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IP DAIRY FARMER -  October 2018

Don’t shoot the messenger, but it’s late September now and we are at High Noon for prices.  Unless the market changes the next milk price moves are almost certain to be down, and announced before we draw the curtain on 2018.  All the indicators point to this and nothing anyone says or writes will change it.

AHDB levy paying farmers have until 9 November 2018 to respond to DEFRA’s major and significant review of the organisation, and  I urge all of you to have your say no matter how brief it is.  AHDB handles around £60 million a year of your money (AHDB Dairy £7.5m) and DEFRA wants to hear the views of those who pay this para fiscal tax, especially whether you view it as value for money.

In terms of the complete AHDB package one area caught my attention in its  2017 performance report, where it scored just 5.1/10, on the question of levy payers’ satisfaction with AHDB. This was up from 4.7 in 2015.  That’s a very poor score, as is its stated target of a 6/10 by 2019. There’s an adage in football, they say, that if every player in the team puts in a performance that gets them a 7/10 rating then the team will win most games. A 5/10 rating and they will lose every game.  When I view Tripadvisor I don’t tend to book places with scores of under 7/10, let alone 5!

I also noticed AHDB spent £23m on staffing, employing 429 full time staff plus part time board members, in 2018 , which has risen by over 20% in five years. So for sure, while the number of GB farmers is shrinking, its levy body is increasing its staffing levels massively.

AHDB Dairy has definitely risen to the challenge and upped its game, particularly in terms of more direct useful market news and interpretation. But I was also interested in AHDB Dairy’s October 2017 report when it said that the top 25% of businesses will remain profitable irrespective of what is thrown at them.  In other words, the winners will keep winning and the losers keep on losing seemingly regardless of AHDB’s work. This is backed up by the co-operative Dale Farm, who recorded a £600 per cow profit gap between the best and bottom 25% of its members, and accepts it has a role to play to narrow that gap. 

I recently attended a local strategic dairy farm launch where, to be fair, there was a lot to learn and discuss from two brothers who opened their doors and finances, but the attendance of grass roots dairy farmers to me was disappointing.  Yes, like others, AHDB Dairy has a role to play in knowledge transfer in helping all improve their performance and profitability but getting farmers to engage is an uphill battle.

AHDB, along with DairyUK, also  plays a crucial role in protecting the image of dairy farming and addressing public concerns but I am still convinced the best people to protect the image of dairy farming are the farmers who tell consumers how proud they are to be a dairy farmer.  So keep telling your positive stories!

Now back to the Red Tractor, which was launched by the NFU in 2000 and is now running a five week £1.5 million TV advertising campaign, not funded by farmers, in a bid to improve consumers’ understanding of its logo.

Clearly aiming to up its game, its new target is to become “the flagship one stop shop for farm assurance for British produce and its 46,000 farmer members”.

It intends to automatically carry out unannounced inspections within three months of recording a serious or important failure in areas such as welfare and safety.  If this inspection results in further non-compliance it triggers a second three month unannounced inspection, after which non-conformity results in expulsion.  Its aim is to make it tougher for the non-conformers but I believe the six month window should be butchered and that one serious second failure should be an automatic red card.  This would give Red Tractor teeth and boost trust in its scheme.

Seven recent exposes have given Red Tractor and the NFU a PR migraine, with Red Tractor approved farms failing to guarantee what the public expect them to. It resulted in one farm being expelled from Red Tractor and six suspended, and is viewed as the absolute minimum penalties.  The expelling was for using an electronic goad.

Oh, and on the subject of electric goads, clock this: one farmer contacted me having caught one of his employees with a taser gun!  The employee was instantly dismissed and guess what: is now claiming wrongful dismissal! Surely gross misconduct and cruelty are both key factors and for me the employee should be banned from working with animals, period.

It’s a fact animal welfare concerns and health messages will continue to influence whether consumers increase or reduce dairy consumption. Farmers with lame, sick and basically knacker cows in their farmyards that front onto a public footpath or highway need to think again about the potential damage they are doing to our great industry.

If you doubt the influence and power anti-animal farming organisations have then take a look at what’s happened with Nabisco’s Barnum’s Animal Crackers, which have been around since 1902 (116 years): Animal rights activists are claiming a victory in freeing the Barnum’s animals from their cages, alleging the packaging suggested the lions, gorillas, elephants and polar bears were in circus cages.  Due to pressure the packaging has had to be re-designed, showing the animals wandering freely side by side in grass fields. Not only that but Barnum’s Circus has folded   after 146 years due to collapsed ticket sales.

I confess I don’t like zoos or circuses and in general I guess most of you don’t accept the caging or chaining of wild animals for our entertainment, especially when they are forced to perform by using whips, or sticks or the sort of goads mentioned above.

As I pen this article there is a radio broadcast scheduled called “Is time up for cow’s milk?” The pre-amble states that sales of cow’s milk are in decline across Europe and the USA, and asks whether this a dietary fad or are people realising that milk is not as good for us as was once believed, and whether “the White Stuff is past its best before date”.

Our industry is under attack so let’s up our game and avoid scoring own goals and handing the anti-dairy activists and campaigners more ammunition.

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IP DAIRY FARMER -  September 2018

Because last month’s article proved hugely popular I make no apologies for returning to the hot topics of farm assurance, our on-farm image, and the escalating and alarming coverage hard-core anti-dairy and livestock farming groups are achieving.

