and along with that its staffing. Is AHDB Dairy as lean and mean as the rest of the industry? Again, one for it to defend.
Now to the supplementary payments from retailers to processors, which are slowly filtering through. Many retailers stepped up to the plate but some have still done nothing, especially on cheese where some still buy own label from all over the world. The question I have is whether the promised money is all real and new.
Perhaps what’s needed is for AHDB economists to not only list the retailers who have pledged support but for them to audit each pledge. In the event they are unable to accurately determine what retailers have paid in full, and processors have passed the money on to farmers, they should call in Christine Tacon (The Grocery Code Adjudicator) to flex her muscles. If no such analysis is done we will be seen as a lazy industry who isn’t really bothered whether the money was handed over in full by retailers, or where it went. Public commitments were made which attracted positive PR but the money needs following and checking. For sure FFA don’t have the resources to do this next stage.
Since I last wrote the Commission’s so-called Dairy Aid package means €420m will be paid direct to dairy farmers out of a €500m allocation. But this is only 50% of the Commission’s super levy income from 2014/15. So it’s not even new money!
Out of this some £26 million is for the UK and while it’s still more money than other farmers in other sectors have received it amounts to diddly squat on a per farm basis. Perhaps it should have been better targeted towards marketing and milk promotion, since it is clear we desperately need it to build demand and our market, and we’re not going to get it from anywhere else.
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IP Dairy Farmer Article – October 2015 – UNCUT VERSION
AHDB Dairy as it is called now (and indeed AHDB) are certainly copping some criticism at the moment. And so far as the dairy sector is concerned their stance appears to be evading those who challenge them, including some dairy farmers.
One issue raised with me by several farmers is the one of David Ball, who was made redundant as manager of a Gloucestershire dairy unit last year. After being unemployed for a while, though, he now has an attractive position with AHDB Dairy as its farm buildings senior technical advisor - effectively working under his wife Amanda. The job specification stated AHDB was “seeking an experienced person on buildings”. However, according to comments I have received from within AHDB and one of Ball’s friends, his Linked-In CV did not remotely mention expertise in this area. Ok, so he worked on a farm with very big sheds, but I’ve sat in some very big planes and it doesn’t make me a pilot.
This prompted me to make enquiries to establish the background to the appointment in terms of how many applications and interviews there were. The response I received was: “it’s not information we would normally disclose”. When I responded asking whether the position had been advertised in the Farmers Guardian, Dairy Farmer, Farmers Weekly or the like my two requests were ignored. Yet I am led to believe that none of these publications were used.
Allegations of nepotism may be uncharitable, but levy-paying farmers can be forgiven for pondering the thought. The appointment may ultimately be a case of AHDB delivering value for money and working smarter, and time will tell. But some levy payers think there’s something not right there.
Aside from the individual there’s also the issue of the actual job. Employing an expert in buildings right now has been described to me as hiring an expert on how to blow out candles on a birthday cake while the house burns down. A number of farmers desperately need one-to-one help on how to exit the industry, or to involve fresh blood in their businesses. Help here would be very useful. But (say critics) new sheds are largely about expansion, and more cows is about more milk. And with more milk comes more levy money. And on top of Mr Ball’s appointment comes another job vacancy for an extension officer with expertise in forage and grassland management, and another one in market Intelligence, and another senior one in AHDB strategy (Tom Hind). AHDB Dairy now employs well over 30 people I reckon, with the chairman on a pro-rata salary of over £80,000 a year.
AHDB’s credibility is hanging by a thread among a lot of farmers, who say it sits in its new ivory tower in Stoneleigh spending levy payers money on what it think is needed rather than on what levy payers actually want.
And in fact some of its work is turning out to be deeply damaging! For example its August research informed farmers that “there is very little connection between the price of milk in supermarkets and the price farmers are paid.” According to AHDB Dairy this “supports the argument the supermarket price war on milk is not to blame for the current crisis”. Really? So there’s no connection between the amount of money that comes in the top of the hopper, and the amount that goes out the bottom? And if the retailers feel guilty enough to throw some more money at farmers now then they must, by their own admission, be part of the problem! If I was a retailer I’d have thrown AHDB’s line back at the farmers and not paid anything. Indeed you would have expected the British Retail Consortium, which represents retailers, to have done such research in an attempt to break the link and derail the work of the likes of FFA.
Then there’s its latest August cheddar price at a jaw dropping average of £2075/tonne - down 8.8% in one month. I tried to obtain from two of its senior dairy analysts clarification as to how such a low price had been calculated. I gave them a list of UK cheese traders asking them to confirm who they had contacted, how many tonnes they said had been traded (i.e one tonne or 1000), how the average had been calculated, and exactly what question had been asked? And the response: “It’s commercially sensitive information, however, AHDB do consult other publications to ensure their £2075 figures is true”.
For what its worth, my research showed that some contracted mild cheese is still selling at £2300 to up to £2500/tonne, while, yes, some spot trades are below £2000. But I just can’t come near to a £2075 average. In fact the EU average price is quoted as £2175 or £100 higher - and our cheese is far superior to EU stuff! David Handley and Michael Oakes (the two chief negotiators for UK dairy now) need all the help they can get in negotiating prices, and they DO NOT need overly low figures undermining their efforts!
The next eye-brow raiser involves Promar, which has been awarded a contract to collect data to provide a costings, and for these costings to be aggregated and presumably published. Why? This is duplication and, to my mind, AHDB Dairy is spending the money because it has it to spend! After all we have TSDG, Sainsburys, Kite, Kingshay & Promar all doing costings! There is NO market failure for AHDB to address! And besides, if it comes out with costings less than Tesco and the others, or does anything to undermine the work of FFA & NFU, there will be even more hell to pay!
Private Eye touched a few raw nerve cards recently and highlighted the concern among farmers as to how AHDB spends its £70m/year budget. The article questioned whether it has outlived its usefulness with a third of the money going on staff salaries and one farmer having described it as “a lucrative gravy train”. Levy payers (and I AM one) have a right to challenge the cost and the benefits, and AHDB has a duty to respond. It has a LOT of work to do to convince levy payers it is fit for purpose.
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IP Dairy Farmer Article - September 2015
There can be no disputing the fact that farmer protests have highlighted the desperate financial situation UK dairy farmers face ahead of the rapidly approaching winter. This time FFA was very pro-active, and spotted the exact time to go for maximum publicity.
Following an intense spell of protests the four UK regional Farming Unions met for an emergency summit on the 10th August and announced a five-point plan of action, with calls of action for Government, Europe, consumers, retailers and farmers.
However in the press release issued by the English NFU under the “farmers action point” it simply stated “we know that many of you are going through desperate times and we are working on your behalf. Keep being visible. Keep the British public on side.” This, to my mind, means that the NFU endorse peaceful protesting under FFA’s umbrella. I smiled when I saw calls to action for the other organisations but a limited call to action for the farmers, who are clearly desperate to see real leadership from the organisations they pay subscriptions to. Did the NFU simply pass the protesting task over?
Farmer campaigning and protesting is controversial, and you may agree with it or be totally against it. But it has yet again got results. So hats off to the farmers who came out – a difference was made. Well done! You may not agree with what they did, but some retailers are coughing up more money. And spare thought for those people on the various committees of these organisations who spend an incredible amount of time striving to make a difference for dairy farmers. I know how much time it takes me to write this monthly article, plus my weekly bulletin and to deal with the press and media - and that will only be a fraction of the time that David Handley, and recently “retired” Paul Rowbottom have devoted over the years. And yes, the various NFU’s committee members put the hours and the miles in too, for little or no reward. Some days the work can be over-whelming and leaves little or no time for normal family life. It’s a huge strain and those who get dragged into it often find it impossible to find a way out without feeling they have perhaps let people down. Don’t take these people for granted.
Out of the various meetings came the Morrisons gimmick, with a new brand of milk being launched that costs an extra 10ppl more than the usual milk, with the money going direct to Arla members. The NFU welcomed the move, but for me memories are short. Tesco tried “Local Choice” milk to help Dairy Farmers of Britain, but the idea bombed. Morrisons will be quick to delist the new “Milk for Farmers” brand if it doesn’t sell. And, of course, whether it does sell depends on how much it stocks, and where – at eye level or at the bottom of the fixture shelf.
Its time to back British, many farmers and industry leaders are saying. The French have effectively waved two fingers to the Dutch and the EU Commission who are demanding they respect the EU single market principles and allow foreign dairy imports into France.
But in France their agriculture Minister has urged consumers to be patriotic in their dairy purchasing to help save the livelihoods of the 25,000 French dairy farmers. “All must favour French products,” he said. In my opinion we now need a campaign to promote the buying of British dairy products using British milk.
AHDB responded to last month’s article about the six yearly New Zealand dairy levy board referendum required for the levy to continue. They pointed out that during any three month period if 5% of levy payers (about 650) sign requests for a ballot then it has to be held, and the result of that ballot then goes to UK ministers to make the final decision as to what happens. From our recent research of over 400 levy payers it is clear farmers want immediate changes as to how Dairy Co/AHDB Dairy spend their levy money. They don’t want it to shut up shop, but do appear to be almost unanimous in calling for some levy money to be diverted to a professional promotion agency emphasising the buy British element.
Let’s face it DairyCo has received in excess of £1 million extra as a result of the increase in production, so it has already had AND SPENT the extra money. But on what? Cynics say it spends the money on encouraging more production because that generates more levy money for it…and so on! However DairyCo told the Radio 4 Farming Today Programme on the 13th August that it can’t promote British Dairy products. I think farmers will want to know exactly why that is. I have heard one Tesco farmer would prefer to give his levy to Tesco if he could to help it promote British milk. That makes sense to me if DairyCo won’t!
The next big farmer demonstration will be on the 7th September at the EU Agriculture emergency dairy crisis meeting in Brussels, where there will be calls for the EU Intervention price to be raised. However this is a complex move. Increasing the Intervention price could have a negative impact if it stimulates milk production and exacerbates an already overloaded market. Remember the intervention price is a safety net, and if it were anywhere close to the cost of production it would spell disaster. Please note that although product is now going into intervention it is no guarantee that prices wont fall further.
The only REAL solution is to cut production and bring supply and demand back into balance. How low milk prices will have to fall before we see a sizable cut in production is the million dollar question. However the reality is that switching the milk taps off in the UK will not solve the problem - it has to be a global switch off!
The Competition and Markets Authority’s 65 page report on Muller’s acquisition of Dairy Crest (DC) liquid business contains some interesting statements and intentions, especially for farmers supplying its Foston and Chadwell Heath factories.
The report is surprisingly open and transparent and details DC’s plan B if the merger does not proceed. That said, it now looks inevitable it will be given the thumbs-up, and it could be all change on January 1st 2016.
Plan B is for DC to downsize to its Severnside factory and to close both Foston and Chadwell Heath. It will also exit its national multiple contracts with the likes of M & S and Waitrose. Their reason is simple - the business has lost money in the past four years. Plan B makes no reference as to how the two factories would be closed or how the staff and supplying farmers would be dealt with, however.
Irrespective of whether the deal proceeds the staff especially have a huge black cloud hanging over them, worried that Muller will decide these two factories are surplus to requirements and will thus immediately close them down to deliver “synergies”? The farmers, however, have a reassurance from Muller that contracts will be honoured, should they want it. They’d sure find it nearly impossible to find a new milk purchaser right now if they don’t.
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IP Dairy Farmer Article – August 2015
Last month’s article concentrated on Tesco. And so will this one, following its decision to review its TSDG pool. Back in 2007 Tesco made a pledge (which they enforced in a March 2011 press release), to recognise the true cost of milk production “with additional provisions for making a profit including capital investment and unpaid family labour.” According to the company the TSDG was started “to address the huge uncertainty faced by dairy farmers caused by continuing volatility in the markets, and to ensure farmers are paid above the cost of milk production.” Another subliminal reason was to remove the company from the radar of FFA and its protests, which were rife in 2010 outside its distribution centres. In response to these protests Tesco board Director Lucy Neville–Rolfe said “Tesco remains committed to ensuring British dairy farmers receive a fair price that is above the cost of production.”
So the big question is this: where does this leave Tesco and the TSDG farmers involved in the “comprehensive and thorough” review of the TSDG. Although Tesco has recently stated “we want to pay a fair price” there is NO reference to COP.
For Tesco aligned producers to defend the status quo in my opinion is pointless. There WILL be change and the farmers involved are likely to take a haircut, given the retail milk price war and the amount Tesco loses on milk. If they don’t engage with the review then it could be more a head shave than a back and sides.
As one of my regular readers and a Tesco man stated “A milk buyer (least of all Tesco) cannot afford to pay more than its rivals without gaining value in return.” Tesco farmers, to date, have delivered little, if any value, to Tesco, despite numerous advice to do so.
As part of the review the gathering of the costings information by Promar and exactly what costs are included will be explored, along with the profile of the typical Tesco farm. Recent press headlines referring to the UK’s richest man’s (the Duke of Westminster) “American style mega-dairy” with 1400 cows as being Tesco’s biggest supplier is not a headline it will have liked, forgotten or ignored. No matter how good the unit, if I asked 100 Tesco shoppers whether they’d like to see premiums go to the Duke or to 10 family farms instead I’m pretty sure I know what most would say. I remember the criteria used by Dairy Crest when it recruited 25 farmers for its aligned Tesco pool for delivery into the former Amelca plant at Foston. To be eligible for consideration farmers had to produce less than 2 million litres and be a traditional, professional family unit.
While referring to Tesco the NFU do appear to swallow everything drastic Dave Lewis, CEO of Tesco, tells them. Only two weeks ago Dave informed the NFU of its 100% British vegetable souring policy after the NFU asked Tesco demonstrate it was delivering on its 2013 NFU Conference promise. Despite Drastic’s assurances the next day I examined carrots to learn Tesco failed in three out of 10 outlets I surveyed. They were selling French ones.
The Dairy industry’s lack of funds to properly promote the nutritional benefits of milk is a hot topic among several enthusiastic producers. One of my weekly bulletin readers felt that the industry recently missed an opportunity when the TV and press homed in on the ‘sugary drinks effect on children’s teeth’ issue. She believed the industry should have been involved in the debate and promoting the positives of drinking milk. Perhaps its time for GB farmers to seek change in how AHDB operate. And that brings me to the New Zealand approach to its levy.
Every six years New Zealand dairy farmers hold a levy referendum when they decide whether the levy continues. This keeps the levy board on its toes, ensuring those handling the funds have robust accountability and transparency, and are efficient and fair in the levy’s spend.
If farmers are dissatisfied with the levy board’s past or future spending plans they can vote against its renewal. They can even force an interim vote. I can hear some diehard Dairy Co (or AHDB Dairy as it is now called following a whopping and unnecessary £60,000 rebranding exercise!) Kings and Queens wincing at the thought!
Levy paying dairy farmers have the right to challenge AHDB Dairy on whether its various ideas deliver real benefit. Some farmers are more radical, believing that the levy should be removed and AHDB Dairy should be self-funding and charge those who choose to utilise their services in the same way as consultants or other private companies do. The theory is simple: if it is good then farmers will pay them!
Back in early June the intimidation of Café Nero hit the news and while the instant reaction of some of our industry bodies was to condemn the company I looked through the telescope from the opposite end and took a different approach (see www.ipaquotas.com/QUOTA NEWS.htm 5th June). Almost all who read it could see my point of view, with the exception of the vocal husband of a Dairy Farmer columnist! Two of the many people who were fired-up and tweeted should, in my opinion, have paused for thought before they did. One was the NFU Dairy Board chairman who called for a boycott of the chain. Another came from Amanda Ball, Head of Marketing and Communication at AHDB Dairy. She tweeted: “Made my coffee drinking choices easier. As it happens I prefer Starbucks UK or Costa Coffee No more Nero.”
To me both of them should have known better and the industry’s reaction reinforced my view that we should have helped and supported Nero because they were not the enemy and TB is not their battle. One person who correctly spotted that the Nero bashers were wrong was NFU Deputy President Minette Batters, who actively worked behind the scenes with Nero. But where was the rest of the industry in Nero’s hour of need? Were its processor, or our representative organisations rallying round? No. Where was the crisis management plan? There wasn’t one. Is there one now, for the next time one of our customers gets targeted? I damn well hope so, but somehow, alas, I doubt it.
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IP Dairy Farmer Article – July 2015
Now this will not be popular with a certain elite section of the industry: the gap between the so-called have’s (on retailer-aligned contracts) and the have not’s (those without) has widened to, in my opinion, totally unacceptable levels. It’s now 10 ppl or more, and for me it’s the elephant in the dairy room and has to change. Retailers are now battling to compete with cheap milk from the discounters, which has sunk to new lows in the Midlands of a gut wrenching 35ppl for two litres (17.5ppl)!
