An uncertain future for the dairy industry in 2013

On January 1^st, Farming Today’s Anna Hill asked what 2013 might hold for the dairy industry following 2012’s blockades, negotiations and boycotts. Her use of language betrayed her stance as she described farmers mobilising to fight for what they saw as a fair price for milk and later spoke of protests fizzling out.

David Handley elsewhere put the record straight, saying that farmers had mobilised to fight cumulative cuts in milk prices. FFA seeks a fair price now and also in the future. At the moment estimates of a fair price range from 32-34ppl – see the Scottish Farmer,  FG comments and Shropshire dairy producer Roger Evans in Cow Management, p20.

 

Farming Today rendered inoffensive

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Fifteen years ago in the late ‘90s, Farming Today ‘faced the chop’ because of its brutally frank coverage of BSE & FMD issues and is now proud that its ‘the rural agenda’ – and that of Countryfile – has made countryside “now relevant to people’s lives as both a playground and a source of affordable and safe food.”

 

Dairy farmers continue to move away from milk production

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On December 14^th in Norwich Louis and Fran Baugh reluctantly left dairying and sold their herd of 160 pedigree Holsteins because low milk prices gave no margin for reinvestment needed to farm buildings and the milking parlour (above).

 

Four voices

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There was a recording of James Paice addressing the London Dairy Coalition event and asking if farmers were sure they had done everything to reduce production costs. Barry Smith from Derbyshire said angrily that he had heard not one word which encouraged him to stay in farming.

Rob Newbery, the NFU’s chief dairy adviser, said that he hoped a voluntary code would address bad practice and protect producers and gave a clear signal that if this does not happen there will have to be legal protection.

Jim Begg of Dairy UK, who works closely with the processing industry, said that the campaigners had trodden a thin line between protest and disrupting the business of dairy companies, and that was not helping anyone. Processors regrettably are driven by market circumstances and cannot pay out what they don’t get in. The four major processors had announced sudden cuts, due, he said, to market decline.

Industry consultant, Ian Potter commented that farmers had been watching market movements and expected prices to ease back but the Dairy Crest price cuts were so large that even DEFRA condemned them and farmers were selling milk at well below costs of production. He is aware that processors are being squeezed by their customers, the supermarkets, but deplored, without naming Freshways, the buying of milk from Belgium at 31ppl whilst paying English producers less than 25pp.

 

In more outspoken vein in his July newsletter Ian Potter said:

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We keep returning to the fact this market does not work and the only people who will change it are the dairy farmers.  Yes there is evidence that both large and small retailers are very, very nervous and that their previous aggressive attitude has weakened this week. Some who had the nerve to hold their greedy selfish plate out for a share of the August price drops have even wound back this request. You may get a short term fix from embarrassed retailers but the problem will return.

Yes the root problems are greedy, dispassionate, morally bankrupt retailers (both large and small) who want ever cheaper milk so they can take an ever bigger their slice of the cake for themselves.

 

Adding in August:

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There is an awful lot wrong and immoral with this supply chain. There’s the obvious to start with – the obscenely unfair share of the margins. But there are other unseen, shady activities too. How many “back door” payments do retailers “force” processors to make, for example, which muddy the waters?  The ones I am told about make my eyes water, let alone theirs. The bottom line is dairy farmers and processors are paying for cheap milk, for this immoral activity and wanton greed. And if recent drops are not quickly reversed the cows themselves will pay the price: more, inevitably, will be culled.

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In spring the Dairy Crest initiative will get under way and all will be watching the operation of the new voluntary dairy code of contract practice. In the Farming Today programme, Ian Potter concluded that all must try to make it work because dialogue is better than protest.

 

The BBC Farming Today broadcast can be heard again for five days here: http://www.bbc.co.uk/programmes/b01phfsr

 

The power in the milk chain

The graph below taken from the DairyCo report Dairy Supply Chain margins 2009/10 demonstrates not only the fundamental problems in the milk chain affecting  farm profitability but also delivering environmental and social benefits in the countryside. 

This graphic demonstrates the respective shares of the retail price of a litre of milk received by the retailer (pink), the processor (yellow) and the producer (blue) over the last 10 years. 

But it also demonstrates the power in the milk chain: 

• retailer dominance of the chain has allowed the retailers to increase their share from 7ppl to 22ppl whilst the producers share has increased from 18ppl to 26ppl
• over the past 10 years the producers share has increased by 30% whilst the retailers share has increased by 300%
• retail price is not linked to the farmgate price
• it’s not just the farmer losing out – the consumer is also being ripped off 

This longterm pressure on farmgate price that has led to: 

• pressure on producers margins and farm viability.
• the loss of so many dairy farms
• direct impact on farming’s ability to support the rural economy and the environment 

It has also led to: 

• the increased specialisation and  industrialisation of our dairy sector
• the advent of the superdairy 

It’s interesting that CAFFO – the local group opposing the Nocton dairy development – identified this problem and called for the producer to receive 50% of the retail price – as they did 10 years ago.

 

Source (with thanks): http://www.peterlundgren.co.uk/2011/03/28/the-power-in-the-milk-chain/

The dairy industry at a crossroads

NFU online today reports the words of dairy board chairman Mansel Raymond, speaking ahead of the South-West Dairy Event, held today in Bath: 

“Our industry is at a crossroads. The European Commission, European Parliament, Defra Minister Jim Paice and an Efra Select Committee all say contracts need to change. We need to give farmers the confidence to invest in the future and, in order for this to happen, meaningful price rises need to come through this autumn. I fear that for many producers the net increase will be a disappointment.

“So, while I commend all buyers who have offered unconditional and transparent increases to their base price, my message to processors is farmers deserve balanced contracts and now is the time to offer them. If ever there was a clear call to action to dairy farmers it is this. The NFU has fought long and hard for improvements to milk supply contracts to redress the balance of power in favour of farmers.” 

Farmers locked into unfair contracts 

“It simply isn’t acceptable for key conditions like a farmer’s pricing schedule to be changed, without due consultation and agreement, or without releasing them from the notice period of the contract.

“If I sign any other contract with tie in periods I expect the key terms in that contract to last at least as long as my notice period. That gives equal protection to buyer and seller.  

“As things stand, farmers have no means of protest and cannot go to other buyers when their own makes adverse changes to key contractual terms and conditions. This practice is known as ‘buyers’ discretion’, I call it unfair.” 

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Dairy farmer Kathleen Calvert sent news of a more detailed report in Farming Online.

Other points made by Mansell Raymond:  

“2015 may seem a long way off for British milk producers, who are still amongst the worst paid in Europe, receiving on average 27ppl for their product. This is four pence less than the average of 31ppl for the EU-27, and is in spite of milk’s increased profitability and the latest NFU data, which shows the UK’s milk output in August was the highest recorded in six years. 

“The news of price rises has been welcomed by farmers whose own costs of production have increased significantly and look set to be at all time high levels for the winter of 2011/12. However, while headline price rises seem significant, changes to pricing schedules by some companies mean many farmers will fail to realise headline prices unless they hit new and existing top bands for quality or constituents. 

“The union will send a delegation of dairy farmers to Westminster next month to discuss the issue with MPs and one to Brussels on fact-finding tour to examine the EU Commission Dairy Package.” 

Mr Raymond sends a message to processors: 

“Farmers deserve balanced contracts and now is the time to offer them.”