July saw Red Tractor regrettably make the front page in The Times with the headline “Farm Animals Tortured under Red Tractor Label”, with the paper’s Environment Editor stating that Britain’s biggest farm approval scheme is failing to detect breaches of its animal welfare standards because only 1 in 1000 farms it certifies receives an unannounced inspection. The article then revealed “shocking undercover footage depicting frightened pigs given repeated shocks with an electric prodder”, which had been taken by animal rights activists.  The farm in question had passed no less than five pre-announced inspections in the past year.

Having said that, one Scottish farmer wrote to me stating that his recent Red Tractor inspection was the most rigorous and comprehensive to date. This suggests the inspection standards are very inconsistent - a fact confirmed to me when I recently met a former assessor.

Our dairy industry has an excellent story to tell, but Red Tractor, together with a few dairy farmers, are playing with fire and most readers questioned just how some of their neighbours passed their Red Tractor dairy inspection. Understandably the question being asked in many quarters is whether the Red Tractor logo is genuinely a mark of quality food that consumers can trust. In my opinion if Red Tractor fails to immediately up its standards and inspections I will support others in the industry who are now comparing it to a sick dog which needs putting out of its misery.

Reader responses included criticism over Red Tractor failing to inspect the physicals and conducting a paper exercise instead; gratitude for me writing the truth and “for addressing a huge issue many choose to ignore and turn a blind eye to” (signed a proud dairy farmer); and one that many related to, summed up as “a few irresponsible morons are doing a lot of damage and provide feasting times for these anti-dairy groups.”

Numerous readers didn’t hold back, demanding some farmers exit the industry for the benefit of others.  One claimed the use of blue alkethene pipe on cow’s backs was commonplace in a large south west dairy farm and that evidence is on video footage. I hope it is mischief-making because an identical filmed incident in New Zealand resulted in outraged farmers hounding the transgressing farmer publically, and condemning him as “a leech at the bottom of our industry who must be kicked out”, followed by comments such as “society doesn’t tolerate or make excuses for wife beaters, and neither will we in this case.”

We talk about humanely treating our animals, but perhaps it is time we found better ways to support those who won’t change on how to exit.  It’s an industry problem which needs an industry solution. But I remember being in several meetings where this was discussed, and action by industry bodies promised and then… nothing.

Recently the USA’s Animal Agriculture Alliance let me have sight of its confidential report from this year’s 15th annual Animal Rights National Conference, which gave me a bird’s eye view of how animal rights extremists plan to attack us. It was a four-day conference involving 175 speakers representing over 100 vegan organisations. The speaker statements made were predictable and alarming including “there is no such thing as humane slaughter”, “dairy is not environmentally friendly,” “all farming is factory farming irrespective of size, and it’s cruel.” Plus “You wouldn’t eat your pet dog so why eat other animals?” and “Happy animals on farms do not exist.” One speaker joked about killing some vivisectors to make them stop killing animals, to which the audience cheered as delegates were constantly encouraged to take extreme direct action.

 

In summary, these groups continue to increase their aggressive tactics in a bid to remove dairy and meat products from consumers’ tables. They are not interested in enhancing animal welfare as their goal is to liberate all farm animals. 

I have to say these anti-dairy organisations appear to be very professionally run, with talks on how to put your money into cruelty free investing, and a benefit auction offering “lovely premiums for donations”. There was even a handout on how to become an activist.

They are convinced they are the only honest people telling the truth and that vegans are the happiest people in the world. “One day veganism will be the social norm not an alternative”, was the mantra.

Films were also shown showing drone footage exposing what they call the dairy industry’s “dark secrets”, with exploitation of motherhood through cows “crying” over their calves only hours after giving birth, plus those which included de-horning, ear-tagging, castration, branding, and tail twisting, to name but a few.  At the end of the film the room was blacked out while they held a minute silence for the animals.

They use fear images with footage so sensational the audience was in tears. They even had headsets they put on people placing them in a slaughter house to witness what animal suffering looks like. They even cross reference it to several verses from the Bible.  It’s all heavy emotional, pseudo-religious stuff. Current and planned campaigns include “Get milk out” and “The despicable dairy industry” plus PETA launching an anti-dairy month campaign plus plans for a “De-calf your Coffee” campaign (by choosing Almond, Soy or Coconut milk).

The groups have programmes to train chefs in schools and colleges and hospitals to regularly cook plant based recipes and use celebrities to gain more traction and to promote the logo “kind to animals is cool”, as well as programmes for talks at school assemblies.  One speaker even stated that he tells the children that diseases like cancer and diabetes can be prevented by going vegan! If that’s not enough they also educated delegates in a session on how to influence politicians

There was a session involving a UK speaker claiming vegan activism in the UK is mainstream and trending online, and they trumpeted a catalogue of successes including Costco selling circa 6 million vegan burgers a year; Haagen-Daas selling vegan ice cream; KFC testing meat free meals and a vegan figure skater who won an Olympic medal. It all concluded in the closing remark “Ladies & Gentleman, what we have is a vegan revolution – The future is vegan.”

Make no mistake livestock agriculture is under a lot of pressure. We don’t need bad practice from a few idiot farmers to heap more of it on us.

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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 mlk 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.

I 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-ops.

 

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 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 (). 

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  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 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 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

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 .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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IP Dairy Farmer Article – May 2016

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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IP Dairy Farmer Article – April 2016

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.

Meanwhile, the spring flush is rapidly approaching 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).

Most applauded the article’s probing questions which most dairy farmers, irrespective of size, would benefit from answering. Another said that it would be more useful to dairy farmers in today’s harsh economic environment than some of the other “almost irrelevant information” they receive.  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”.

 

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IP Dairy Farmer Article – March 2016

Retailer aligned contracts account for around 12% of UK milk production, but scoop a whopping 20% of the UK’s total milk revenue and it’s heading towards 25% according to my fellow dairy farmer hack and Provision Trade Federation market watcher, Chris Walkland.