Let’s just look at Tesco, with an aligned pool involving Arla and Muller farmers, which is costing them upwards of £80million per annum, and rising! Tesco’s results were the worst on record and its share price almost halved between June and December last year before partially recovering.
Tesco’s producer price is fixed until November 1st and abandoning its commitment to its farmers is certainly not a credible option. But a variation most certainly has to be in the wind, and I think it might be imminent. Some Tesco farmers haven’t helped themselves, preferring to crow about their investment and what Tesco are paying for instead of focusing their efforts on demonstrating the benefits that the extra £80million brings to the retailer. Why haven’t the farmers who benefit, especially Muller Wiseman aligned and Arla directs, stepped forward to promote a common message? Some are even brazenly saying that what Tesco pays for includes some non-dairy costs, which they believe they have been smart in lumping into the cost of production! Presumably Promar doesn’t spot this!
Through this column I have previously issued warnings like this because the situation is simply unsustainable. The likes of Tesco and Sainsbury stepped forward in 2007 with a much needed sustainable model, but it’s now time for an overhaul.
I do believe that Tesco’s, Sainsbury and others would not be foolish enough to seek a way out altogether, but they will be acutely aware that it is time for a review because some of their aligned farmers are piling on the extra cows, feeding more concentrate, paying higher rents to grow maize in the belief that it can continue without them giving anything back. On the other side of the fence are my farming friends Mr Envy and Mr Jealous who are receiving anywhere between 15ppl and 24ppl and they would love to see their aligned neighbours milk price fall closer to theirs. I think, on this occasion, it will.
Those on non-aligned contracts are being forced to change how they do things to reduce cost. Those on aligned contracts receiving 30ppl+ are not, and are highly unlikely to be the most efficient producers! Change is in the air and Promar and the processors need to engage with the retailers to be a catalyst for the change rather than sit back. In that case something more drastic might come. Either the farmers’ deliver more of what the retailers want, or the retailers WILL review the cost of production model. In New Zealand there is a school of thought that low prices will deliver a long-term benefit because it will curb expansion, especially from EU farmers on housed systems. When milk prices were flying high there was talk of New Zealand farmers moving towards housing more cows and abandoning their low cost grass based cornerstone.
Back in the summer of 2003 there was a joint press release issued by Milk Link (Barry Nicholls), former MMB Board member Allin Bewes, yours truly, and freelance journalist / my occasional partner in crime Chris Walkland, with the headline “Should we, could we, get the Milk Race back.” The four of us set up a company called “The Milk Race Limited” and I won’t go over which industry organisations and personalities ensured the idea was binned, but they succeeded. Fortunately, though, only for a decade. However, back in May I was delighted to have a great day out at Nottingham to see first hand this year’s Milk Race, the third in a row. And what a success it was! The race is very much back on track, and even supported by one or two of the organisations who rubbished the re-introduction in 2003.
For 35 years The Milk Race was a 10-day round Britain international cycle race and a cornerstone of the dairy industry’s milk promotional campaigns before de-regulation. It has certainly risen from the ashes and I was pleased to see Arla, Dairy Crest and The Dairy Council / DairyCo promoting their milk, milk products, farming and the countryside to 50,000 +people of all ages from 5-85 at a major national sporting event. Cycling is now the country’s third most popular recreational activity, with an estimated 3.1 million people riding a bike every month.
Congratulations to all who made it happen and I hope its success is capitalized on. I am not qualified to verify whether it’s a cost-effective investment of dairy farmers’ money but to me there are three things which sell products today - pop idols, sex and sporting personalities. The industry has forked out for the first one but not the second! I am very much behind the benefits of using sporting personalities and cycling is popular and topical.
I do believe as an industry we have to promote the sales of all our dairy products. In addition, I wish more was done to promote the professional image of dairy farming to consumers. That’s why the new Arla TV advert is so fantastic! I wish more companies would do it. The public like dairy farmers and want to support you but some of you are sadly poor, grumpy ambassadors for this exciting industry, which has a great long-term future and real potential. The Dairy UK strap line “Proud of Dairy” should strike a chord with all of you.
Milk prices continue to fall and as I pen this article spot milk is back down at 12ppl and its five weeks past the UK’s peak production. It’s grim but heaven knows how bad it would have been if Woodcock’s new state of the art 500 million litres/year capacity hadn’t absorbed a chunk of this milk. Most, if not all, dairy analysts accept that prices will certainly remain low for all of 2015 and some are suggesting it will run through most, if not all, of 2016 until supply and demand are re-aligned. It’s going to get tougher and regrettably there will be casualties. For all involved there will be lessons to be learned.
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IP Dairy Farmer Article – June 2015
Just as the crisis in milk prices is proving to be a pressure point to drive on-farm change and efficiencies I hope the same will be true for First Milk. I make no apologies for returning to that business because, along with appalling milk prices, they are the second most popular talking point among farmers.
Mike Gallacher is the new pilot on the First Milk flight deck. He has checked the instrument panel and realizes he is in a storm, is low on fuel, with poor engine performance, a demotivated crew and disillusioned passengers. He also has far too much milk for his tea, and it’s slopping around the cabin and dripping through the floor. It’s up to him to land this plane.
He has inherited a loss-making business, with loss making assets, and with resigning members – more of whom will go when other companies start recruiting (if they do!). Normally such circumstances would trigger a merger, but First Milk’s historical track record in this area of business is poor.
Credit to Gallacher so far, though, he has laid all the dirty washing and bad news out so the members know where he is starting from. He has informed members the business lost in excess of £16m in the year to 31st March so despite paying one of the lowest farmer milk prices in the country it still paid too much for the milk! What was the previous administration doing?! He realises engagement and honest straight-talking with members is essential if they are to stay on board and trust him. He has not been brought in as the change and fix it person or the maintenance man he is the turnaround person and he needs results quickly. He will have to ignore noisy protestors and those who get in his way and simply do what MUST be done, and quickly.
Whilst First Milk issues are not on the same scale as those of Tesco there are similarities. Drastic Dave Lewis, the new Tesco CEO, inherited a mess and immediately got all the Tesco dirty washing out in the open, including the biggest corporate write down in history.
Gallacher’s problem is the co-op has limited free-cash (if any), hence without the help of a partner like Adams (aka Ornua Foods) and investment in First Milk’s cheese plants the co-op simply cannot, and will not, find money to invest or reinvest for several years. That something many of its members will relate to, sadly. Many of its hard working, honest, family suppliers are also struggling for exactly the same reasons: they don’t have the cash either.
Accompanying Gallacher’s first announcement of around 70 job losses and differential pricing came the news from Chairman Jim Paice of an independent review in to the co-op’s governance (its board) and commercial learnings from its “recent disappointing performance”. That’s an understatement if ever there was one! The independent review is the Board’s brainchild, and I hope it will be a hard-hitting Lord Myners type review of The Co-Operative Group business.
In his 2014 review Myners ruffled feathers stating The Co-operative’s board “isn’t up to the job” and he recommended the board of farmers, nurses etc be replaced with people who had the right skills and experience to run the organisation. He said none of them had the ability, with one member’s experience extending to only the local golf club. Myners also stated that it was “a cosy board” with several who simply didn’t want to give up their pay and power. He confirmed they were stuck in denial as to their near ruinous failure of governance which led to the co-op’s near collapse. “The board’s directors have to accept responsibility for what has gone wrong,” he said.
Myners also rejected the idea the board could be trained, going on to say “being led by eager, earnest but unqualified amateurs is no way to run an organisation.” I can see First Milk members rolling back their eyes knowing the current board are unlikely to escape conviction for the current dire situation, despite the fact one or two would like to create a smokescreen dense enough to cover up their failures. However, the last thing First Milk needs now is a post mortem or a witch-hunt.
I will be keen to see how hard hitting (or cosy) the First Milk review is. Let me nail my colours to the mast. I have NO desire to see First Milk fail and end up like its predecessors DFOB, Westbury or Amelca who exited the industry in spectacular style having clocked-up catastrophic losses and taking heaps of farmers’ money with them. Gallacher and this review could be a turning point, but to make an omelette you have to crack eggs and while I recognise the odd one or two First Milk board member has skills beyond the farmgate some are enthusiastic amateurs. First Milk Gallacher needs hard-nosed commercial expertise on the board who can assist with the turnaround.
Fortunately there are few, if any, members who still have their blinkers on as to how serious the situation is. They rightly expect and demand more from their co-op. Let’s hope the changes made work quickly, and I hope the review is not a distraction.
Now prices. There are glimmers of hope that global milk production is slowing down in response to very low prices (although not in the UK just yet!). It’s a step in the right direction but significant product surpluses have built up in the last 18 months, which will be slow to clear and bring the market in balance. Going forward volatility will be a permanent feature in world dairying, and to cope with it farmers will have to refrain from unnecessary spending in the good times.
The spending spree is over and it’s belt-tightening time. Those who are highly geared and made significant investments in 2012-2014, many having stress-tested their milk price at 30p! (and failed), are in serious trouble. Those who have prepared for the worst and squirrelled away some emergency money will come out of the end of this very long tunnel in reasonable, if not a good position. For the borrowers I say take note of comments made by New Zealand’s Federated Farmers Chairman Andrew Hoggard about New Zealand farmer’s debt levels. In 2003 average debt levels were NZ$9.50 per kg of milk solids, and at the end of last season it had doubled to NZ$18.90. Almost 25% of dairy farm debt is owed by farmers who are in debt to the tune of NZ$30 per kg or more. The total debt at NZ$34 billion is concerning its Government.
Hoggard is urging banks not to view farmers with high debt as bad farmers but to check if they are actually “good farmers who have been caught out by the timing of their expansion and the downturn.” Are they a good asset to the future of the industry, he asked them to question. At the time they expanded such a dramatic turndown was not foreseen and, let’s face it, the banks who loaned them the funds to expand didn’t see it coming. He has a very good point.
IP Dairy Farmer Article – May 2015
Passport and visa in hand, vaccinations up to date, and protection minders in tow I recently decided to cross the border – the River Tamar - and pay a visit to Dairy Crest’s (DC) Davidstow cheese factory, in particular to see first hand the progress of its £68m investment in a state of the art de-mineralised whey (DWP) powder plant (for making into infant/baby powder). It will be commissioned next month and, when at capacity, it will produce around 26,000 tonnes of DWP (80 tonnes/day) plus 13,500 tonnes of GOS each year (another technical, profitable product but space constraints mean I can’t explain it!). The plant was supposed to have a five year payback, but probably won’t at current prices!
Basically, the process removes 90% of the minerals from the milk and the DWP leaves the factory in 1 tonne or 25kg bags. It requires 500 million litres of supply (60 tankers a day) from 400 farmers, which is effectively 60% of all Cornwall’s milk output. Dairy Crest will never be a big gun in the world of infant formula, but it is likely to have one of the most efficient DWP processing plants in the world, thus adding value to its farmer’s milk.
DC has spotted the obvious advantage of the highly successful collaborative trading models that Fonterra has across the world, and decided it is the number one partner to market all of its Davidstow infant formula. As I have stated previously on more than one occasion in this article processors like DC do not have to be a co-operative to co-operate, a fact some GB dairy farmers struggle to comprehend.
Asia, particularly China, is the target market but getting a new product into China would be a huge challenge to DC. It’s not a case of filling a container and picking the telephone up and saying we will deliver it £100 tonne less than the competitors. Fonterra is the best route to quickly overcome trade barriers. The Chinese market is huge, and sales of baby powder to China are predicted to rise to £17billion/year in two years. DC is not the only one investing significant money in DWP processing, though, and I hope the world will not end up with excess infant formula processing once everyone is up and running.
I believe this joint venture with Fonterra is a very smart move by DC. If it was to attempt to penetrate the infant formula market and go head to head with the world’s biggest infant formula producers - Nestle and Danone - it would only devalue the product. This deal will facilitate Fonterra adding value to the powder and allow DC to focus on what it does best at Davidstow - collecting quality milk from a very tight, traceable milk field and processing it efficiently. Devon and Cornwall have a solid reputation for quality food products with geographical prominence, and this should be a great selling point of difference for DC’s infant formula, and comfortably satisfy Chinese requirements on tradability and provenance.
Meanwhile, quotas have ended at a time when world and UK farmgate milk prices are under extreme pressure. There is no point calling for the government or the EU to interfere with the market place. At the moment we simply have a worldwide imbalance in supply and demand of milk and milk products. It will correct itself, but at a financial and, in some cases, unquantifiable family cost. The volume of milk we are producing, excluding organic, can be absorbed by the world, but not consumed. Basically, only a fool would pay producers more than can be earned from the milk processed, hence prices are under severe pressure. April and May will be very tough for some producers, even more of whose price could dip under 20ppl.
For decades the price the British farmer received for the milk was determined by the market the milk went to, with the Holy Grail being the magical liquid premium. That has gone, however, and now all smart GB dairy farmers take their pricing signals from the GDT auction and mainland Europe, especially Friesland Campina and Arla (whether you like it /them or not). While major players in the UK dairy market need to extract maximum benefit from the home and European market all involved in the industry need to now look globally.
The national news is almost on election overload with UKIP’s Nigel Farage entertaining / infuriating Joe Public in equal measure with his ideas - some of which often receive quiet support even if they don’t translate to ballot box votes.
It’s not quite the same but it left me wondering whether David Handley and FFA aren’t the new UKIP in dairy farming political circles! The established parties try hard to box him out of meetings but he is gaining supporters, won’t take no for an answer and can be relied on to pull a crowd 10 times bigger than the established parties & organisations with their Prime Ministers and Ministers of dairying when it comes to dairy farmers turning out on an evening.
Handley regularly has stones lobbed at him from very well funded opposition while he takes centre stage on a shoestring budget. It won’t stay like this forever, though, because you can’t keep the peasants down forever! They revolt and force change.
The show season will soon be in full swing, and for me that means my annual two-day pilgrimage to what I believe is possibly the best county show in town – The Royal Cornwall.
At the risk of clogging my email box up with comments like “Potter has swallowed a packet of Dairy Crest happy pills this month” I am going to mention a little publicised initiative I benefitted from.
At last year’s show DC and DCD offered a free health MOT to its farmers and its favourite industry commentator. I perhaps wasn’t DC’s favourite at the 2014 show, but I could be by June 4th 2015! I took one of the health checks just to be sociable because I was perfectly, perfectly healthy. Or at least that’s what I thought. Actually I wasn’t, and my blood pressure was off the scale. I ended up having an ECG - the very same day - and visiting my doctor as soon as I returned. I felt normal, and on this occasion miraculously nothing had happened. Maybe it was the thought of an Uncle Arthur Reeves grilling for giving DC a hard time!
As was commented by DCD at the time, most farmers spend a lot of time and energy providing first class care for their animals, but when it comes to looking after themselves it appears to be lower on their list of priorities. I can assure you it’s at the top of my priorities now. Make sure it’s at the top of yours is my message!
Finally, as supermarkets battle it out offering 4 pints for 89p or less, my wife noticed Sainsburys selling branded cat milk for £5/litre. You could scratch some eyes out, rather than purr at that price!
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IP Dairy Farmer Article – April 2015
One time, hopefully sometime soon (I am sure it is thinking) First Milk won’t be making the news. Alas it isn’t this month though. After six years in office, and more ups and downs than most CEO’s would ever want to cope with, the firm’s boss Kate Allum is leaving and being replaced by Mike Gallacher from Mars (that’s the company, not the planet). He’s the second person from that company to take the helm in the dairy industry in recent years. Let’s hope he does a much better job than his predecessor Rob Knight, the former Chairman of DFOB.
Gallacher has no dairy industry experience or network of relationships. Instead he’s used to the dog-eat-dog (actually dog-eat-biscuits) world of petfood. But maybe he’ll turn his clean-sheet, zero-baggage into an advantage. He needs to, as the track record of executives who come in from the outside to take high level positions is not good. (All that said, though, DFOB’s old boss did have the attitude that they couldn’t be told anything, and that they knew it all. Their arrogance was beyond breathtaking, so maybe it’s probably unfair to compare.)
Nevertheless he boards the First Milk ship in choppy waters and it will need luck, skill and expert navigational skills to ensure it does not run aground.
It will certainly be very interesting to see what he does with the business. Will he, for example, oversee a controlled shrinkage to ensure it retains the right supplying members in the right locations for its more profitable outlets, and cuts costs? Or will he look to marry it off in its entirety? Or sell assets to get the debt down? Or even grow it, over time! Downsizing would almost certainly mean losing producers, but that wouldn’t necessarily be a bad thing if it took control and proactively managed the situation. The worst outcome would be for it to be left with the wrong producers in the wrong locations, which would potentially add to its cost base unless some sort of cost-reflective remedial policies were introduced. Gallacher had better quickly figure a way to improve the deal First Milk members receive, because, for many, it will be a case of seeing the spring out, and then seeing if the net price received has improved. If it hasn’t then I foresee a lot striving to find a new buyer or, if they can’t, packing-up.
It’s now in excess of two months since the co-op published its much-delayed financial accounts for the year ended 31st March 2014. The financials were available to all its 1200 members. When I received them one of the pages that particularly caught my eye was page 23 and the section headed “Director’s Remuneration”. Here it shows that Allum received £340,531 in the year ended March 2014, including £11,730 (almost £1000/month!) in bonuses. Those figures are pretty tasty, and while no detail is given as to why a bonus was paid it surely was galling to many members. In addition, the figures confirm that Finance Director Ian Forgie received £232,185 for his nine months work, including £121,557 compensation for losing his position.
They are, by any stretch of the imagination, massive figures. But clearly the figures weren’t galling, because not a single member from First Milk’s 1200 base raised the issue with me. I would understand this if First Milk was top of the milk price league table, but not when it is rooted to the bottom.
Are the members punch drunk and fed up of the bleak financial position of their co-op, or do they simply not care and just hope the milk tanker turns up regularly to collect their milk?
Now to Scotland, and the aspirations of the newly elected NFUS Milk Committee Chairman Mr Graeme Braveheart Kilpatrick, who wants to “drive demand for Scottish dairy products at home in Scotland and abroad.” Nothing wrong in that, but one of his goals is to see Scottish dairy products displayed “on the middle (eye level) shelves of supermarkets across the UK, not just in Scotland”! Now hold on Mr Braveheart, let’s just get this straight: Scotland produces significantly more milk and dairy products than it consumes, so you have to export to places like England and Wales. But English and Welsh supermarkets are simply not going to give prominent middle shelf space to branded Scottish milk and dairy products and pay a premium as they try to with Scottish beef!
If that’s the Scottish game plan I want to know who is going to go into battle for English and Welsh milk and dairy products, or will we just roll over and say “it’s your idea Scotland, by all means be our guest and take that space”. It’s amazing that the English and Wales NFU are on mute and haven’t challenged the NFUS on its aspiration. At the end of the day, though, if it has a Scottish label on it then English and Welsh housewives will have the final say as to whether they buy English, Welsh or Scottish product.
After 31 years milk quotas come to an end on the 31 March. As to what happens next it is a near certainty that EU production will increase irrespective of the current price volatility. The final superlevy bill, which could be as much as 1 billion Euros, coupled with the fall in farmgate milk prices, has slowed down production this year but come the 1 April the brakes will be off.
On the day quotas end I will be in New Zealand ready to line up on the grid with 60 classic Mini’s to drive 2,500km in six days from Kaitaia in the North Island to Invercargill in the South Island in aid of two children’s charities. It is the trip of a lifetime. Daily details and photographs will be posted on my website for those who want to follow my adventure.
For those who would like to contribute to the charities please log onto:
Thank you in advance for your donations. For those readers who would like me to go on a one-way trip I apologise because I will return. I informed one industry guru that I was going ski-ing for four days and guess what? He suggested I did a whole ski season, where I couldn’t pen my bulletin and then added “I hear Syria has some lovely ski resorts!” With friends like these who needs enemies!
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IP Dairy Farmer Article – March 2015
The results of DairyCo's latest annual farmer intentions survey for 2015 were once again released at the Dairy Breakout session of the AHDB's annual Outlook Conference in Westminster.
While the majority of media and press centre on London it's certainly not a farmer-friendly venue, and I wonder how long it will be before AHDB and DairyCo cut costs and move out of London as the NFU did so boldly a few years ago. Remember when the NFU made the move Gwyn Jones and Sir Peter Kendall were both at the front of the cavalry, and both are now at the forefront of change at AHDB, along with new chief exec Jane King. Already there are signs of a change of emphasis from the top three, and Gwyn Jones doesn't seem to be a chairman who hides behind the Dairy Co remit defence-shield, telling producers what he can't do rather than what he can do. There is clear evidence he is starting to help promote British dairy products, which will at least boost levy payers opinion of where their levy money is spent.
This year's Intentions survey has one headline worthy of cross examination. From a survey of 850 GB farmers a staggering one third plan to increase milk production during the next two years. Assuming they do as they say Dairy Co's survey translates to an eye watering 6% increase in National production. As Dairy Co pointed out, the ambition to increase production comes on the back of a record production year.
I have no doubt the 6% figure has been accurately crunched by Dairy Co's bean counters, but does the message, and conclusion, best serve its dairy farmer levy payers who pay around £7.3 million to fund it? My question, simply, is this: will processors and retailers see the figure and think there are no long-term concerns over the effect the current low milk price is having on farmer confidence, and that whatever happens the milk will still flow? The message could result in retailers and food service customers taking the attitude that it doesn't matter what they pay, there will never be a shortage. The detail of the survey, in that it was done in December and before milk price cuts had really hit milk cheques, will be lost.
Milk prices for the majority have headed further south since December, so surely it's a sensible idea to do an up-to-date poll immediately prior to the conference slot to check whether prices, new developments (such as the reality of the ending of quotas and the certainty of A and B production limits [and for some A, B & C] has dented ambitions. Personally I think the initial poll should be 400 farmers, with 100 done two weeks before the conference. I don't think there's a need to pay thousands of pounds surveying 850 GB farmers, plus 150 in Northern Ireland each year. That's 8% of GB producers! Remember, only 1,000 people are surveyed by pollsters to determine the likely general election results for a population of 64 million!
Nevertheless it's useful to have an annual confidence barometer, plus farmers' thoughts as to their future investment and production plans. But the results do need handling with care, even if recent survey intentions covering planned production have been way off the mark when compared to actuals.
By the time you read this article there will only be a few days left until the 31st March, and the ending of 31 years of milk quotas. During that time the UK has paid wholesale super levy in 15 years, with the most being paid in March 1996 when the levy rate was 31.43ppl and the total paid was £44 million - an amount boosted more by the introduction of the butterfat adjustment, because we actually only exceeded our national quota by 1%. Since March 2004 the UK has been under its wholesale quota for the past 11 consecutive years, during which time our quota has increased by more than 1 billion litres. The total wholesale super levy paid amounts to £235 million, and including that paid by producer-retailers gives a grand total of £276 million. From 1st April it's a free market for 28 EU countries, and inevitably the boom to bust and back again pendulum will prevail.
The drastic producer haircut by First Milk in January to reduce its debt is still prompting numerous e-mails from across the industry. Not only was it a deferral, until further notice, of monthly member milk cheques plus a back-dated conversion of milk revenue into capital contributions, it was also a tax blow to producers. For those First Milk members who pay income tax (and I accept they could be in the minority today!) the capital contribution is treated as net of tax. That means a 40% tax payer has to earn 3.3ppl before tax to pay the 2ppl capital contribution.
The next news from First Milk simply has to be good, and will hopefully confirm that business conditions have improved. It has to show its balance sheet has been rebuilt on a solid and sustainable foundation. It also surely has to offload loss-making ventures, possibly including recent acquisitions in order to reduce its debt further, as well as cutting its own costs further and deeper, like Arla did recently (with 100 job cuts). It cannot keep coming back to farmers expecting them to fund a shortfall accruing from its situation / poor selling / lack of business competence. If its outlook does not improve in the next six months it could easily find itself in another dicky situation, especially if selective recruitment from others coincided with another run of member confidence. I know the company doesn't need reminding that its recent decisions have pushed several loyal members over the edge financially, mentally and in terms of family relationships.
The last thing anyone wants is another DFOB, United Milk or Amelca. Good honest hard working dairy farmers who are members of a Co-op should demand the same calibre of professionalism as expected from managers in PLC and private dairy businesses.
But it's not just First Milk members who have taken a kicking. One farmer has had his milk contract renewed on the condition he sells 500 of cows. If he doesn't then he has no milk buyer! He appears to be one of a number who took a short-term view and switched from a long-term secure contract that paid an OK price into what looked like a straight forward, but higher priced one. These were mainly offered by brokers, of course. Many of those farmer are now in a worse pickle than First Milk men.
In my opinion too many dairy companies, brokers and farmers have all their eggs in one basket. Whether you like it or not that brings risk compared to those companies with diverse outlets, and globally traded products or brands. Whether we like it or not, it will not be anything connected to our much loved / hated liquid market which will push farmgate milk prices up. Such a change will be instigated by those processors exposed to global markets, and the liquid processors will be like sheep following them. Fingers crossed the GDT auction continues to rise, especially if it's boosted by a lift in the Russian import ban and China starting to buy again - because they have to and will. The only question is when!
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IP Dairy Farmer Article – February 2015
As I write this article First Milk’s accounts for the year ending 31st March are due out. They are long due out, in fact, and certainly have not been published to timely plc standards. When they arrive they will be heavily scrutinized and the co-op’s management cannot complain about this.
The company cannot hide behind some of the issues it has to address. For example it has to look at the remuneration of senior people and link them to their individual ability and achievements. They cannot escape conviction.
Even some of the co-op’s strongest and vocal supporters are admitting they are nervous, simply because they are not convinced the recent drastic actions alter the underlying viability of the business. The co-op’s management and board are barely giving members enough oxygen to breathe, and at best the farmers face a long period of relegation zone milk prices and extended payment terms. For years First Milk members have settled for below average performance and for their loyal support they should expect superior performance.
The ramifications of its cash crisis are endless. Two traders who have surplus milk have informed me they will not sell milk to First Milk on any spot or short-term contract to go into Westbury for processing, fearing they may not be paid for it. That means it loses the opportunity to secure cheap milk and to utilise any spare capacity at Westbury.
The announcements by the co-op in January destabilized and demoralized farmer members in a matter of hours. I have huge respect and sympathy for the majority of First Milk members who have resigned themselves to the fact that no matter how many hours the family work, how hard they cut costs, how hard they push themselves and their business, they realise they will struggle to keep their heads above water, with the lowest milk price and deferred payments for their efforts. For some they are pushed to breaking point, and this is a cost that is not reflected in the bank balance. And scratching around with the hens in the farmyard, so to speak, is even more galling when you know some of your friends and neighbours are soaring high with the eagles on price.
Co-ops in the UK have a chequered history, what with Dairy Farmers of Britain’s failure and First Milk’s current woes. At least Milk Link saw the writing on the wall for small co-ops and made the right move with Arla. But there are numerous European, US and Canadian dairy co-ops that have succeeded. In fact there are four dairy co-ops in the top eight positions in the world league table.
Co-ops are no different to any other business, in so far as if they don’t have a sound business plan they will fall over. Farmers join co-ops in the belief they will profitably process all their milk and they will maximise its value. But they want the co-op to be professionally and commercially run in their best interests. Most dairy farmers do not join a co-op expecting to receive the top milk price in town. They forego short-term price promises in favour of a long-term, secure purchaser. And normally they invest in it in the expectation of a higher price and strong performance, and not to be forced to invest/cough-up because the co-op has run out of cash to pay the monthly milk cheque.
I don’t blame dairy farmers for looking elsewhere if they are not convinced their current milk purchasers’ business plan is sustainable. Today, though, few can change milk purchaser. But for First Milk the time bomb is ticking quickly. If it fails to convince members that its plan will not only guarantee survival but lift them to above average performance in terms of returns it will cost it very dearly, and quickly, when recruiting recommences.
One of the first steps First Milk should do in my opinion is to dump the Voluntary Code 30 day notice of price movements asap. It’s a millstone around its neck and is way off being a level playing field across processors. Keeping to the 30 day rule is doing what is right for those who coined the code; it has seemingly not done the right thing for it members.
And here’s my tip for everyone else for 2015 and 2016 (for what it is worth). Remember what happens in this crisis, and how your milk purchaser treats you. Those who play fair with a straight bat should be applauded. If you are subject to an opportunistic milk buyer who drops the milk price when he can, and sneaks in other scheming ways to drop your price further, dump him as soon as you can - and don’t forgive or forget. As Alan Wiseman stated in 2010 “Treat people the way you would like to be treated. That’s a simple rule which has built our business to what it is today”. In summary, remember those who support you in this crisis.
Finally the mass media have certainly given the UK dairy industry its quota of coverage in January. Apart from First Milk, the main point they have centered on is how come water costs more than milk, with four pints for a ridiculous 89p or less? Well my jaw dropped when I was alerted to the 22nd January 2015 issue 38 of DairyCo’s Dairy Market Weekly.
In it was an article headlined “Is the price comparison between milk and water hiding a bigger point?” The article went on to state “As the graph shows (DairyCo love graphs!) if we take the branded and non-branded weighted average prices for both water and milk sold by retailers we can clearly see that, in both cases, milk sold for more than water.” So while the mass media have been lapping up the story that water is more expensive than milk, and filling the airwaves and papers full of stories about it, DairyCo (to whom producers pay £7m each year) in levy, have carried out some fantastic research to prove that milk is, in fact, more expensive than water – thus taking away one of our greatest headline grabbers ever! I ask you. Where’s the PR nous? There’s surely some brains there somewhere! After all, the head of AHDB’ Market Intelligence Section is paid close to the salary the country pays George Osborne as Chancellor of the Exchequer! (That said, though, DairyCo’s all-time words of wisdom surely have to be from its “Forage For Knowledge” bulletin once when it said “Variations in grass growth results are down to local differences in moisture and temperature.” Never!
Let’s hope Jane King, as new CEO of AHDB, has a big milk shake up in DairyCo’s comms and intelligence departments. She needs to ruffle some feathers and might even ruffle DairyCo Chairman Gwyn Jones’ resplendent hair-do in the process!
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IP Dairy Farmer Article – December 2014
The Muller deal to acquire Dairy Crest’s liquid and butter business is certainly a good news story for the industry. Consolidation in the liquid sector, particularly, was much needed.
Theo Muller has certainly made a big impact in British dairy processing in the past three years, with the purchase of Robert Wiseman Dairies in 2012 (for £280m), the building of a new butter plant in 2013 (£17m), the purchase of the Nom and Minsterely factories in 2013, and now the new Dairy Crest liquid and butter operation (£80m) – subject to regulatory approval, of course.
Muller’s total GB spend in three years is thus around £600m. But I doubt he will stop there! Where will his next shopping trip take him? Will he bid for Dairy Crest’s profitable cheese business, or will a takeover bid come from another processor, probably Lactalis? There is lots to play for, and it’s game on in GB re processor consolidation.
The Irish Dairy Board and its cheese processing arm Adams Foods are only a few miles from our offices in Leek and are a popular destination for late night farmer visitors, shall I say, when cheese prices head south. Adams pack 90,000 tonnes of cheddar a year there, split roughly into 40,000 of Irish and 50,000 of British primarily from Parkham Farms, South Caernarfon and First Milk.
The popular opinion, though, is that cheap Irish cheese floods into our market to undermine it, so I decided to check out just how much extra cheese the Emerald Isle has landed on our shores this year.
UK cheddar imports totalled 105,000 tonnes during 12 months ending August 2014 down 38,000 tonnes (26.5%) on the tonnage imported a year earlier. To my surprise Irish cheddar imports to the end of August were down 5,420 tonnes (6.2%), with imports from New Zealand and the USA up markedly instead. So the Irish are not flooding our market. With UK cheddar production up a staggering 22,000 tonnes in the first nine months of 2014, this is a self inflicted problem and not an imported one. On the flip side of the cheese balance sheet UK cheddar exports are up 2.5% year on year.
Mature cheese made six to nine months ago was made with milk at 30ppl plus, and now it is coming out of store on a much weakened market. The result is some of our cheese processors are having to sell cheese at significantly below the cost of production. If retailers and others expect the cheese at prices based on today’s milk price they will only drive down farm gate milk prices further. And retailers will not want to have their name associated with taking money off farmers!
Interest in, and talk of, processors introducing A and B pricing / “quotas” is gathering pace. The idea is based on having A quota milk which will be paid at a contracted price on (say) +/- 4% of an agreed production level, while above that there will be the B milk price, which will be paid at a realisation price with the aim being not to dilute the average total milk price. The other big advantage of this scheme is it helps farmers to focus on what return they can achieve from any extra milk production. Perhaps if such a mechanism were in place today, and with B milk paid at 17ppl and dropping, there would be much less milk around!