 

For the majority of the remaining 88% of you it’s extremely tough indeed, and many are fighting for survival. One struggling farmer recently emailed me to say “the non-aligned continue to work like silly bers sinking deeper into the st while all around us the aligned walk on water at our expense”. I don’t disagree.

 

Today, there is an ocean of information pushed at dairy farmers, most of which is pretty basic, and telling them what they should be doing to stay in business, how to cut cost and be more competitive. One document which caught my eye was a set of questions emailed to me by lawyer William Neville of Savills.  Having carefully studied these questions the way ahead for a dairy farmer and his/her family should be clearer. The questions were:

 

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.

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IP Dairy Farmer Article – February 2016

By May, at the very latest, I expect most non-aligned farmers to be receiving under 20ppl as milk prices continue to head south. The wholesale re-structuring at farm level will happen this year.  One 50m litre group of farmers in South West Scotland look set to receive around 12ppl from April onwards as their milk has no alternative but to head down the M5 to go into powder. Look at the maths, IMPE (Intervention Milk Price Equivalent) is at 14.5ppl less 2.5ppl or more for transport and broker fee. This nets back to 12ppl.

 

Dairy farmers continue to score own goals by working on the assumption that producing more litres and spreading the cost is a solution. It’s not and is a soft easy option compared to tackling the much tougher task of how to cut your ppl cost of production, and do things differently. More milk means more labour, machinery repairs and fuel.

 

As The Archer’s David and Ruth Archer sell the herd to buy a spring calving herd one critical mistake by the researchers is the omission of not even mentioning their change in milk production to their milk purchaser.  How many others farmers have failed to mention their plans to their buyer? Lots!

 

In a recently published analysis Ireland and Holland accounted for a whopping 54% in EU increased milk production from April to November 2015.  Even now there are no signs that European milk output is slowing down. The take-out message from this to those who don’t understand is simple: if milk production continues to increase the farm gate milk price must be acceptable!

 

Now that First Milk has a new governance structure it seems to be all systems go in a new direction. Of the Directors who were in place a year ago only two remain, both of whom are Farmer Directors. In my opinion good governance with good management triggers better performance and hopefully results that First Milk farmers dream of.

 

Can Mike Gallacher fix First Milk? At the moment he is finishing driving his big muck tracker and scraper and cleaning up the disastrous decision-making by the previous board and management. He has succeeded in improving previously wrecked relationships and opened communication links with competitor processors.

 

Exiting Westbury will be worth several £millions each year to the firm.  If only Westbury was in Cumbria! Its milk pool is shrinking naturally and Gallacher has a lot of work still to do, in particular deciding where the long-term future for each of his milk pools and the supplying farmers might be.

 

Now AHDB Dairy (again). Sigh. Sorry! I wasn’t going to write about it this month but the two articles AHDB boss Jane King and Board member Janette Prince wrote last month has forced my hand. King rightly gave a robust defence of her organisation apart from, er, not mentioning the organisation only received six applications and conducted two interviews for the top salaried position as Head of AHDB Dairy. That is simply not good enough, and she shouldn’t be surprised at the criticism it attracted.

 

Janette Prince’s comments were also interesting.  Now I live within walking distance of Janette’s farm. It’s a good walk, but nevertheless it’s in walking distance. And yet how many times has she been to see me in the three years she has been an AHDB board member? Once. And she sent one email in December 2014. During this period she has received 165 emails from me with my bulletins etc. My point? Come talk to me! By its own admission AHDB Dairy needs to up its game on communication. This wouldn’t be a bad place to start! She asks in her letter for “Mr Potter to provide some constructive criticism and how I would spend the levy”. Well, log onto for my comments in relation to the AHDB Dairy Business plan and you’ll see!

 

AHDB Dairy is attracting a lot of questions these days for sure, and there is no surprise that MP’s are taking an interest in its spending plans. Some appear to be showing signs of getting their teeth stuck into what AHDB is, or isn’t, doing.

 

The latest projects from AHDB Dairy to cross my radar came from one of its so-called Market Intelligence Research Analysts.  In a circular email sent to processors AHDB will spend money on updating a 7-year old processing capacity map last complied in 2009 by retired dairy chief Donald McQueen.  In addition, they want to provide guidance about the UK dairy industry’s processing capacity, especially re coping with the spring flush.

 

Processors I spoke to were flabbergasted that these are considered priority projects. One used the words “that AHDB Dairy was blowing the candles out whilst Rome burns” while another commented “it is like an ocean going supertanker, going at speed with no idea where it’s going, whether it’s going to hit something and unable to change direction.”

 

I know I’m going to be criticised for having a witch-hunt but before anyone does ask yourselves whether there is sufficient scrutiny of AHDB’s spend, and whether the projects being done fall under the remit of solving market failure, or equipping levy payers with the information and tools to grow and become more competitive and sustainable. If they don’t then AHDB Dairy shouldn’t be doing them! Milk prices for most could be less than 20ppl. How on God’s earth will a new map help?

 

If anyone doesn’t like my column then tough. It is not compulsory reading and I won’t lose any sleep.  I have more allies than critics. One reader commented: “Your article provokes a great deal of thought, yet there are people out there (so called industry leaders) spending energy criticising your comments instead of acting on what you write”. 

 

At the Semex Conference, David Dobbin, Chairman of Dairy UK, echoed a message being sung by just about everyone in the UK dairy industry when he said “we need to develop the demand for British dairy products and invest in promotion both at home and in target export markets.”