It’s likely two tier pricing will initially suit liquid processors, especially those in the fiercely competitive middle ground, with A milk contracted at a liquid price and B milk paid at a manufacturing price. The European Milk Board continue to call for a supply management mechanism post April 1st (less than four months away now) with the aim of controlling milk production to ensure the avoidance of a complete milk price collapse and crisis. An A & B system could tick their boxes.
The idea that EU milk production will level or even fall in 2015 seems farcical given that from April 1st there will be no super levy penalty. Some member states will have to apply the brakes to reduce their super levy bill this quota year, but the brakes will be off in April.
As I close for 2014 I apologise for the fact I can only see a small glimmer of light on milk prices at the end of a very long tunnel. The medium and long term prospects for growth in world dairy demand, and driven primarily by population increases, are excellent. But the prospect for the 2015 farm gate milk price looks grim, especially come the spring flush. We need to manage supply better and accelerate demand for British dairy products.
We simply don’t have profitable markets for the extra 1.5 billion litres plus of milk we are producing, and even worse I question whether we have the peak processing capacity to handle it all come next spring. Then there will be distress milk with no home. This could easily last for most, if not all, of 2015 after which there should be more light at the end of the tunnel.
The EU’s extra milk – up 6% this year - has to be destined for international markets, but China can’t take it all, plus the rest that farmers are producing in Australasia. In addition, EU cheese producers are fighting to find new markets for cheese they previously sold to Russia. It’s what’s known in posh technical marketing speak as a bugger’s muddle out there, and it will last some time before it sorts itself out.
I recently received a copy of the International Farm Comparison Network (IFCN) 2014 Dairy report. Normally reports like this get filed, but this one caught my eye.
IFCN pull together information and data from over 100 countries, which represent 98% of the world’s total milk production. The report certainly gives readers a better understanding as to what is happening on the global dairy scene.
It’s a staggering figure that 1 in 7 people in the world live on a dairy farm, compared to 7 billion consumers and 1 billion people on dairy farms. The report includes cost of production comparisons from 54 countries who represent 91% of the world’s milk production.
Torsten Hemme, the MD of IFCN, refers to the abolition of quotas in the EU and comments that there will be very fast structural change to larger farms, with lower costs. Whether it’s the removal of quotas or the collapse of the milk price that does restructuring it’s a near certainty there are going to be numerous casualties and tears in 2015 - both at farm and processor level. Another of the comments related to which farmers used the favourable milk prices from 2013 to build up a war chest in preparation for the drop. I wonder that too. At least we can be buoyed by the conclusion: “Demand will continue to grow due to market recoveries and possibly will not be satisfied by the milk supply’. Then the volatility wheel will turn again! Let’s hope it doesn’t take too long!
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November 2014 Dairy Farmer Article
By the time this article is published bank balances will be feeling the effects of the price cuts. Many farmers will be eagerly awaiting their (lower) SFP money, too. But part of that will need to be reserved for the tax bills due at the end of January and July. Cash will be short in 2015, and the spending spree is over.
Some processors are guilty of bringing on some of the production problems themselves. Paying production bonuses to new and existing suppliers until April 2014 lacked foresight, for example. And farmers were encouraged by organisations they pay subscriptions and levies to to “grab the opportunities”. So they did, and it’s they who are paying the price. UK farmers have produced up to 9.5% more milk than they did a year ago, only to find processors do not want it, irrespective of the end product it could be turned into.
But here’s the question: can you name one business which produces 10% more and expects buyers to buy it ALL? It doesn’t happen in beef, cereals, pigs, or lamb. Most produce to the market, and until producers and processors match anticipated demand such extreme volatility will continue.
Many farmers ramped up production quickly without talking to their milk buyer, expecting them to automatically take every litre they produced. This has to change and both parties have to agree limits. For some this may include something like A and B quotas or volumes. The current problem WILL return unless we try to do things differently! After all, if you do what you have always done you will get what you have always got. At least FFA’s David Handley is coming up with ideas, like the A & B. It’s a constructive suggestion in my view, and will have merit for some processors.
To my mind farmers have three options:
(a) Kill some cows to cut production
(b) Try to cut production without culling
(c) Sweat it out and take the pain
But I think I know what will happen. Many will look to produce more milk to maintain incomes, thus adding to the problem.
There is minimal light at the end of the tunnel. In fact, to me, the tunnel is getting longer each month. Winter forage is good and if we have a good spring that’s when the casualty department will fill up both at farm and processor level. As this article goes to print Arla have announced that there will be no price adjustments for November. Good for them, but don’t read too much into that because the fundamentals have not changed.
It’s a blood bath wherever I look, particularly in cheese and the middle ground liquid sector where the extra milk is sloshing around and several are hawking cheap milk around, chopping the legs from incumbent processors and, in turn, dragging the whole market down. On cheese most processors in 2013 were increasing farm gate milk prices on a monthly basis, which actually left few with little, or no margin. For them it is grim, as milk costing well over 30ppl has gone into cheddar which is still maturing and which will come out of store to face customers demanding lower priced cheese. Processors had to put milk prices up when the market was surging, but now it’s flooded out and milk prices are falling.
Some farmers are under notice to find a new milk purchaser with many under instruction that if they can find a new home they can leave at the end of the month as opposed to having to serve their full notice period. The NFU president talked about some producers only getting around 25ppl in a press release in early October. If only his information was correct! Some are on just over 17ppl, with only one option of where to sell their milk and some are our very largest producers! But then again they did have the option to sign long-term secure contracts but chose to ride it out on shorter seemingly higher price ones! Greed over sense, maybe.
On that note there is one financial winner out of this mess – DairyCo - because the extra milk produced in the past 12 months has netted them an extra £600,000. Questions are already being asked about how it will be spent. I hope its new chairman spends it wisely for the benefit of all the industry and not telling farmers how to produce more milk!
Questions are also being asked about The Tesco TSDG model. It works for farmers but does it work for Tesco? Yes they gain the PR high ground and are less attractive to FFA and its protests, but does that make it worth it? No it doesn’t, and TSDG farmers in my opinion need to stop focussing on the cost of production and their milk price and come up with additional, tangible benefits for Tesco if they want to maintain the aligned pool. A difference of 9ppl plus between TSDG and First Milk “liquid” is THE elephant in the room. Do I believe Tesco, Sainsbury’s, M & S or Waitrose will ditch the aligned concept? No I don’t, in fact I believe the likes of Morrisons will have to follow suit and come up with a similar scheme. Morrisons is on the radar and its commercial team is squeezing processors and playing ducks and drakes with its sourcing policy. Until Morrisons demonstrates it is as serious as others about supporting UK dairy farmers it will remain firmly on FFA’s radar in blue flashing lights.
Those retailers who have no clarity will be under suspicion for buying dairy products cheaper and exerting more downward pressure on farm gate milk prices. It’s the hunting season, and FFA is rooting out retailers, food service companies, discounters, caterers and any dairy customers who are exerting downward pressure. Those who declare their position as supporting the industry get a get out of jail free card while others may find their name is associated as one taking money off farmers, and with that comes the attention of Handley and an army of angry farmers.
Finally, hats off to Arla for its high profile and positive “Support our farmers” campaign to link its owners, with its brands, with consumers. It’s a brilliant campaign and I wish it well. We need more like it. DairyCo take note!
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October 2014 Dairy Farmer Article
The dairy industry is in crisis. Globally farmers have responded to higher milk prices by producing 5% extra milk than normal, which has outpaced the predicted annual increased demand (+2.5%) by a factor of 2 to 1. Marry this to the Russian ban, plus a Chinese cooling in demand, and prices have gone south big style.
With Russia it’s a political ban that has created a vortex all farmers are paying the price of. The Russians buy the equivalent of 1.5% of total EU milk production, predominantly in the form of around 300,000 tonnes of cheese and butter.
The Commission has stepped in, agreeing Private Storage Aid (PSA) to include most types of cheese. Note, though, PSA for between three and seven months (the maximum) will end at the same time as the EU’s spring flush, which is not smart. Consequently the Irish are lobbying for a one year storage period to coincide with what is hoped will be the end of the ban. It’s a good shout, but it’s of minimal value to any processor who needs cash in the bank now. Cheese in storage is not the same as cash in the bank.
There is now serious lobbying by various member states for the Commission to do more to bring stability, and a more confident outlook for the industry. A front-runner is to remove butter and SMP to intervention but at an inflated price, as opposed to the current 17.5ppl IMPE price. The Irish are calling for the IMPE safety net to reflect current production costs with others suggesting a revalued IMPE north of 23ppl. There is also a push for export refunds for processors seeking alternative export markets to replace lost Russian sales.
PSA and intervention will help balance a depressed market, however, in reality all they do is take product off the market now, only for it to reappear at a later date when the market conditions have improved.
There are even rumblings of pressure to retain milk quotas beyond the 31st March 2015. This has triggered a mini run on milk quota to the point that we now have buyers outnumbering sellers by a factor of 9 to 1. Add to this the imminent 21st October deadline for trading single farm payment entitlements and a host of claimants keen to realise some cash for their 5ha or less of entitlements and our office is buzzing!
Not long ago significant numbers of dairy farmers pushed for their milk price to be linked to commodity prices. Many succeeded, but now the cream has turned sour and some of those very same farmers are claiming we are “an island of fresh milk consumers and are divorced from world prices”. That’s called picking and choosing when it suits!
Others took advantage of short-term contracts linked to commodity prices. Some simply joined the growing numbers of milk tarts who signed-up for the extra money, and as soon as someone offered them an extra 0.5ppl in went their notice. But for some it has ended in tears: large and small producers who are either out of contract or under resignation have nowhere to go, and no processor really wants them. Few, if any, processors are recruiting.
Those who have secured a safe home for their milk need not worry. For some of the tarts it’s a simple choice of either accepting a poor world commodity linked price or exiting the industry.
Processors are not exactly sitting back smiling, because some have invested heavily in new facilities, which need to be full to capacity. They don’t want producer confidence dented to the point farmers either cut back on production or leave. Sadly for some that decision has already been taken, though.
Those who went public last year with the claim that we should increase domestic production have now either gone on mute, or gone all together. Some clearly aren’t here (in the real world) at all. And this brings me to a press article from Mole Valley Farmers only days after a dozen or so milk price cuts, including the infamous 3ppl First Milk one! The headline was “Drive for more litres in light of low feed costs”. In the article I was gobsmacked to read the conclusion that “it is well worth pushing for extra litres this winter, despite the recent drop in farm gate milk prices.” Dr Chris Bartram, Mole Valley’s Feed Solutions, Head of Nutrition, went on to say that, at current feed prices, “That brings an astronomical possible milk price to feed cost ratio of 2:5 to 1 based on an average milk price of 30ppl”.
Well Dr Bartram, it may be good for your employers to push for extra litres in the hope it helps maximise the output from Mole valley’s feed mills, particularly the new one in Ayrshire, but it is NOT going to help processors, or the milk price right now! The days of an average UK paid out milk price of 30ppl have gone for most and the evidence was before your eyes prior to the article!
In this edition I was hoping to write about the review of the Voluntary Code but more than seven months since its announcement and all is silent. Yet, initially, it was “expected to be concluded quickly, by the Spring.” Surely the review chairman didn’t receive a postbag of farmer comments? On that score I have asked for details on the number of submissions he received, excluding the staunch defenders of the code eg the NFU and NFUS. More on that soon!
Finally, two requests: first to First Milk. Please rename your so-called liquid contract, or merge liquid and manufacturing and just have one. It’s not a liquid contract any more it’s predominantly an ingredients or commodity one. My second one is for everyone to keep an eye on comments relating to Morrisons. It is currently out to tender for its liquid milk requirements. If Dairy Crest retains some of it, for instance, and then issues a comment to the City similar to when it retained the Sainsbury’s contract in 2013 (“Although the conditions of the contract will change from 2014 our on-going cost reductions are expected to offset any financial impact on our business” i.e they got the milk much cheaper!) then we will know Morrisions have screwed the processors. And we can’t afford for that to happen to the liquid processors. It is also not right or ethical for Morrisons to assume that the processors will simply pass the shortfall back to the farmer. That’s the attitude that prevailed before SOS Dairy, remember.
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September 2014 Dairy Farmer Article
I open, again, with milk prices and what is a never-ending stream of bad news. Chinese demand has cooled and the 12-month Russian export ban is a disaster, with 1.6ppl wiped off the milk value in a matter of days simply on the back of cream values crashing from £1380 to £1100 a tonne. And that’s before we consider other commodities!
Around 300,000 tonnes of EU cheese has to find a new home. For processors with ageing cheese in store its value is dropping daily. We all know that as prices tumble rejections increase for failing to meet quality standards. That results in distress sales in fragile markets, and this usually means dairy farmers pay the price.
Dairy prices were relatively stable until 2007, but major volatility is here to stay. These are very tough times, and the only partial relief for farmers comes from falling feed prices. We are in the era of extreme volatility, which mirrors that seen in energy, equity and currency markets. Lower prices will result in restructuring, consolidation, mergers and acquisitions but for those in trouble buying will not be an option. It will force out both weaker and uncommitted processors and farmers. Be warned.
As we head closer to 2015 and the end of quotas dairy farmers need to be in-tune with world price movements because additional EU milk output will have to be exported. But I do have an issue with those who should explain to dairy farmers exactly what’s coming down the road. Currently some shy away and don’t say it as it is, fearing criticism. But the information is there for all to see, and just needs to be interpreted in straight-forward farmer friendly way that links commodity prices back to farm gate prices.
Although the Commission has dismissed outright any continuation of the quota regime, unless production slows down it will soon be under immense political pressure to come up with an emergency plan, whether it’s private storage/intervention or a voluntary quota/supply management scheme. Most of you will be glad to see the back of EU quotas and we could argue the pros and cons of what nearly 30 years of quotas have delivered. The question is, though, will you enjoy greater prosperity in the new non-quota world – one that is certain to be anything but a soft landing.
Some farmers will wake-up and find they have nowhere to go but to exit the industry. Others have expanded, having ambitiously (and foolishly) stress-tested their milk price at 30ppl, and who are now facing the winter knowing it’s going to drop below this level with some potentially facing a 25p / 26p milk price by the end of the year, or next Spring. Throw in an interest rate rise and the odd struggling processor and it’s time to buckle up. Oh, and don’t shoot the messenger. As one reader said: “I find your observations interesting and sometimes quite frightening. We as farmers are very good at just burying our heads in the sand and hope things go away or just hope someone else will come along to sort it out.”
Farmers across the world were confident and increased milk production by chasing the rainbow of growing global demand, particularly from Asia. When they got to the end and found the pot of gold they were mesmerised. But it was too small to go round, and now it’s only fools gold to be found.
And it’s no good moaning and groaning: we’re in the global market now! Which brings me to the NFU Scotland’s recent press release headlined “Milk price cuts must reflect market place reality – Union calls on processors to pay based on performance”. This really did have me scratching my head. On this basis a 40%+ drop in global prices in less than five months means the NFUS effectively endorses further cuts!
To pay a milk price based on company performance is, on the face of it, outrageous and naïve and means a poor performing company would be justified in dropping prices, leaving farmers to take the pain. But having thought about it further perhaps NFUS were sending a very clever coded message that it would be better for a poor performing buyer to drop the farm gate milk price and risk losing suppliers, so long as that gave it a better chance of successfully restructuring and repositioning itself for the future. Certainly some buyers found themselves very stretched recently.
Naturally when times are tough there’s a lot of focus on the senior management of a business. None more so than First Milk, as readers of The Scottish Farmer will know. In a recent issue David Handley demanded that the co-op’s Chairman and Board should all resign en-mass. In my opinion the only people entitled to call for the resignation of its senior management are First Milk’s members. They decide who runs their business. Personally I think we are in stormy, unchartered waters, and I’m not sure it’s right to change the people in charge of the ship at such a time, or that the outcome will be different with new management. Inevitably Handley’s comment brought a response from one of the firm’s area reps and second row bruisers, this time from Willie Lamont. He likened Handley’s call to a tired old football chant, and one akin to that of Manchester City fans calling for the removal of the Manchester United board. Now come on Mr Lamont, Handley is no Man City, but more like Brian Clough! And come to think about it, you can’t make out First Milk is a Man Utd. As I’ve said before I reckon it’s a Millwall!
Meanwhile, in the office, quota trading is very unpredictable with around one deal a day on average. Entitlement trading is far more active as many farmers attempt to match the Entitlements they hold to the area of land they farm ahead of the 19th October date. Just like milk quota, it’s a buyers market and offers a sensible return in less than a year for those in the market.