Almost every organisation – Dairy UK, Dairy Council, NFU, TFA, RABDF, FFA, NFUS – agrees with this. Except one. AHDB Dairy. I rest my case.

 

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IP Dairy Farmer Article – January 2016

None! That’s the number of reasons UK dairy farmers have to be cheery and optimistic for 2016. There, you may as well have it straight. The outlook for milk prices in 2016 is grim. Until Europe cuts milk output any recovery is a distant dream - unless nature intervenes.

 

It’s a fact that with the EU28 responsible for 25% of the world’s milk production we are crucial to the global dairy market, and many argue that until we cut production there will be no recovery.

 

Look at the facts: UK milk production is at a 30 year high and rising; EU28 production is at record levels; there’s a strong pound; intervention stocks are rising; global markets are under pressure; International trade/demand is lukewarm; UK herd and dairy replacement numbers in the pipeline are increasing; and oil prices are at an 11 year low (which affects demand for dairy products in oil exporting countries).

 

It’s time to buckle up, cut cost, and refrain from chasing volume. Now more milk equals less money and less equals more.

 

Three years ago new blood was entering the industry as new units were erected. Dairy farmers displayed exceptionally high levels of confidence, predominantly driven by high commodity prices, and eye watering milk demand and price forecasts. Now it’s Armageddon. One unknown is how long the banks will sit and watch before they take action.

 

This time farmers can’t simply carry on optimistically, believing it’s going to improve soon. This will have to be a supply-led recovery, with seismic on-farm consolidation.

 

Yes, many farmers will need help to be profitable, which equals becoming internationally competitive, (not just on price alone) and reducing cost. Consultants and the like will need to shine a light on the industry and play their part in the typhoon of change. If we don’t change we will simply surrender to the Irish, whose aim is to be the New Zealand of the EU28. As Andersons 2016 Dairy Outlook commented “Only the most efficient farmers can achieve a long and sustainable future at current milk prices.” And as David Dobbin, Chairman of Dairy UK, recently stated: “Do we ease back on production or find new markets?” and“we need to get better not bigger.”  We need thinkers, marketeers and pushers because it’s set to be tough.

 

Recently questions have been asked whether AHDB’s Dairy boards’ plan and vision for our industry is aligned with the interests of its levy paying clients.  Many believe it’s time it really listened, rather than continuing to spend on what it thinks farmers need. It has just had a consultation round, so we shall see!

 

Others say AHDB Dairy is too inward looking; too focused on productivity; duplicates areas others already cover, and that it needs to focus globally.

 

AHDB Dairy must not, in my opinion, predominantly focus on production even if doing so swells its coffers. To most farmers it appears to be a closely guarded secret as to how AHDB Dairy selects where the levy money goes to give farmers the biggest return for every £1 invested.

 

Take its spend on exports, for example. There are a number of farmers who want AHDB Dairy to up its game in respect of assisting the industry to sell its range of dairy products to new emerging markets, as well as help many to cut costs in order to compete in this harsh environment. We have to export, as the additional demand for our milk will simply not come from the EU. We have to look outwards not inwards, in particular to China, Asia, India & Africa.

Three of our dairy processors recently attended a Beijing trade event - Daioni Milk, Freshways and Woodcocks. One of the meetings involved a young Chinese dairy trade envoy who, on meeting UK processors, stated “I am surprised to see you here because dairy farmers in the UK are constantly protesting and complaining about low milk prices. Why come here if your industry is not internationally competitive?” Is that really the image we have created, where we are not regarded as internationally competitive? And, on hearing this comment, another said: “What’s the difference between a British dairy farmer and a baby? The baby will eventually stop crying.” Dear, oh dear.

 

The processors who attended the Beijing event said they desperately require specialist dairy expertise to kick open the doors which will drive exports to new markets. And yet AHDB’s Dairy current budget to 2019 is the only one of all of the AHDB sectors that has zero investment for exports! Why? How is this justifiable?

 

Now First Milk. Since Mike Gallacher took the reins I have yet to find where he has put a foot wrong (although, admittedly, I’m not at the receiving end of its milk cheque). First Milk is not quite at the point where it can claim to have turned the tide in terms of retaining existing member patronage and support, but perhaps there are a few very small glimmers of light in this long tunnel.

 

The co-op’s milk price is unquestionably poor and the gap between it and its competitors needs to close. But for some members the fact they still collect (and pay) for all the milk produced is a bonus. Others are less fortunate and are under notice with nowhere to go, and having no control over their destiny. 

 

Meanwhile, a handful in the industry believe I am an evil spirit and cannot comprehend why I should have an opinion on dairy industry topics. Quite why it has taken them 25 years (the time I have been writing) to draw this conclusion I don’t know! 

 

Well I can confirm that (as much as it will come as a disappointment to some) I will not quietly slip away in 2016 and intend to take the advice of the gritty Scotsman Jim Brown, who emailed me recently concerning his thoughts on AHDB Dairy: “I like the way you call a spade a big fing shovel!  Keep at it,” he said. “As Corporal Jones on Dad’s Army said: They don’t like it up ‘em, Sir.”

 

All the best to you all for 2016.

 

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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 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.50 per kg of milk solids, and at the end of last season it had doubled to NZ.90. Almost 25% of dairy farm debt is owed by farmers who are in debt to the tune of NZ per kg or more.  The total debt at NZ 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 – January 2015

Firstly, tentatively, happy New Year. I say tentatively because the prospect of further significant cuts in ex-farmgate milk prices this year is real and inevitable. Despite the medium to long-term outlook for dairy being excellent it’s not looking good for 2015, especially during the spring flush, and with the pain will come an exodus of dairy farmers.