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August 2014 Dairy Farmer Article
Back in February 1999 a dairy farmer gave a paper at the RABDF conference stating that “leadership in the British dairy industry has, with few exceptions, been poor.” One exception has been the brilliant David Dobbin, chief exec of United Dairy Farmers in Northern Ireland. At this year’s Dairy Industry Newsletter Conference he made another telling remark (one of many in his career): “our industry is great at producing strategy documents, but few of the authors have the leadership to deliver”.
The latest document is the UK dairy industry’s ‘Leading the Way’, which was unveiled in Westminster recently. We also have ‘Compete to Grow’ - a vision and strategy for the British dairy industry, which was billed as the culmination of “ground breaking consultation on the future of the sector”; ‘The Dairy Survival Plan’; several Dairy UK White Papers, and ‘The Dairy 2020’ sustainability inactive, to mention a few recent ones. In most cases the document sets out a plan, a vision and a strategy.
We seem to have an annually recurring addiction for someone in the industry to produce a strategy document, and for all involved to pat themselves on the back whilst they drink wine and eat cheese at the launch event. But Dobbin questioned what, if anything, gets done – and I agree with him.
Having a plan or a strategy is fine but putting the words into action is something entirely different and demands real commitment. It needs personalities who make things happen, not ones who are seeking short term PR brownie points. “We used to build cars and ships now we launch Dairy Strategies,” he said.
He then talked about our perceived gold standards and the belief some farmers and their representatives have that we produce to higher standards than Johnny Foreigner, and that British is best. But what, exactly, do foreign consumers associate with Great Britain? We have had, he said, BSE, FMD and the burning Pyres, The Horsemeat Scandal, TB in cattle and more recently negative headlines from the fact we were daft enough to take the Chinese Inspectors to an English cheese factory that doesn’t export to China - which failed and resulted in all exports being temporarily banned. Perhaps we are not as clean as we think, and we are great at scoring “own goals.” If any of these strategies are going to succeed our image has to improve, and the own goals must stop.
Now milk prices. Oh dear. On the world scene the news has been dominated by the disastrous July 15th GDT auction results, which saw another 9% slashed off the auction’s average price in just weeks. And this is despite the fact that Chinese imports of WMP in June were double those in 2013. Talk of prices bouncing back was killed overnight, and prices have now dropped around 40% in less than five months. That’s meltdown that’s is! Prices will bounce back but it will be several months, not weeks before it happens probably.
We were all warned that dairying would have to cope with volatility but this is looking like extreme volatility - and that’s while quotas are still in place! Let’s hope 2015 brings a price boost because the remainder of 2014 is starting to look dark and grim. Having said that it’s the margin which matters and falling feed prices will offer some relief.
Different companies have different strategies for communicating milk price movements to their farmer suppliers. Some are direct and factual with no spin, some seek to deflect attention towards competitors, others roar with indignation about the injustices of the Voluntary Code, and some attempt some crafty creative accounting in an attempt to curdle the milk cheque. Two recently caught my attention:
First Milk were the first milk purchaser to drop their standard litre price bellow 30ppl. The reasons given behind the move were sound, but in communicating the drops to its members chairman Jim Paice once again chose to fire another shot at Arla. The letter read:
“As you may have seen Arla have reduced their price from this week, almost a month earlier than us, citing the negative trend in global markets. Our analysis of their price and the deductions which they apply means that our actual price paid will still be more than the Arla AMCo price for most of our producers.”
This claim over-egged the pudding and was poorly researched and while I do agree that Arla’s headline price is not the paid out price for AMCo producers its price is certainly not below First Milk’s. However two other points crossed my mind in connection with Sir Jim’s claim to his members.
Number One is that the more accurate comparison between the two company’s prices should be between the First Milk price and that of Arla Milk Link, as both have been in existence for exactly the same amount of time, began life at a similar size, and in the same political environment (unlike Arla Foods Milk Partnership, which migrated into AMCo this year.) Number Two is that this is the second time their Chairman has had a poke at Arla, who, are after all, are a fellow dairy co operative. OK, so one whinge at a competitor everyone can live with; two pops (without another competitor being highlighted) and it looks like a gripe: if he makes a third one-directional whinge it will look like an unhealthy obsession.
The next milk buyer to cross my radar was Freshways. It has shocked a number of its producers who have had cell counts and Bactoscans in the penalty band, with the sting being that these producers will have deductions rolled back to 1st January. Two suppliers claim the move has hit them with deductions of £24,000 and £30,000, and say that the company turned a blind eye before when milk was short, but is now making the move to generate cash. It appears some of the so-called farmer representatives have refused to get involved.
Other milk buyers in this situation send a fieldsman to offer assistance and advice to the farmers on how to improve. Why can’t Freshways do this instead of hitting the farmers with a huge bill, I wonder? I guess that wouldn’t generate anything like the same amount of cash, but it would generate goodwill, and that is hard to place a value on.
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July 2014 Dairy Farmer Article
It’s now only a matter of days before this year’s NEC/RABDF Livestock Show and while I do subscribe to Darwin’s theory of evolution it does appear that a number of the RABDF’s changes are moving the event further away from its origins as a grass roots Dairy Show.
This year Arla, which processes a quarter of the UK’s milk, has pulled out and will be concentrating instead on consumer-facing promotions with its new Anchor cheese brand. All eyes will be on whether our other two big processors, Dairy Crest and Muller Wiseman, decide to return to the event in 2015 because it’s a certainty that it’s not a cheap event to attend, especially given it’s a two day event and it is migrating away from its core roots. Some of its events are bordering on the type featured at the CLA Game Fair later in the month. But let’s not pre-judge, and I hope the RABDF’s direction delivers a successful show.
This year’s DIN conference was once again a unique gathering of a number of the world’s dairy brains who debated “The China Dimension”.
The consensus was that the future of the European dairy industry will be driven by world milk price levels, as governed in particular by China and Russia, where the dairy power lies. To keep abreast of the current increase in demand the world has to add the equivalent volume of the whole of New Zealand annually. So in 10 years time the world will need to produce 10 times the annual output of that country today.
EU milk consumption is more or less static, so any increase in production, post quotas (in ONLY nine months time), will have to be sold on the world market. Indeed one speaker at DIN predicted that the EU will become the world’s largest net dairy exporter in a global dairy market which is currently equivalent to around 50 billion litres per annum, and which is predicted to rocket to 90 billion by 2024. However, with the statement came a wealth warning. We are in for very volatile prices, which the European Commission is unlikely to manage unless we end up with a serious crisis.
China is rich in natural resources, and has a huge population where quality dairy products remain aspirational to their consumers. They believe dairy products are an integral part of a healthy diet, particularly for children.
China consumes a serious amount of the world’s milk production - one more cup of coffee a day for even a few of its 1.3 billion population would send global dairy markets into orbit. Equally, a sudden slow down in the Chinese economy would be a disaster, and potentially kill dairy markets overnight.
In recent years adverse weather conditions, outbreaks of Foot & Mouth & TB, together with high prices for beef cattle have resulted in a reduction in Chinese milk production, which for 2013 amounted to a fall of 5.7% to 30 billion litres. The hike in beef prices resulted in thousands of small back yard dairy farmers quitting at a much faster rate than the larger commercial farmers could match.
Couple this with the acute shortage of fresh water and irrigatable land and Chinese businesses have decided to produce dairy products in other countries.
Dairy companies like Yashili are piling into countries like New Zealand, and are building factories to ensure they control the production and can guarantee quality to their standards. Yashili alone are now exporting 1,000 tonnes of powder from their factories in New Zealand to China each week, and it is one of a number of Chinese investments in the New Zealand dairy industry which will see 13 new infant formula plants built in six years.
New Zealand, and other countries, could soon become satellite countries with their land and resources used to supply high quality dairy products to China, where consumers do not trust their own dairy products. This could easily leave a shortage of good quality food for their own country.
Chinese dairy companies, particularly those producing infant formula, have had a number of food scares to contend with and while they have tried every trick in the book to persuade their housewives to buy home produced dairy products the reality is the damage is done and the trust has evaporated.
Let’s all pray that China’s insatiable appetite for powder and milk products continues, as it is the global milk price setter. It looks that way for now, and the next 15 to 20 years look very exciting for the world’s dairy farmers. Predictions from IFCN suggest that China will be responsible for buying around 60% of the world’s traded dairy products. Whether we want to be involved in the global dairy market or not is a big question for us, but domestically the magical liquid premium has almost vanished overnight as we all look to China where a staggering 20% of the world’s population reside. It’s mind blowing and all roads now appear to lead there.
Some of our processors are chasing the opportunities, notably Arla, Woodcocks and last but not least Dairy Crest, which is investing around £45 million to manufacture de-mineralised whey powder. This is a base ingredient for baby food and much of what Dairy Crest makes is likely to end up in China. And for good reason - 20 million plus babies are born each year! Production will start at Davidstow in less than a year and, given the mechanics of getting product into China, it is inevitable that Dairy Crest will partner with a local agent to open the market. It’s not simply a case of producing infant formula and shipping it to China. Chinese standards are the highest in the world and for baby powder it has to be produced to pharmaceutical grade standards. Dairy Crest is likely to have one attractive USP in its ability to export product from nominated farms from a tight geographical area.
As for the majority of the UK, and its farmers, well I have to agree with a comment made over a year ago by Mr Jim “Now You See Him Now You Don’t” Paice, who could not understand why the UK imports dairy products from countries where they have a higher cost of production and higher farm gate milk prices. He commented that as a net importer we should have a high milk price, just as Italian farmers do. If we are going to capitalize on China, en mass, we have a lot to do, and need to get our market sorted out first perhaps!
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June 2014 Dairy Farmer Article
Last year I attended the third NFU Producer Representative Summit, and took a particular interest in a talk from Bridge Ability Ltd, on the topic of “Conducting Professional Negotiations.” I recall the speaker stating that “you can’t change the hand you are dealt but you can change how you play it”, followed by the line that “a negotiation has three stages - propose, repackage and agree.”
At the meeting I declared that all those in the room who claim to represent producers and do any sort of negotiating should attend a course and achieve a standard. I then decided it’s no good me getting on my soap box, so having communicated the training idea to DairyCo I was pleased to see a range of AHDB training days on offer over Christmas and the New Year. So I duly signed up to test the water at Stafford for the negotiating skills course funded through RDPE. Attending it left me feeling that perhaps DairyCo and AHDB were flogging a dead horse with a farming industry who either think they know it all, or feel training courses are a waste of their time and they would be more productive shovelling corn or shit. Only five farmers turned up at the course I attended and attendance numbers elsewhere had evidently been disappointing. I was pleased I went, though. I learnt a few new tactics and tricks. What a shame quota trading ends soon, I hear you shout!
In April I wrote about Arla and posed a few questions on its pricing. A big thank you to all readers who took time to email in response. Whilst some responses were clearly written through gritted teeth and clenched fists all agreed Arla was having a positive effect with quotes like “at last we have a progressive cooperative in the UK, which is long overdue".
A significant number of emails came from Arla members and were related to the controversial butterfat reconciliation deduction or Fat Tax.
Most questioned why is the 0.75ppl fat tax/butterfat adjustment, which many stated was a covert price drop, applied across the board to all producers, as opposed to targeting those who are producing low fat milk. On 1.6 billion litres it’s worth a cool £12 million which farmers are losing until butterfats improve. The thinking was along the lines that it would be fairer to charge the offenders, in a similar way to how seasonality operates. The alternative view was why doesn't Arla simply cut the price by 0.75ppl and offer an incentive to produce more butterfat. No doubt the arguments will run and run!
A few months ago I visited its new Aylesbury plant for an at the coal face non-tourist look around the facility. One word sums it up it: incredible! Especially the robots which pick up the milk trolleys and take them to the store for dispatch. The factory is super-efficient.
While there I met Ake Hantoft Chairman of Arla Foods amba, who’s enthusiasm is infectious. In his own words “It’s an extremely exciting phase for us in the UK.”
When you talk to him about Arla he does not think Denmark, Sweden, Germany, Belgium or GB (and now The Netherlands, of course) he thinks of the whole company, and its "big family" of 13,500 farmers. Ake placed considerable importance on his values among the board members, particularly on their behaviour and the importance that they conduct themselves professionally. Arla’s progress since 1970 is impressive, and it is now the 6th largest dairy company in the world employing 16,000 people. The UK is its biggest market accounting for 26% of Arla’s global turnover. It welcomes a new boss in the Autumn, of course, but I can't see much changing.
During recent weeks I have encountered two very different milk buyer attitudes. Paynes Dairies claim to have had only one producer leave them to supply a competitor in the last 20 years. But recently it received another request to leave from a significant producer who believed he could achieve more money per litre with another buyer on a manufacturing contract. Paynes agreed with him, had no reason to be awkward or to argue with the farmer, and decided that if he wanted to leave he could have the option to leave earlier, by mutual agreement. The date of May 1st was offered, for obvious reasons. Alas, at the 11th hour, the decision by the producer was that it's the better the devil you know than the one you don't, and that the grass on the other side of the fence wasn’t as green as it looked, and part was, in fact, Astroturf. He went back.
Contrast this to the bizarre stance taken by Dairy Crest, who rejected any resignations received by email, insisting they must come by post or be hand delivered! Two of their Sainsburys supplying farmers were so incensed they jumped in the car and drove from Devon to the firm's London HQ in Claygate on resignation deadline day. It was a trip of 300 miles, and the comment was made that they used no fuel for the trip because the vehicle was jet propelled with anger used as the fuel! It’s crazy that Dairy Crest should, on the one hand, insist on all applications to supply milk on its formula contracts be made via email, yet refuse to accept email resignations.
It’s a fact that many notices are tendered without a decision having been made to commit to a new buyer. In many instances a few weeks of cooling off and a reassessment of the facts leads to the retention of the supplier. In Dairy Crest's case it will need a lot of water to cool the discontentment fire in situations such as the one described above.
As I write spot milk prices appear to have levelled at around 17/18p and production is showing signs of levelling a few weeks earlier than expected. We can only pray production drops because more milk = more problems = lower farmgate prices.
Irish dairy farmers are cursing us for dumping our distress milk on their doorstep and impacting on their fragile market. Oh, and I daren’t even look at the impact the extra cheese we are making will have on cheese prices in a few months. But, for sure, someone will blame the Irish if prices collapse!
Whilst the long term future on a global level looks good the reality that we will experience very volatile pricing is now upon us and there are no immediate signs of a U-turn as prices continue to head south. Middle ground processors and their corner shop, garage and convenience store customers are taking a beating with the 4 pints for £1 offer. Processors may not be losing customers but they are losing volume.
One told me their volume was down 15%, but they still send the same delivery lorry on the same round incurring the same costs just for fewer litres. The small shops and bottle milk buyers/doorstep milkmen are finding it tough retaining liquid customers when faced with 4 pints for £1. So it’s a win win for the big retailers. They squeeze out the small competitors plus doorstep delivery milkmen and some middle ground processors. It’s the dairy equivalent of ethnic cleansing. And it's working quicker than we may like to admit.
April 2014 Dairy Farmer Article
Firstly I have to congratulate the Woodcock family, who trade as Yew Tree Dairy in Lancashire for having the foresight and commitment to build a large butter-powder plant alongside their existing new liquid dairy. The plant will be up and running by mid 2015.
Carl Woodcock told me that the dairy world is changing and the business simply has to change to survive.
It would be brave if not foolish for Woodcocks to continue to have all its eggs in one basket relying on liquid milk alone. With the new plant they will produce butter, WMP, SMP and concentrate and the plant can be run flat out to process just over half the milk Westbury processes. Alternatively it can be shut down for periods.
Up until now Woodcocks has remained under the radar, but slowly growing and recruiting farmers. Now it has firmly launched itself onto the UK, and the European dairy map.
Recruiting farmers is not necessarily the goal so don’t go beating down Woodcock’s door because, post quotas, there are likely to be lots of options with the plant in terms of contract / toll processing and buying spot milk in the post quota world.. I wish them every success.
On the 31st January 2014 Arla Foods increased the milk price it pays its 2,800 British owners by 0.74ppl. Under normal circumstances this would have instantly triggered price rises from competitors, typically within 48 hours. But not this time - with only one milk buyer (Barbers) announcing a substantial price increase. I am excluding Dairy Crest’s formulae price rebasing too.
By the time you read this article it will be at least 56 days since Arla’s increase and there hasn’t been a flinch from its competitors. Not only that, but on the 25th February Arla directs were notified of a 1.23ppl 1st March increase. Again not a murmur.
Two years ago we had milk buyers dropping the price 2p, followed by another 2p and farmers weren’t happy. And here we are, now, two years later, and one company is keeping the milk price high and stopping it falling and some farmers are still not happy. In 2012 it was the differential between the cream price and the milk price that triggered the successive price drops. And yet that same differential exists today! It is ONLY through Arla’s actions that the milk price hasn’t fallen by a similar degree.
Following my last article and recent news items in my free Friday news bulletin, I received a few emails questioning my objectivity as regards Arla. A few asked me if I was in bed with the firm. This really annoyed me. I would therefore like to know how widespread this view is across the industry: to help me would dairy farmers therefore read the following three questions and reply by email with the answer (to firstname.lastname@example.org). Pick “1” if you agree with the first question, “2” if you agree with the second or “3” if you agree with the third:
1) Arla’s milk price increases have prevented the UK milk price from falling this spring. This is a spiffingly good thing for dairy farmers, and worthy of a bouquet or two.
2) Arla’s price increase has prevented the UK milk price from falling, but that’s a very bad thing indeed. (Please elaborate on your answer to explain why.)
3) Arla’s price rise has made no difference whatsoever to milk pricing.
Believe it or not I have had two very long emails from two farmers wives who believe that number 2 is the correct answer!
The fact is that non-Arla farmers like their milk prices being kept high, but hate the fact it is Arla – a farmer owned business – that is doing it. Why is that? It’s the same mentality that some have of “I’m not bothered what my milk is, so long as it’s higher than my neighbour’s.”
I have never shied away from controversy in my articles and as much as it won’t suit some readers I wish to put on record that I can’t currently see a flaw in the Arla strategy. If you can, then email me. That’s my challenge to you. I ask people who hate Arla the same question, but those who really understand its strategy reluctantly admit they can’t see a flaw either. Their only vulnerability is to volatile global markets. But Arla hasn’t got all its eggs in one basket, as most companies in the UK have.
I am praising Arla at the moment, because it is doing a good job for ALL farmers, not just their owners. Anyone who doesn’t see that doesn’t understand what is happening. But there will be a time when the market turns, Arla drops the price, others will follow, and the comments won’t be as positive. If the moaning farmers who had spent time emailing me because I have written about Arla had spent the time writing to their own milk buyer instead, asking for the same price, then maybe the UK price would be moving forward a bit more!
The recent price war battle between retailers with 4 pints for £1 or less is causing pain to many, particularly those operating in the middle ground where most can’t purchase the milk from their supplier at that price. Corner shops are pressing wholesalers for milk at lower prices and price support to retain business. It’s a disaster - they all want to pay less for liquid milk. This time, though, with the Arla factor, it won’t be the farmers’ paying.
Meanwhile, production continues to rocket north at over 10% on last year. Surely it can’t continue though? There are pundits and farmers believing production will continue at these levels throughout the flush. I doubt it, and it could be the cows have milked exceptionally well whilst indoors and the so-called spring flush will be smaller than predicted (I can only pray this will happen). One bean counter has calculated that at peak there could be an extra 100 of our biggest tankers seeking an outlet for the milk. That’s an eye watering additional 2.3 million litres/day, which will see the current spot milk price of 31p/32p plummet and exerting more pain and suffering. If that materialises it’s likely several farmers and processors will be on the brink of a disaster. A price correction is coming our way. but let’s hope it’s gradual and not an overnight big bang.
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March 2014 Dairy Farmer Article
This year's show season will be soon be with us. Last year, though, was not a good year for showing, public image wise. I refer to the extensive negative national media coverage of a cheating investigation involving at least one exhibitor at The Great Yorkshire Show. An announcement on the outcome is long overdue and has been delayed - allegedly - due to a wee chat of the legal sort between the Show Society and an exhibitor. We will have to see what those gritty Northerners, headed by show director Bill Cowling, end up doing.
The Daily Telegraph headline was “Mystery of super glued udders grips farm show” and it damaged the image of the whole industry. We have just over 11,000 GB dairy farmers of which around 300 plus enjoy showing their animals across the country. Yet among those 300 we have a handful of five or six hardcore dairy exhibitors, a similar number of stewards and show organisers who are selfish and continue to play hide and seek with cow fixing. In doing so they put at risk the image of the whole industry. It’s the same with a football crowd of several thousand at a match where a handful of hooligans steal the headlines and tarnish all of the fans.
The RABDF were the first to take a firm stance on cow fixing following which, in 2012 and 2013, they encountered no problems. Holstein UK as an organisation is shoulder to shoulder with RABDF, with both aiming for all cattle owners to be able to compete against the professionals on a level playing field. This includes the careful selection of non compromised stewards and vets i.e ones who can’t be influenced, shall we say.
It’s almost a year since the 2013 Borderway UK Dairy Expo, following which several farmers and trade exhibitors contacted me alleging that some of the show cattle there might have had their udders fixed. I gave a number of people involved ample opportunity to address the accusations, in particular both Canadian judges, and the organisers. But they choose to remain silent and, while a statement was issued, it did not specifically reject the accusations.
On March 8th the 2014 Dairy Expo event with judges from the US, Canada and Holland will be held. This marks the start of the 2014 dairy show season. The indications are there will be increased covert surveillance at shows from farmers, judges, organisations and vets who are all keen to protect the image of British dairying and who will blow the whistle on any cheats. Show organisers you have been warned.
The review of the Voluntary Code by the Rt Hon Alex Fergusson has caused a bit of a stir. Expert dairy lawyer, William Neville of Burges Salmon, gave the Code a beating at this year’s Semex Conference with several of his comments and claims irritating both George Jamieson (NFUS) and Mansel Raymond (NFU E&W).
The announcement of the review was coupled with the requirement that all submissions be made to the Code’s staunch supporters as in NFUS, NFU and Dairy UK, rather than direct to the Chairman. This has resulted in several comments that the review will be a waste of time because they have “almost certainly agreed what the report will state and will sift and vet any adverse submissions”. After all, not all processors or farmers are members of one of the organisations and it’s a certainty that all farmers need a voice in the debate.
For what it’s worth today the Code is holding back prices and freezing farm gate milk price movements from processors who are under the Code who fear the three month resignation rule. The word is that the NFU’s are touting an alternative option for co-op members to sign up to.
Arla’s recent decision to utilise Westbury to process milk concentrate from Germany following a factory fire at its Pronsfield plant is understandable, but has caused a few shivers among GB processors.
Yes, it will cost Arla members money to transport the concentrate from Germany to Westbury. Equally important, though, is the reality it will also result in less GB milk being bought by Arla and First Milk during the flush. This is likely to exert even more pressure on weak spot prices for those with no or insufficient processing to deal with the increased peak volume of milk. That’s not Arla or First Milk’s problem because their duty is to their members and that’s the end of it. Judging by at least two emails I have received the penny has not dropped for some producers that Westbury is for the benefit of the members of the two co-ops and is NOT for the benefit of all, like some British industry charitable organisation. A co-op’s aim is simply to extract the maximum value from each litre of milk it processes or trades and to pass back the financial benefit to members to ensure its farms are sustainable and viable long term. Nothing more.
This winter is delivering record milk prices, however, I recognize the battle some are having with the severe wet weather and TB. The signs are that confidence is slowly emerging and in some instances I would almost state some appear to be over confident. Domestically prices are holding firm on account of the Arla factor who, in my opinion; now influence all GB liquid milk prices. High international commodity prices are cultivating confidence and the main fear is whether they will change overnight only to be immediately followed by downward farm gate price movements. As one leading industry guru commented to me its fantastic that dairy farmers are at last talking about return on capital. This was followed by a progressive first generation dairy farmer who commented “Ian I am now doing forward figures for the taxman, having only done them for the bank for decades.”
Where industry bodies and officials are encouraging you to produce more milk you need to satisfy yourselves that, post quota, such production is sustainable. But I say investigate their reasons for believing in that increased demand and that your buyer will be genuinely able to capitalise on it. Before you put a long term noose around the farm's neck or saddle it with significant borrowings make sure you understand the potential negatives and any uncertainties.
Many dairy farmers have been demoralised for years and I agree the outlook looks more positive, but collective expansion of GB dairying needs careful planning, especially in terms of processing - in particular our lack of drying capacity which is an issue. We certainly have no requirement for liquid processing capacity, where closures seem inevitable. And remember, EU milk consumption is more or less static which means any additional EU milk production after the ending of milk quotas will need to be globally traded. Let’s hope those Chinese continue breeding and have the funds to pay!
Finally, I want to give a red alert warning for all of you to carefully check your RPA 2013/2014 Start of Year Producer Notification. We have come across several which are incorrect, ranging from one which showed 8,664 litres more than the producer was entitled to, to one which short-changed the producer by a whopping 108,347 litres. Check your figures, in particular the recent quota awards and if in doubt contact requesting it re-checks your 1st June 2013 Notification and confirms the statement is accurate.
Whilst on the subject of quotas I wish to lay to rest yet another rural myth. The total UK National Reserve milk quota is 547 million litres and in the unlikely event we exceed our quota the relevant National Reserve litreage is added to the available quota to reduce or eliminate any superlevy. Whether the UK will pay superlevy at the end of March 2015 is up for debate by some (but not so far as I am concerned) unlike, the position in Southern Ireland where it is equally clear that farmers will pay superlevy in 2014 and 2015 as a cost of expansion to ramp up production post quotas.
February 2014 Dairy Farmer Article
“Milk production globally is exploding mainly because increasing milk prices has brought about an almost insatiable appetite for expansion.” That was one of my opening statements at this year’s Semex Conference. Fortunately, the signs are that the increased flush of European milk is set to be matched by increasing global demand with January to July GDT product prices holding firm and, in the case of butter and cheese, significantly increasing. For as long as China continues to hoover up the world’s powder supplies it is likely prices will remain strong.
The likes of Arla and Dale Farm are certainly maximising the global trading opportunities, especially after Fonterra has suffered some nightmare product recalls and damaging PR. Only two weeks ago it had to recall several batches of branded fresh cream. Its press office tried hard to claim the recall was positive and demonstrated that “it shows our consumers that a company owned by thousands of Kiwi farmers puts food safety first.” But traders claim that not all customers take that view, and for some it’s one recall too many as they seek out trusted European product.
Arla’s 3rd February price increase of 1 Euro Cent a litre was fantastic news for all UK farmers and should silence the critics and anti-Arla suicide bombers who were convinced that come the New Year it would drop its milk price, and thus give others the opportunity to follow. The increase came at a time when some processors were gagging to see Arla drop. But its move has effectively stopped prices from falling dead in their tracks. The question now is will, or can, others follow the lead and increase their prices?
If Arla succeeds in holding, or dare I say further increasing farm gate prices through the European flush then other buyers will be forced to keep up. If they don’t and a buyer blinks and cuts their milk price they are likely to solve Arla’s ambitious recruitment targets in days with a gift wrapped present. How long then before it closes the recruitment door, I wonder? As it is Arla has delivered this latest milk price increase based on its very strong global performance. It hasn’t increased it only to be forced to go out and retrieve it from its notoriously hard-ball playing liquid customers here. And that’s a huge difference to the situation it was in two years ago.
Domestically the problem now is whether we have sufficient peak processing capacity to deal with any distress spring milk. This distress milk could drag some producer prices down or even put one or two processors out of business. That’s my worry, because some processors have realised their milk intake cannot be handled. They are the ones set to be caught with no trunks on when the tide goes out. And, other than First Milk, nor can they pick-up the bat-phone to Westbury and expect to have their surplus milk toll-processed, allowing them to capitalize on global powder prices too. The days are long gone when Arla or First Milk were so charitable.
At least one processor is rumoured to have discussed its dilemma with a farmer representative in an attempt to do some crafty creative accounting to adjust the pricing schedule without being seen to be adjusting the price. Incredible. Meanwhile Arla continues to send positive signals to all European dairy farmers, and a standard litre price of 35ppl might not be too far away.
In the space of a few weeks the COP milk price setters of Tesco and Sainsburys have almost slipped off the radar. In March Tesco will crunch the numbers for a 1st May price for its aligned suppliers. It looks like they will reluctantly end up adding another market related top-up, based on the Muller Wiseman standard litre price and either the Arla co-op or Arla directs price as part of the deal to pay at least the price their processor pays to its non-aligned farmers. If Tesco were to stick rigidly to its COP formula then its price will fall. My question is whether the retailer aligned COP model is broken. Is it indeed fit for the future? Will it survive? Will there be another fudge? Can, or will, retailers continue to have direct relationships with dairy farmers in the future, especially post quotas?
Arla selling Westbury produced powder at the fortnightly GDT auction also facilitates very transparent and honest pricing, and a direct link between world prices and British prices. It’s time for those buying liquid milk to wake up and smell the coffee. Powder prices are not under pressure to fall, but liquid prices are under pressure to increase thanks to them being dragged-up by global commodity prices. IF UK retailers won’t pay a market price for the milk, developing countries will. We didn’t realize it at the time but the Milk Link merger and the subsequent AFMP integration with amba in late 2013 looks as if it they were pivotal turning points for the UK dairy industry, where dairy farmers gained a bit more power, respect and critical mass. The anti Arla-ities won’t want to hear that, but it’s an absolute fact.
It’s a new competitive world and perhaps it has taken some processors and retailers by surprise. The target needs to be recognized by all in the dairy chain, and it is to pass back a fair price to grass roots producers, which encourages investment and long-term sustainable fresh milk supplies. It is not to pass back what’s left, as has been the case too often in the past. That’s called scratching in the farm yard with the hens and that has been the case for far too long. Now is the time for dairy farmers to soar high up in the skies with the eagles. I hope no one tries to shoot the eagles!
The pressure no longer comes from the retailers at the top pushing down on others and squeezing farmers until they squeak. Now it’s time for farmers and their representatives and processors to push from the bottom, upwards. For those with plans in place to expand to capture this potential I say go for it and I wish you every success. This industry is far from stagnating. It’s moved from its obsession with liquid prices, strategies, contracts, COP contracts and the Voluntary Code into the real global world, and, as I said at Semex, I’m more optimistic for farmers now than I have ever been. This is indeed the closest I have seen to a thriving, growing, sustainable industry and long may it continue.
Finally, I have to comment on the surprise spike in the quota market recently. At its source was a rather unnecessary, wholly misleading press release from Townsends Chartered Surveyors, which ignited the market. The clear inference in it was that we could hit quota as early as March 2014. I thought it was an early April fool, but several farmers panicked and quota shot up from around 0.1ppl to 0.6ppl. For the avoidance of doubt it is impossible for us to hit quota this year, and next year there will also be a huge hill to climb to fill it. The utter garbage of the press release was printed by several of our farming press (in this case comics) without so much as a sanity check. The only positive is that at least it helps to prove there’s only one place to go for sensible advice on quota! Next month I’ll find my address book and tell you who it is!
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January 2014 Dairy Farmer Article
The New Year begins with Arla continuing to roll out its UK strategy, in what looks like another shrewd move - to acquire the freehold of Westbury Dairy from the Lloyds’ receivers. There can be no doubt that this plant, which came at a cost to many farmers who invested at the start, is Arla UK’s pathway to the currently buoyant Global Dairy Trade Auction and will be needed more than ever this spring. With a giant flush expected the dairy industry would be in one heck of a mess without it, with distress milk everywhere. Some might still prove to be a problem if production overtakes our processing capacity, especially if it is coupled with milk coming over from Ireland.
With Arla now owning the freehold First Milk (a J/V tenant partner) has two choices: it can continue to be part of the J/V with Arla, or could sell its share to Arla (or perhaps another party), which, with SMP prices being what they are, will now be worth a lot of money. First Milk could then utilise this capital elsewhere in the business. A lot will depend on how much milk they have to put through Westbury, having committed more than 40% of their milk to cheese destined for Adams Foods (Competition Commission allowing, still).
During the past year or so I have done a bit of travelling, in particular to two challenging areas for milking cows – Norway and The Shetlands.
In Norway I visited one of the largest herds (120 cows), producing 1 million litres via robots.
The farm’s margin was considered "OK" at over 8ppl. However, the cost of production fails to account for any family labour costs, a point I suggested they should address ASAP.
Dairy farmers there face special challenges, where three consecutive dry days for silaging are considered a luxury. Marry this to the huge challenge of attracting good employees due to the huge competition from a strong oil economy, which pays exceptionally high wages in comparison, and I am sure you get the picture.
The smaller farmers receive dairy cow headage payments (excluded from the 8ppl margin) - with up to 16 cows at £400/head, decreasing to zero for 50 cow plus herds. It’s called a multi-level subsidy with rates in the less favoured northern parts higher than those in the south. I guess one thing in Norway’s favour is the fact its oil industry produces significant tax revenue, which is why its agricultural subsidy is three times higher than the global average. Tine is almost a monopoly milk purchaser, and processes 95% of the country’s milk with annual farmer price agreements made between it and the two farmers’ unions.