 

Similarly, the devaluation of milk by Iceland, Lidl and Aldi to 89p for 4 pints is devastating and likely to come under fierce attack from our big 4 retailers, led by ASDA or Tesco, in January who will either price match or top trump the 89p price. I don’t for one minute believe that milk will be singled out to be devalued, but it will be a key basket item in what will be an aggressive post Christmas price war. That’s unless the three discounters lift their price back to at least £1, which is wishful thinking.

 

The quota market is certainly sparking - against all the odds I have to say, and not because something I have said. Buyers are plentiful and focused on two possibilities. One is that the European milk price will plunge further into crisis in the spring, which will force the Commission to do a last minute U-turn and extend quotas beyond 1st April. I believe that’s very speculative and bordering on the impossible, however.

 

The second possibility, which has quickly risen to the top of the pile, is that the Commission’s interest in A and B production is serious, and it may attempt to influence its introduction across the EU. The thinking is that if the Commission wades in it will not base a scheme on actual production, but on quota held at 31st March. However, if milk purchasers introduce A & B prices / “quotas” they will surely base their calculations on actual production and not on quota held. I think A & B limits will be introduced by milk buyers based on production, but I can understand why a large number of producers are buying quota just in case.

 

The Iceland deal brokered by FFA, whereby Iceland will ensure a minimum of 70% of their cheddar is made from British milk with packs carrying the Red Tractor logo, is a very positive move on which FFA is to be congratulated, and one in which protests and lobbying have delivered real change in our favour. The food industry simply has to improve on provenance labeling. I wonder, for instance, how many consumers realise that Philadelphia cheese is made in Germany, with German milk?

 

The other liquid milk pricing deal FFA negotiated with Iceland looks fantastic as a headline, but as always the devil is in the detail. The deal is that if the Muller / Arla non-aligned farmgate price drops by 1ppl Iceland will automatically pay 1ppl less, and won’t exert further downward pressure on milk processors. If it goes up 1ppl it pays 1ppl more.

 

However I bet it won’t, because it looks to me like a win-win situation for Iceland. Every time the farmgate price drops Iceland pocket the money. Look at it this way: if, for example, the farmgate price is cut by 3ppl due to a fall in cream values or the cost of balancing, under this deal Iceland pockets 3ppl. Having deducted 3ppl from Iceland’s invoice its milk processors (principally Muller, which supplies Iceland with the most milk) will then surely have to cut the price further to compensate for the Iceland deduction until they fully cover both the 3ppl cream value drop plus the money Iceland are demanding under the deal. Theoretically the opposite will happen when prices go up, but will it? We will certainly never find out!

 

Most processors push to maintain clear water with no linkage between farmgate prices and their commercial relationship with retailers. To do otherwise gives retailers more power, and all that happens is they lock onto the farmgate costs of milk and squeeze the processor.

 

As soon as this market turns processors will be desperate to immediately reflect all improvements in the farmgate price. By locking into a farmgate price Iceland have scored a goal because we all know that there is a delay/time lag between the global market improving and it filtering down to farmgate level.

 

A rough calculation leads to the conclusion that in excess of 200 milk producers will be looking for a new milk buyer by 1st April, and one analyst calculates it could be as many as 350. That’s why I emphasize that in this crisis having a buyer who will collect and pay you for ALL of your milk is worth a lot. As one old time farmer commented to me “If you can’t sell at the price you want, it’s OK. But if you can’t sell at any price it’s desperate.”

 

While those farmers battle to find a milk buyer around 200 Arla - AMCO Tesco producers have some serious number crunching to do. This month the gap between their price and the Arla Tesco direct price has widened to 7ppl. These Arla members could leave the co-op after only three months notice to become Tesco direct suppliers again, subject to paying a relative modest penalty of 2% of the value of last year's milk as well as paying off their loan account. In the run up to 1st January I received a number of emails and calls from those involved, one of which was jaw dropping. He had employed a consultant to advise him whether to make the switch for 1st April. The consultant was focussing on whether Tesco could scrap its aligned milk purchasing scheme and avoid serving its contractual 24 month notice. My response was that this was a mickey mouse way of looking at it, and that the real question to focus on was whether Tesco has the ability to vary the terms of the cost tracker at short notice, as well as whether the producer who leaves would be allowed to rejoin as an Arla member at a later date. I believe that Tesco CAN change the formula and cost tracker giving only ONE months notice, and given the fact its current milk purchasing policy appears to bring minimal benefit to Tesco it is likely to come under severe scrutiny.

 

As to whether a resigning farmer could rejoin Arla, if I were the co-op I would make this a nigh on impossibility. Thus the decision to stay or leave is a tough call, but now (as with other situations) may not be the time to jump out of the fire into (potentially) the frying pan unless there are sound alternative milk buyers to switch to. For the financially stretched they may have no choice but to make the switch. However, whilst the gap may be 7ppl today its certainly won’t be 7ppl over a twelve month period and one day there will be no gap.  On the plus side at least these 200 producers have a choice, unlike those without a milk buyer.  Put simply do they follow the money for a short term gain or take a long term view assuming they receive value in being a co-op member.   

 

A recovery will come but it will be late 2015 at the earliest.  The problem is not so much how low the milk price drops more of how long it stays low.

 

Given how low global commodity prices have slumped, when prices do recover we are likely to see very sharp rises though.  Before that happens WMP powder stocks need to be cleared, and EU cheese stocks too, after which real recovery can starts. Today world stocks are still rising, which is delaying any hope of recovery.

 

 

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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.