In The Shetlands only four dairy farmers survive now, with a total of 300 cows on islands with no trees or badgers, but on very disadvantaged land indeed. This (at best) can only be grazed from mid May to mid September. And they also have to contend with over 1,000 Greylag Geese, which hoover up their valuable grass in front of your eyes. The best land is worth £2,000 acre. The milk goes to their own co-operative processing plant, which has limited capacity, and when it’s full they have to dump the milk. Their current price is 37ppl.
In both The Shetlands and Norway there will simply have to be policy measures to protect dairy farmers, especially from the inevitable price volatility. These farmers need a subsidy. For Shetland farmers who are under CAP reform the move to flat rate area based CAP payments looks to be painful, and likely to have a massive impact on their future farming policy. Certainly few, if any, mainland farmers would swap places with a Norwegian or Shetland farmer.
In Norway the entrepreneurial farmers appear to pray for fortress Norway, much the same way Canadian farmers did with import protection. And in The Shetlands they wish Tesco would shut up shop or stop selling non-Shetland Isles liquid milk and cheese in their Lerwick store for the identical price we pay in middle England, for example. They want it, and others, to promote and support local farmers rather than crush them out of existence.
I have always kept a watching brief on organisations like Compassion in World Farming (CIWF). Just before Christmas I received an email which was its take on the 12 days of Christmas song. I confess it was very professional, and showed what those who promote large scale units are up against. Our marketing and dairy promotion teams are not in the same league as those of CIWF (or indeed the promotional films I have featured on my website in 2013, as produced by dairy promotion agencies around the world). In Britain we just don’t seem to have the flair and creativity.
I also keep an eye on the RSPCA’s activities. For sure its press coverage in 2013 has slid from bad to worse. Radio 4 did one of its Face the Facts programmes on the organisation recently, where it was dubbed as “heavy handed and abusing its informal power”. According to the researchers RSPCA prosecutions have escalated “out of control” in the space of two years from 2,500 (in 2010) to a staggering 4,000 in 2012, as have their joint raids with the police. Only the Crown Prosecution Service (CPS) brings more prosecutions than the RSPCA. It’s little wonder some suggest the publicity from the prosecutions is viewed as helping to raise funds.
Like me you will be aghast to hear the case of the 68-year old lady who was ousted from her cottage during an RSPCA raid and told to sit in the garden in her nightshirt, or of instances where it has seized animals and destroyed them (following which it was proven there were no welfare problems). The interviewer also talks to a vet and a lawyer both of whom have successfully assisted in defending people the RSPCA has prosecuted. Their experience is that if you are successful against the RSPCA you are “persecuted” and subjected to numerous referrals to your professional body until you eventually back off.
But what riles more than anything is the organisation’s insatiable appetite to stop the badger cull. Its CEO publically called for farmers involved to be named, and for a boycott of milk coming from the cull areas, remember. This was, was in my opinion, bang out of order and should be condemned by all dairy farmers. Perhaps its time for the CEO of the organisation to be invited to give his side of the story at either next year’s Semex or NFU Conferences. I was a previous winner of an RSPCA Freedom Foods Award. However given its negative 2013 press coverage I think I will remove this from my CV. Instead I will sit back and watch with interest to see if the organisation will ensure its reputation sees a U-turn in 2014 and whether its campaigns are well-thought out, or whether it will further deteriorate.
Finally, all the best for 2014. There will be plenty to write and comment on!
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December 2013 Dairy Farmer Article
“No one likes us, we don’t care”: such is the famous chant from the Bushwhacker firm in the Millwall Football Club Den. It could also be the latest karaoke song for First Milk, which new chairman Jim Paice has added to his list of hit songs following his remarkable public outburst against Arla and Muller CEO Ronald Kers through the pages of the esteemed The Grocer magazine recently.
The interview took place at the First Milk AGM only hours after Sir Jim was confirmed as the co-op’s new chairman with The Grocer’s fresh foods editor Julia Glotz, whilst yours truly was ushered next door to interview Kate Allum and Adams Foods CEO Ian Toel. There were no fireworks there!
If anyone thought First Milk’s politically experienced new chairman would use the opportunity to set out his vision for the co-op’s future, and how he would stamp his mark on the business, they’d be very wrong: “Jim Paice picks a fight as he takes over First Milk helm” ran the The Grocer’s headline! He certainly landed with a bang!
Before I come to some of the comments, and responses, one of the rather surprising admissions from him was that he knew the co-op had lost the ASDA business before he accepted the job as chairman. Given that he accepted the job in July, or at the very latest early August, with the official announcement made on 13th August, it begs the question as to why First Milk only told members it had lost the contract some nine weeks later on the 15th October. It’s a significant time lapse, and, crucially, after the deadline for resignations to be filed.
Jim claimed that Arla’s “aggressive bidding” had damaged the whole of the UK dairy industry by undermining cheese prices for farmers - pointing to the fact the only way Arla could make a profit from the contract is to lower the price it pays to the farmers for the milk.
When I highlighted the interview in my free weekly newsletter a number of First Milk members responded, with, naturally, the majority in support of Jim’s attack. One of the best comments was from one of its Scottish members: “We have a situation where two milk buyers (Arla, Ronald Kers / Muller Wiseman) are doing a lot of willy waving stating they want to be the biggest,” he said. Note, that’s not a ‘William’ trying to attract producers’ attention but the 2013 Dairy Willy Waving Competition. I wonder who will be crowned the UK Dairy Industry Willy Waving Champion.
But it also prompted counter comments. I quote: “Today First Milk’s www.milkprices.com 1st December milk price for cheese is 32.5ppl and the Arla Milk Link comparable price for 30th October is 33.83ppl. On that basis if under-cutting the market delivers a 1.33ppl+ advantage one month ahead of the competition then crack on lads and let’s have everyone under-cutting the market! In addition it has to be noted that since the ASDA deal was awarded to Arla they have increased producer milk prices by 2.33ppl. I guess Jim is really a politician and as one person suggested you can’t take the politician out of the man. By nature with politicians it will usually be someone else’s fault.”
Jim also claimed that “First Milk is the only true British dairy co-operative.” As I will come to later that is an erroneous claim. Indeed some state that First Milk are now not so “pure” and are both British and Irish. There is, for example, South Caernarfon Creameries, and what is now arguably the largest British dairy co-operative (certainly the most profitable) United Dairy Farmers of Northern Ireland.
He is quoted as saying: “There are people who would be very happy to see First Milk fail ...” Personally I haven’t heard anyone say, or even imply, that and having had the catastrophic collapse of DFOB, Amelca and Westbury the last thing this industry wants is such talk because it costs more than just money.
Let’s hope this rant was a playground slap from Jim, because he has picked a fight with two heavyweights at the same time, and to succeed he, his co-op, and its milk price needs to be a chart-topping heavyweight in peak fitness.
Meanwhile, next month will see the Oxford Farming Conference kick start the year and the pre-conference after dinner speaker is non-other than Mr Paice himself! And yes, you guessed it, the dinner’s quality cheese is kindly supplied by Arla! Will Sir Jim enjoy finishing off his meal with Arla’s cheese slipping down his throat? I doubt it! Julia suggested that Jim should start by fixing problems closer to home instead of lashing out at rivals. She has a point: he has plenty on his plate including the high cost the co-op will incur in closing Maelor which, with 230 plus staff, will be a multi-million pound hit on their accounts. Ultimately Jim will be judged in 2014 on the performance of the business, its end of year results/accounts and the milk price it pays to its members. He will not be judged on the basis of how he apportions blame around the industry or on a war of words.
Now to United Dairy Farmers (United) and its Dale Farm processing business. I recently had the opportunity to meet and question the co-op’s senior management team.
UDF is a 100% British farmer-owned co-op which only occasionally crosses the radar, preferring to quietly get on with its job. You don’t hear David Dobbin, its CEO of 14 years, and whose previous PLC background was in business included turn-arounds and acquisitions, looking over his shoulder and criticising others or trumpeting about what he intends to do. Instead he concentrates on tangible achievements, like the fact he has presided over 12 acquisitions while at United - not one of which has failed.
United and Dale Farm have both national and international presence. They are a real global player in the dairy world with six processing plants (four in Northern Ireland, one each in England & Scotland), and, after substantial investment, have what they and others say is the most advanced cheese and whey processing plant in the EU.
If they are not already the largest indigenous UK dairy co-op owned by English, Scottish and Northern Irish dairy farmers employing more than 1,000 people they soon will be. United has a milk pool of more than 1 billion litres of milk with a projected Group turnover of £475m in the current year from its combined operations, with Dale Farm reporting a 35% increase in turnover in the first six months of the year. The United Group consistently make £5m or so profit each year with the co-op’s main focus on returning the best milk price it can to its members. Dale Farm’s cheese output has increased to 45,000 tonnes of cheese this year and they expect to grow this to 50,000 tonnes by 2015. They company have moved away WMP and SMP milk powder commodities to producing added-value enriched powders and whey proteins. United are simply a story of growth and success and their ambition is to continue to grow in volume and value. Turnover at its Kendal factory has doubled in the past 10 years and at its Scottish plant it has more than trebled, for example.
Preferring to stick with a farmer chairman, the largely farmer board’s focus is firmly on expansion in consumer products across the British Isles (largely cheese, butter, desserts, yoghurts and cottage cheese) and specialized dairy ingredients on a global basis realizing that expansion potential is very limited in the small Northern Ireland market. Dale Farm will export over £100 million of dairy products to 42 countries worldwide this year making them one of the UK’s largest dairy exporters. On direct supply recruitment they say they will continue to pay an above average GB milk price.
The Dale Farm’s GB plants have grown their milk pool to 60 million litres of direct suppliers and is recruiting to grow this to 100 million by 2014. With no capital contributions to become a full co-op member, a 0.25ppl x 5 year’s share purchase (which if you leave is paid on full within three months), plus a fixed 0.5ppl annual co-op bonus payment, it would seem one of the most tempting contracts in town. It’s certainly a business with a bright future and one with a realistic target to double in size in the next five years.
Finally Happy Christmas to all readers and fingers crossed for a happy and prosperous 2014. The signs, I’m afraid, are that dairy farmers need to buckle up their dairy seat belts for what looks like a choppy ride. And by that I mean on price. Not from another tongue lashing!
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November 2013 Dairy Farmer Article
There is only one subject on which to start this article, or rather one company. First Milk is regularly topping the news agenda, but for the wrong reasons. The loss of the ASDA cheese contract, the closure of its Maelor packing plant and the potential 231 redundancies, plus its disappointing year-end results has sent shivers down the spines of many of its members, including some of its die-hards.
The ASDA contract loss and the 300 million or so litres of milk it accounts for will certainly be a challenge for the co-op to address, but it doesn't mean it's the beginning of the end like some have unfairly suggested. First Milk's cheese will still be in in big demand, providing it hasn't got metal in it! And the situation is nowhere near as bad as it was for Milk Link when it lost the same contract back in February 2005. Back then the contract went to Dairy Crest to be made at Aspatria (Cumbria). Subsequently it proved to be a deal which helped oil the wheels of Dairy Crest’s sale of its commodity cheese business to First Milk.
Milk Link’s business plan was scrapped on the Friday and a new one started on the Saturday. They re-shaped the business and changed it having lost their largest single customer. It wasn’t easy but since then, many would say, Milk Link never looked back.
So, can the First Milk board and senior management re-group, cut once and cut deep with cost savings and come out of the other end smiling? By the time First Milk hold their AGM at the end of October and this article is published we'll have fully digested the details of a deal with the Irish Dairy Board, news of which was breaking as I wrote this article. It’s to be hoped British Kate (presumably now British + Irish Kate) can prove there's a glimmer of light at the end of this long pretty dark tunnel. We also look forward to seeing what the new chairman, Jim Paice, will bring to the party in addition to his rallying cries to members to “keep the faith” and to “think twice before jumping ship”.
Also on the subject of change, AFMP is now in the fast lane towards full Arla membership. However, since my last article one unwelcome element has been flagged-up to those contemplating signing - a temporary 0.5ppl price drop from 1st January 2014 resulting from a butterfat adjustment.
Basically, AFMP members are mainly paid on white-water contracts, while Arla amba producers are paid on constituents. As part of the transition an across-the-board deduction of 0.5ppl, irrespective of the milk quality supplied by individual farmers, will be made because the current AFMP quality is on the low side.
When the average butterfat lifts to 4% this deduction will disappear. It is, therefore, the responsibility of all members to lift butterfats to 4% but the onus is especially on the current lowest fat producers. For many its unwelcome news, but hopefully temporary.
I don’t think it will be a deal-breaker for many farmers because, frankly, if the headline-grabber on day one had been 8ppl to join as full members (I.e the 7.5 announced cost plus 0.5 for the butterfat) then few producers, if any, would have flinched. It’s still a great entry price. Any farmers who do balk at the deduction and/or the fact its spread evenly across all farmers, and dont join on the back of it, are possibly the non co-operatively minded ones that amba probably won't mind being filtered out early.
The real question now is whether AFMP members or Arla directs, and those waiting to supply Arla, decide that 7.5ppl is a good investment on which they will be rewarded with supplementary (13th) payments from a strong-performing cooperative. There are inevitably pockets of AFMP members who are indicating they intend to leave and not be on the bus driven by Jonathan Ovens (some simply because he is involved!). But only time will tell how many, and (for those in the latter camp) whether they cut off their noses to spite their faces.
Last month I joined the EU’s conference which looked at life after quotas – note its now only 17 months to the end date! There’s lots I could write about. For example, Ernst & Young did a report for the Commission, basically stating there is no place for quota or production buy-out schemes or the various so-called 'post March 2015 supply management proposals'. Surprisingly their report was almost side-lined at the Conference. The French Minister, in particular, seems convinced that the European milk market cannot be left to market forces and that production controls are required immediately post 2015. The European Milk Board pushed their flexible supply management concept, which I call Milk Quota’s version 2 , with demands that the Commission must have the power to actively control the supply of milk to the processors and market.
The Commissioner has agreed to set up a European Dairy Market Monitoring Agency, which he seems to believe will provide an early warning to the Commission when the market is in crisis and some intervention needs to be considered. I question this move because for me the early warning signals are here, but sadly some of our organisations and representatives fail miserably in sign-posting those signals to grass roots dairy farmers to allow them to make informed decisions. It’s been one of my biggest gripes with DairyCo, and its Market Intelligence Datum department, for example. To date, I have seen no clear signals from DairyCo/Datum signalling what is likely to happen to farmgate milk prices next year. The same was the case in 2012. Levy payers expect Datum to keep them up to date with the latest information on the markets and with clear messages as to what that translates to at farm level. So, once again, I will step forward as the doctor to do a bit of diagnosis and administer some medicine. Milk production across the world is improving and at a pace, especially in the main exporting countries; feed costs are easing and the economists with a proven track record are pointing towards a spring 2014 price correction/adjustment. Yes that’s right, I am saying that milk prices are almost certain to ease across the world in April/May 2014. Until then increases in production will be absorbed by increasing demand from the likes of China and Russia.
So the big question is by how much will UK milk prices increase before they peak and ease back? If they go from say 34p (1st November) to 36p by 1st January and ease back to 34.5p in April it won’t be a crisis. So it’s time to stand-up and push for higher prices so that when the correction comes it will be from a higher level. Let’s hope all dairy farmers have a good profitable winter.
The Pro-Supply Management Conference speakers focused on the plight of small family dairy farmers in more remote and disadvantaged parts of Europe. It’s a topic I hope to revisit next month following trips to Shetland and Norway.
Away from the speakers and among the conference delegates there were very mixed feelings as to how successful Producer Organisations will be. One thing everyone involved in the conference agreed on was that volatility is here to stay, and so are powerful retailers.
The Commissioner Dacian Ciolos was sitting in the audience and towards the end his frustration boiled over as he directed the final 40 minutes challenging delegates to come up with solutions and practical ideas rather than ideologies. “I want results not unhappy (whinging) people,” he said. In other words he wanted proposals with reasoned arguments to put to his experts. But the result was few solutions, lots of whinging and plenty of homework for Ciolos and his experts to do.
October 2013 Dairy Farmer Article
Milk prices for some GB farmers have broken the magical 40 euro cents a litre (34ppl) mark, and as I write others are moving onward to 32.5ppl. If you don’t push hard for price rises now and then you won’t have a chance come next year, as all the pointers are for price falls in Q2.