 

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May 2014 Dairy Farmer Article

Clowns to the left of me! Jokers to the right!

As I write the spot price is 22 to 24ppl and weakening. And we are still six weeks away from peak! We are producing too much milk in a weak market and I am extremely nervous where it will end. We have insufficient processing in the UK and I can’t contemplate the effect if one of the Westbury driers, or a large French or Irish one were to breakdown.

 

Dairy Crest took a beating in 2012 with its 2ppl price cuts and for various reasons it will be behind the front runners on price cuts this time. I say that knowing DC is currently off the pace even in its Cat City heartland. However it has issued a statement stating that it will be competitive - it just didn’t put a time-scale on it. Even when the price corrections are  confirmed  many processors will be struggling to compete with Arla’s and Muller Wiseman’s milk price.

 

The falling market is not just a UK phenomenon it’s European and worldwide, with every dairy region producing more milk. Marry that to the fact UK cheese production has rocketed to record levels, demand from China and Russia has slackened and there’s a lethal cocktail.  Arla is odds on favourite to be the dam buster, announcing a May price correction - especially now Freisland Campina has cut. And even when that first correction is confirmed a further correction is almost inevitable unless the global market stabilizes. Oh, and when prices fall don’t bother calling in the FFA team – it can’t beat market forces!

 

The long-term solution is that we don’t churn out heaps of milk until we have more processing capacity, with product destined for the world market. Arla's target is for 40% of its revenue to come from outside the EU by 2020. If our retailers, corner shops, garages and food service businesses won’t pay for the milk we need to turn it into exportable products and bypass them. Woodcocks is building a drier, but we may still need more if milk volumes are to stay as they are. Please don’t listen to the jokers who say get on lads and produce 2, 3 or even 4 billion litres of extra milk until we have the capacity to process it and have some serious marketing people who can capitalize on the world market opportunities.

 

But a price correction is not my main concern. That is whether the drop will be retained by processors or whether some will be forced to hand it over to their customers and effectively kick start a downward spiral. We will never know who keeps the money and who hands it over. History tells us some processors are likely to knock on buyer’s doors and offer them the money on a plate to get more business.

 

Domestically, despite the devastating effects of TB, we have the heifers and cows in the system and even the low cost New Zealand style producers are buying tonnes of feed to bump-up production. On top of that we are still importing heifers from regions who are producing far too much milk and don’t have farmers willing to pay the prices we are prepared to pay.

 

Milk purchasers are under pressure, and some farmers appear oblivious to what’s happening. I recently heard of one farmer who was selling liquid milk on a three month contract who refused a 1st May 1p price drop, believing it should be a price increase. He decided to change buyer, convinced it is immune from the market place and will hold his price until the autumn when prices will increase again. He, and many others who are thinking along the same lines, are in for a reality check.

 

Regrettably some farmers have based their decision as to who to sell their milk to on either short-term false price promises or unsustainable headline prices. It never ceases to amaze me how little time some farmers spend examining the businesses they propose to sell their milk to. For some it’s a case of let’s go for the headline price and be dammed. “Clowns to the left of me jokers to the right! Here I am stuck in the middle with you,” as the song lyrics go.

 

When it comes to processors we have the honest, the smart, the sharp and the porkie pie tellers. One example of the latter comes in the form of those milk buyers who utilise basket pricing. For example, as from 1st January the old Arla AFMP price ceased to exist and some, like Freshways, replaced the AFMP price with the Arla AMCO member price. This resulted in it paying its farmers more money. Top marks, therefore. Others have dodged the issue and declined to replace the lost AFMP price with either the Arla direct or AMCO price, so as to keep prices lower. Thus the company which processes 25% of GB milk is not tracked in these baskets. It’s outrageous and any so-called producer representatives who have agreed to this should hang their heads in shame. One example of a letter representatives should have clocked was from County Milk, who gave suppliers the option to have a basket price with only Dairy Crest and Muller Wiseman prices in or, alternatively, to include Meadow Foods instead of Arla. I wonder why?

 

As intimated by me a few months ago this year is heading to be a financial disaster for one or more processors. They can’t survive buying the quantity of milk they are and offloading the surplus on the spot market at current prices, and when the proverbial hits the fan it will be the farmers who will invariably cop for several weeks of unpaid milk.

 

Now quota.  Some processors are contemplating withholding milk cheques because of soaring production, and this has frightened producers. Banks are instructing some farmers to play safe and get quota cover. I would like to clarify a few myths. The super levy will be around 23ppl and the quota is the same as it was last year at 15.3 billion litres. This includes confiscated quota, which at March 31st amounted to 537million of wholesale plus 11 million of direct sales. The market is on fire, which can only be quelled by a combination of milk price reductions, weather or production peaking and failing to meet the necessary levels to meet quota. Meeting quota will take some doing but you seem set to give it your best shot.

 

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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 ). 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.

 

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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 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, weve 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 FFA’s hugely successful Holsworthy meeting recently emailed me applauding David Handley’s professional presentation and question answering, with one stating “Handley put on a Champions League winning performance”. DairyCo and its role in milk promotion was one of the hot topics discussed, and criticised.

 

While DairyCo's market intelligence data has undoubtedly brought farmers closer to the market place and given more transparency, sadly the organisation does all too often let itself down. For example by making primary school comments to seriously professional farmers like “its too cold, hence grass growth is slow; there are delays to spring planting and margins are tight”. That’s not very market intelligent!

 

Holsworthy was an excellent meeting, therefore. But two weeks later FFA and the organisers were stunned when DairyCo contacted them declaring that Duncan Pullar, the sector director of DairyCo, had attended the meeting and asked one of his staff to get in touch with one of the organisers to “provide some clarification on a few things mentioned”. The DairyCo person charged with securing this clarification went on to request how it could get a similar number of farmers to a meeting too!

 

Now let’s wind the clock back to February, and Handley’s comments over DairyCo’s Milk Bench report figures. This triggered Pullar to "urgently" request a meeting with Handley, but the earliest date he said he could do was June! Handley thought the meeting couldn't have been that urgent, so he declined. Then Pullar spoke to Handley on the day of the Holsworthy meeting, wanting to meet him THAT DAY, on the M5 to find out what Handley was going to say, no doubt. It wasn't possible given Handley’s diary, but the fact Pullar was going to the meeting was never declared. Why not?

 

What’s also alarming is the fact that 400 plus farmers were at that meeting, and not one seems to have recognised Pullar or pointed him out when DairyCo came on the radar and in the firing line. And worse than that is the fact Pullar never stood up to address some of the questions posed, and remained on mute until more than two weeks later when one of his staff wanted to explore whether a similar meeting could be organised. Sorry, but Pullar had a golden opportunity to make his presence known in front of those levy paying farmers at the original meeting, and he bottled it.

 

FFA then held a meeting in Market Drayton where 250 farmers raised further criticism of DairyCo’s levy spend. On top of that a group of farmers from the South West region, and who attended the Holsworthy meeting, further escalated their dissatisfaction with what they see as DairyCo failing to provide value for money and needing to change its direction by arranging a meeting with their MP. He agreed that it was time to raise DairyCo’s activities and spending directly with the minister, Owen Paterson.

 

These farmers want DairyCo to use their money to promote British dairy to consumers through creative, attention-grabbing, innovative ways. In addition they want DairyCo to invest resources into exploring and identifying export opportunities, particularly to the BRIC countries (Brazil, Russia, India and China). Basically, they want DairyCo's money invested so they, as farmers, can extract maximum value from the world market. They don't want it spent on teaching "crap" farmers how to do things they should know how to do. Like growing grass or stating the bleedin' obvious.

 

In short they are pushing for a radical shake up of how DairyCo spends levy payer's funds. This might, ultimately, result in a surgical cut in its staff numbers including some of its extension officers. But so what? The good ones will quickly find new employment and the poor ones shouldn't be kept in the job anyway.

 

Levy payer's gripes include DairyCo not being fit for purpose, wasting money hand over fist, lacking innovation when it comes to promoting the image of dairy farming, and making wild, irresponsible and over-cooked production forecasts, which are of no benefit or which even are detrimental. In addition, it stands accused of being besotted with commissioning numerous reports, which have little or no value to farmers. The cost:benefit of Milk Bench, with only 700 or so farmers involved, is also cited, as is the fact that farmers can obtain a wealth of up to date technical advice from a number of consultants. Finally there's the criticism that dairy farmers can and do run their own discussion groups and don’t need DairyCo’s help.

 

To add to this list I question what benefit levy payers received from five - yes FIVE - DairyCo representatives going on a jolly to last year's IDF World Dairy Summit in Cape Town, South Africa. Yes, we need to be present, but how many of those delegates returned to GB and disseminated some useful information to farmers? How many levy payers read the one tiny article I fell on to by accident about the conference on DairyCo’s website? Including conference fees, flights, accommodation, salaries, food, drink etc I estimate the cost was over £20,000, which just happens to be the same figure required to ensure the film Mooman, which is about dairy farming, gets aired across 100 cinemas this year. Will they make that happen, I wonder? We shall see. Comparing several IDF delegate lists it appears one or two of the DairyCo delegates could be considered annual conference junkies, and I suspect they will soon be dusting their passports down for this year’s trip to Japan.

 

My suggestion is that all farmers who believe DairyCo should change direction must let the (paid) directors and staff know at the forthcoming NEC Livestock Event.  DairyCo pay a shed load of levy payers’ money both in sponsorship, stand space and staffing costs to attend the event, and it’s your chance to have your say. You are their paymasters and are entitled to hold them to account. They have to listen.

 

Some farmers claim they are investigating whether they can legally instruct their milk buyer not to pay their DairyCo levy. Another contacted me stating “DairyCo are like your local council – they take your money, they spend a bit on things you need but waste a lot too, but there’s not much anyone can do about changing what happens.”  If these are the opinions of the majority of farmers then DairyCo has to address its reputation, and, in doing so, it may have to change the composition of some of its top brass and its strategy. I will be engaging with DairyCo and at the NEC event, and hope to progress an idea for some up-skilling of some of your farmer representatives in the field of negotiations. It’s a definite gap and I am not aware of anyone who is tackling the lack of skill here. Negotiating with professional milk buyers requires training. It's no use blasting in saying we need more money just because consultants say the average COP is 34p. Properly trained negotiators will achieve better results and command more respect.I will report back!

 

Let me know your views on my article by emailing me at . This won't be my last article on DairyCo, so your comments are valuable!

 

June 2013 Dairy Farmer Article

 

Despite higher milk volumes coming through with the better weather supply is still king, and continuity of supplies is quickly becoming more important than the price paid to farmers for it. Globally milk supplies have taken a battering and, so far as the UK & Ireland are concerned, the damage caused by the non-existent spring flush is real and significant. And now thoughts are already turning to the winter, with silage stocks exhausted and grass growth low or being used for grazing and not cut for silage.

 

Across the world milk supplies are also low, at the same time as demand from Asia and China is phenomenal and worldwide dairy stocks are generally low - apart from in the US where they are at record levels and thus tempering market prices there.