As I write the October league-topping price is the Muller-Wiseman formula price at 34.55p which even eclipses the amount paid by the two regular chart coppers of Waitrose and M & S. This is the first time a non aligned milk price has leap-frogged these two since their two pools started more than 12 years ago. Several MW farmers signed-up 100% of their output on the formula, so for now it’s happier days for them. The MW farmer board, having agreed to a formula whereby 25% is based on a basket of competitor prices, will be wishing this element was removed because without doubt it is holding back the price for hitting 35ppl.
Formula prices will, in my opinion, eventually be joined by fixed prices for a fixed period of time. We have that now with the Tesco and Sainsbury’s aligned producer contracts, only I see these extending to 12 month fixed prices for a percentage, or all, of a producer’s output. All in all these positive developments should deliver fairer market-related prices. Processors who rely on long notice periods to entrap producers will eventually wither on the vine.
One of the main industry talking points right now is the invitation for Arla Foods Milk Partnership and direct suppliers to join Arla amba. AFMP director Arthur Fearnal chaired one of the roadshows recently and declared that all AFMP Directors were fully committed to signing-up to the deal for their own farms. The next question is whether AFMP/direct farmers take a short-term view (not joining) or a long-term one (paying and joining). Will they place their faith in joining 12,000 other European dairy farmers in determining how their milk price is calculated, or leave it to the vagaries of the GB market? Will those who intend to supply Arla in the future decide that paying the investment money will be rewarded with a higher, more secure milk price? It’s a fact that some First Milk members would gladly swap places with AFMP farmers to have the opportunity to join Arla amba, because they have emailed me.
There are a couple of downsides, though. One relates to volatility – the amba price, although higher over the years, does have higher peaks but lower troughs at times. Make sure you can cope!
The biggest downer I can find relates to the low share value for those who are not joining. They will receive around 30p per share. That’s a blow, but the value has no link to the deal.
By the time you read this article Arla should have stepped up a gear on milk prices, assuming at least 1 billion litres looks like being committed to amba by mid November. By January 1st 2014 the AFMP price will have to match the amba price, of course.
That sounds simple, but in order to hit this target Arla will have to recover all of that extra money from it’s UK customers because failure to do so could lead to some significant head-scratching on the continent. Some Danes and Swedes have questioned why they need all these British farmers on what looks to be a clever discounted deal, but they sure won’t subsidise the AFMP milk price from central coffers. Let’s get real – they will be expecting additional revenue flowing from the GB business into the main piggy bank, if only to fund the collective 13th payment estimated to be around 1.5ppl.
The result is Arla will have to quickly drive prices up at farm and retail level, and others will be forced to follow with some buyers kicking, screaming and struggling to match them if the EU price outpaces the UK one. All eyes between now and Christmas will be on the monthly upward movements in the amba price and, how AFMP will catch up.
I recently attended an excellent Westminster Food Nutrition Conference on CAP reform, at which there was an interesting list of delegates. There were only two farmers and a number of key commercial companies sent one delegate, eg Kite, Andersons, NFU, Saffery Champness, Roythornes, ABP who, like me, took notes to circulate to others when they returned to the office. I couldn’t help but notice three delegates from the AHDB levy board, and no less than 18 from DEFRA however. I guess that’s the difference between the commercial and civil servant world, who are funded by Government and quangos. What was more of a shock was the fact there was not one delegate from the RPA, who will have to deliver the reform. You couldn’t make it up! It’s a complicated deal, and even one English official involved in the negotiations has been quoted as stating “it’s a bit of a dog’s breakfast but not as bad as it first was.” A staggering 8,000 amendments were voted on by a committee of 43, for example. That’s scary!
On the positive side the exchange rate used to calculate the CAP payment will no longer be based on one day, and will be based on a month’s average, and all member states will have a flat rate common single area payment post 2020. On the negative side, especially for English farmers, is the ability for individual member states to recouple payments to production. This is the Commission hitting reverse gear – an accusation the Commission reject.
It was trumpeted as a done deal, but for each of you there will be little, if anything, gained and the question is how much money will they take off. It will be 2014 before farmers know how Owen Paterson & co intend to implement the reform, and how hard they hit your bank account. As one of the speakers accurately pointed out “The SFP for many farmers is the difference between profit and loss.” But payments will be cut, and it will hurt.
There was lots of debate over Pillar 2 money and what the Government will decide to do. The TFA asked a very interesting question: “How much of the Pillar 2 money ends up with farmers after administration and consultancy costs have been accounted for?” If the Southern Irish give their dairy farmers a better deal on Pillar 2 funding than we get it will be handing them more ammunition for them to penetrate our dairy market further. It will happen, I think!
At the conference one of the speakers was a representative of the YFC, and eyes rolled when she declared that “for every farmer under the age of 35 there are 20 over 55”. Following Potter questioning, their appeared to be no firm basis for the statement, which was simply another rural myth. Farming and involvement in food production is now “sexy” and exciting, and those involved are more respected than they were 25 years ago. In my opinion the main problem with the young entrants is the old sods who won’t let go of the reins and who persist in dictating the farm’s future policy. It has always been the case, but I sense it’s improving – slowly.
Quota wise the proposal to introduce (or continue) with supply control was rejected, and no doubt this will be a topic which is vigorously debated at the Commission’s Dairy Conference on 24th September. I continue to believe the likelihood that milk quota will have value in determining future payments is slim and so far as English farmers are concerned I would be stunned if they didn’t take the easy option of rolling forward existing entitlements in to the new scheme.
At the UK level there is a lot still to play for and negotiate and to complicate matters there is the issue of devolution, which will delay matters. And we could even see a referendum on whether the UK should remain in the EU! Lord help us if we left, because one thing is certain: English farmers would take a sharp intake of break knowing London would be in control!
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September 2013 Dairy Farmer Article
Last month I made it clear that in my opinion the Voluntary Code was potentially working against farmers and holding back any price increases, and cited Arla/AFMP and their Roadmap to amba membership as being one example. That was because, from July 1st when AFMP adopted the purchaser discretion position, if Arla was to move its AFMP price by so much as 0.1ppl up or down it would trigger the resignation option and a potential loss of suppliers in three months time, during the trough. It's not a risk Arla could realistically take with a new factory being commissioned and the roll-out of the "Arla Amba offering" so close.
Once the AFMP Roadmap to full membership of Arla amba is agreed then the ball game changes completely. AFMP then become defined as a group of producers in transition to becoming a co-op and with that comes exemption from the three month clause within the code, in line with that for other co-ops. Note, this transitional co-op feature was actually conceived specifically to get Arla on board with the code, and to breach what was a huge log-jam to the launch of the code at last year's Livestock Event.
But it doesn’t end there. That's because once the road to full membership is in train it will, as was the case when Milk Link members joined the slip road, mean that potentially all 3,400 or so Arla/AFMP/Arla Milk Link members will receive a milk price which is calculated according to a formula calculated every month by Arla Amba on terms agreed by the farmer Board. All will be on exactly the same terms as amba members in Denmark, Sweden and Germany have. And here the politics of the industry changes radically.
From here on in there will be little point in farmers protesting outside Arla plants in a bid to get it to increase prices. Arla UK just won't be able to unilaterally raise the price for their UK farmers, even if they wanted to. This leaves Muller-Wiseman and Dairy Crest as the market makers for dairying in the UK and thus far more exposed to FFA's attention. That said, my money will be firmly on farmers not protesting outside Arla plants because I think a fast track deal will be struck with AFMP to become full members, perhaps with a few sweeteners for Arla Milk Link. Let's hope that the industry's old friends Mr Jealous and his side kick Mr Envious from Arla Milk Link don’t try to stick their oar in if one is offered.
Where does that leave the Voluntary Code? In a nutshell, so far as GB is concerned, it would see over half of producers sitting outside of the three month notice period, with over 6,000 farmers supplying milk to a co-op.
Then comes Muller Wiseman and Dairy Crest who together account for a further 23% (2,730) producers, of which 60% (1,630) are on aligned contracts which are formula driven, and therefore outside of the three month notice. The remaining 40% include those on the Muller Wiseman's non-aligned "bonus price" (who will have to forfeit the 1ppl growth and/or sign up incentive if they hand their notice in) and those at Dairy Crest who have part of their milk sold under a contract formula price. Both of these, again, effectively fall out of the three month notice.
So which of the main milk buyers fully complies with the three month notice contract within the code on ALL milk they buy direct? I reckon it is down to one firm – Lactalis and its 200 or so direct producers. So, overall, it’s not a question of 85% of UK producers being compliant with the three month notice it’s more like 85% non compliant!
Jim Paice will have to stamp his own commercial mark on First Milk when he takes over the reigns of Chairman at the end of October. Members will be looking towards how he directs the business through choppy and stormy waters. They will want him to oversee a plan and to get it implemented asap. Sir Jim will need to be a fix it man, not a maintenance man.
First Milk have previously released their annual financial results a month ahead of the previous year since 2009 - on 25th September 2009 (the final time CEO Peter Humphreys was around), 16th August 2010, 18th July 2011 and 18th June 2012.
However all is eerily silent for 2013, and I don't think it would come as a surprise if the final results showed a loss. I say that in reference to the comment from current First Milk Chairman Bill Mustoe in early April, when he stated that: “Over the last few months, we’ve supported members to the hilt in terms of milk price”. That was interpreted as First Milk having overpaying producers, and at the same time I pointed out in my bulletin that their price “has been one which has been very much at the lower end of the UK milk price scale and below average”. The big question is why the delay in publishing the accounts until what is rumoured to be September, or possibly even sneaking into October? The delay and losses will need to be explained to members, because it does not demonstrate the plc standards, management and commercial disciplines previously shown by the co-op and expected by members.
There will be keen interest and scrutiny of the numbers behind the figures, in particular the contributions to the two MMB pension schemes both current and going forward which are expected to be significant numbers. At least First Milk's annual outgoings to the pension pots will not be anything like the ones rumoured that Genus are having to make - several £million each year! Ouch.
I hope First Milk Directors and senior management have good reason for the delay and for dishing out any medicine from members until the end of September/early October. Any move along these lines is likely to result in member complaints.
Next month I hope to look at the particular appetite from some member state Governments to introduce supply management tools and regulation of the European milk market. The 31st March 2015 ending of milk quotas is just over 18 months away! There appears to be a slowly growing number of countries stating that the EU28's dairy policy cannot be left to fend for itself and must do its own supply and demand balancing. There are even calls for the quota system to be extended until 31st March 2020.
That’s for another day. In the meantime I'll leave you with this to ponder: why is Ireland and other major EU milk processors and farmers pushing hard to expand, whilst GB processing is simply selling out to foreigners just as our car industry, water and electricity suppliers have done? Answers on a postcard.
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Aug 2013 Dairy Farmer Article
Almost exactly a year ago, and in the midst of Voluntary Code mania, my view was that the Coalition and the Government were under extreme pressure to conclude a deal on the perceived (for some) magic bullet and there was a danger things were being rushed for political reasons. Militancy was a daily event and sealing a deal helped take the heat out of the Olympic summer,
Some 12 months later, though, and we have the so-called good guy processors who have signed up to the code (representing around 85% of GB milk processed) and the bad guys who have been placed on the naughty step. Meanwhile the NFU’s language has changed and they have dropped the word voluntary, now referring to “the Dairy Industry Code of Best Practice for Contractual Relations” instead.
In its pre-Livestock Event press release the NFU’s President Peter Kendall stated “Signing up to the code means that farmers have flexibility in contracts they have never had before, encourages healthy competition within the market and also sends s clear message about the future of the industry. It gives confidence to people wanting to invest in British dairy and shows that people understand how important this industry is to the nation.”
So why have some our first and second division milk processors not signed up? The NFU appear to want every processor to do so, and believe if this goal is achieved it will ensure “a fair, unified and profitable dairy industry that benefits the whole chain”. The Shadow Farming Minister is also calling for Owen Patterson to sharpen his teeth and press all processors to sign up or face legislation.
One year on, though, and I, and many others, are now questioning who benefits from the code, whether it is working to deliver “fairness and balance” to dairy farmers and who it is protecting. Was it a good or bad deal for farmers? And what are its impacts on companies too?
Let’s cut to the key issue first: is the code working against milk price increases? I believe it is, and here is my logic:
The code states “The contract must allow the producer (excluding co-op members and producers in transition to co-op status) to terminate their contract with the purchaser without penalty on a maximum three months written notice from the date of notification to the producer of any change made by the purchaser to the price adjustment(s)”.
Thus, some companies have signed up to it but still have some members unhappy. IF the price changes it would trigger resignations. An August price move would mean producers would resign from 1st November and in the trough, one of the crucial months any company doesn’t want to lose milk. The adoption of the code is therefore likely to result in carefully timed milk price movements therefore. Going forward no milk buyer is going to support high prices for spring flush milk and risk losing the milk in the late Autumn/Winter. Thus I think milk price movements in Summer will be a complete no go for code compliance milk purchasers.
All that theory applies to all of companies signed-up. But some companies have their own unique circumstances. For Arla there’s the added element of the roadmap for AFMP. Price changes could be delayed until the roadmap is complete, and when AFMP members become co-op members – thus they will be considered under the code to be members of a co-op by which time the three month’s notice period will not apply to them. And other companies have their own “code idiosyncrasies” (for want on an expression) – some buyers have secured part of their milk on one-year formula contracts or introduced bonus payments payable in a lump after a year or on the basis a producer hasn’t got their notice in.
Then there are those companies on the naughty step: Meadow Foods, Paynes Dairies, Medina and a host of cheese processors. These businesses are all growing and, to do so, have forecasts, cash flows, banking covenants and expansion plans requiring investment. Imagine the reaction to their next loan request when the bank manager asks how secure their milk field is, and the answer is “we were on 12 month notice with our farmers but last month the NFU bullied us into signing up to their code and now ALL our farmers could leave in just 12 weeks”. If one of the big guns predatory priced or the cheese price turned down compared to the liquid price the business could be strangled overnight. Signing the code does not provide a secure platform on which a processor can borrow/investment and does nothing for security.
The issue of the co-ops like First Milk, and their compliance with the three-month notice rules, is also an issue for some. In my opinion this will never happen while First Milk are a co-op – they are finding business challenging enough and the three-month rule would not help them if significant resignations were to materialise.
There is also one bit of the jigsaw I am missing: why Muller-Wiseman, which has had a three month notice for years, hasn’t pushed through a price increase in the hope that the other companies who have signed up to the code follow, thus triggering the resignation option. Now surely is the time for it to land that punch – especially on Arla – before it completes the roadmap and AFMP members join the amba co-op?
So was the code well though out? Is how it operates to the coal-face what the NFU intended? I think the answer is no, and the code is now exposed as potentially working against both farmers and processors tool. Hail the law of unintended consequences.
For me the code has merits, but the three-month rule only benefits the big sharks in the sea, Although it does keep them on their toes and influence how they behave.
The next step is the 12 month review of the code to assess its effectiveness. Let’s hope that review is truly independent and is not conducted by an industry insider with their own agenda. Let’s have a commercial non-dairy review chairman who can talk to all parties in confidence.
Finally I believe current farmer protests are partly justified, since some processors will be squirrelling away additional margins as opposed to paying the money out to farmers now. Higher cream prices alone are boosting profitability and if we don’t watch out you will be robbed of the benefits. You need extra money to pay bills, overdrafts and restore confidence. I say the demos are partly justified as I’m hoping there will be some good increases coming soon anyway, through the natural order of market related increases.
But I can also understand why processors might squirrel money away: they all know that one day a price correction on world markets will come and none of them want to be the first to move prices down. So, if they can bank some money now they can smooth out any troughs before they have to inflict a cut. An alternative theory is that the mighty retailers are seizing the cream benefits, leaving the processors on wafer-thin margins (again).
Liquid milk and cheese prices are having to be dragged-up kicking and screaming while butter and powder prices stay firm and in fact are getting firmer. With or without the code though – and aside from those on formulae prices, or on the Arla Milk Link global price, or with Tesco or Sainsburys, Waitrose and M & S – for most farmers there still doesn’t look as if there is a fair, transparent and equitable way of determining how much money ends up in your milk cheque each month.
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July 2013 Dairy Farmer Article
"What have the Romans ever done for us?" It's one of the most famous lines in cinema history, and I'm going to borrow it for this article, which concentrates entirely on DairyCo. What does it do for you? Not enough, it would seem, for many farmers. Discontent has been brewing against it for several months, not least after the publication of the Milk Bench report where a West Midlands farmer's manual work rate was costed by the organisation at a derogatory £8.90 per hour, or less than £18,000 year!
Several who attended