 

Closer to home, with MCVE & AMPE at record levels, there is little wonder that switched-on dairy farmers feel they are not receiving a fair share of the rewards.  The reality is that liquid milk price increases appear to be moving very slowly upwards at farm level and I personally believe they are effectively capped and are not responding as they should do to events in the real market. 

 

Talk that retailers need to pay more for milk is fine, but let’s face it they are not stupid and are very capable of crunching the numbers themselves. They know exactly what benefit processors have pocketed in 2013 from increases on the back of the cream value (circa £250/tonne), and they know that not all of this money has gone back to farmers.

 

The question is to what degree should milk purchasers, who are now scouring the country for extra milk incentivise new producers to join them or reward existing producers to produce more, or simply put more money on the base price to benefit both groups? Personally, I find some of the current headline-grabbing schemes to be tacky and irritating, and know that a lot of farmers share this view.

 

Here are the current three big processor schemes on offer:

 

 

 

So, for example, the 5ppl headline figure from Arla is in reality worth 0.05ppl for the average farmer who increases production by 2%. In contrast, the Muller-Wiseman deal is a very tempting bonus indeed.

 

Not only does the market place appear to be failing farmers we then have a situation where farmers are at war with each other. Again. Say all you like about the bad things of the Milk Marketing Board, but every farmer was pretty much an equal and there wasn’t the mistrust, jealousy, one-upmanship and, frankly, hatred at times that we have had since its demise in 1994. It’s still going on - just look at the playground punch up between Arla Foods Milk Partnership and Arla Milk Link family members. There is clear evidence that there is a group of Arla Milk Link members who appear more interested in whether their base price is ahead of AFMP’s than how far they might mutually drive the price and hopefully push the whole market up. In fact from emails I have received there appears to be real hatred from some quarters within Arla Milk Link towards AFMP.

 

It is almost to the point where I believe some of these farmers, given the choice between AFMP having a 35ppl base milk price with Arla Milk Link having a 34ppl milk price or alternatively AFMP having a 30ppl milk price and Arla Milk Link having 30.5ppl milk price, some of these aggrieved producers would prefer the latter pricing.  It’s almost a case of if we can’t have it you certainly can’t. And we see this elsewhere, though: Davidstow producers are seemingly happy just so long as their price is higher than Arla Milk Link’s, regardless of what the price actually is. The internal Arla family dispute is one which will have to be addressed, and soon, if the AFMP Roadmap to membership of amba is going to be a success.

 

To be fair Arla doesn’t exactly help itself with some of its tactics, the latest being to pay early contract termination fees. This could be a PR hand grenade waiting to blow up. Arla clearly believes that securing additional milk supplies at all costs is the goal, but doesn’t seem to recognise that the move will be unpopular with many existing AFMP members and Arla Milk Link owners. Producers have pointed out that if Arla are so desperate for new milk supplies why doesn’t it simply encourage existing members to produce more milk by way of a substantial price increase, or give a higher price incentive like Muller-Wiseman?

 

With First Milk’s price for cheese currently off the pace it’s clear that it is exposed more than most at the moment, and needs to ratchet-up its price quickly. It doesn’t need to be told that. If there wasn’t a gap, there wouldn’t be an issue: First Milk would be on the offensive.

 

The risk for both Muller-Wiseman and Arla is that they are seen as employing overly aggressive tactics that deliberately target First Milk producers only in their bid to become “the largest UK dairy company”, come what may. Both Muller and Arla have set out their objective to be the biggest and the best, and they need milk to do that. Wiseman’s 1ppl bonus for a year is a much more subtle approach than Arla’s, but has the same “poaching” effect.

 

Cynics view such moves as being specifically targeted to inflict permanent damage to First Milk. Let’s face it, if there was to be a significant attack on First Milk producers and a lot were to leave the co-op quickly then it will become a significant problem. Again, the co-op and its members won’t need to be told that. Incidentally Muller-Wiseman says it is not recruiting in First Milk’s South West Scotland and West Wales regions and says the number of potential members from the co-op is currently “negligible”.

And quite how retail customers of the co-op will react to any overt aggression, though, is another issue: they can be hugely aggressive in their own right, as we know, but might not look kindly on a competitor who makes life overly-tough for the co-op. It is a competitive world, though.

 

Arla have already attracted one or two very high profile producers to leave First Milk.  Some find it incredible that in a very short space of time some producers can switch from being staunch supporters of a co-op to move to the Danish way, but the fact is money talks. The price gap between AFMP / Muller-Wiseman and First Milk, multiplied over a million litres or more, is a heck of a lot of money right now.

 

I am not here to pass judgment on First Milk or to defend its corner. However, I will make one observation - First Milk are not a Mark2 DFOB with incompetent management, don’t have a council full of suicide bombers who are brain washed into believing everything they are told and that all is rosy in the garden. But the onus has to be on First Milk to close that gap. Quickly. Either that or First Milk’s producers will have to accept there will always be a sizeable gap, and that some of the larger producers in more competitive milk field areas
will leave (which will then hinder attempts to narrow that gap and will almost certainly widen it in fact).

 

Finally, I have a question to all processors who have deducted seasonality or balancing charges during the past three months: Why have you deducted money rather than adding money?  Is it that this balancing seasonality money is taken from existing loyal producers to be used to fund third party spot milk purchases at prices around 38p at one point? Once again some producer representatives stand accused of failing to negotiate a market related deal on behalf of the producers they represent in allowing seasonality and balancing deductions this spring.

 

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May 2013 Dairy Farmer Article

 

I start by focusing on the huge monster elephant in the room - namely the threat from First Milk that unless the price it receives for its cheese increases it will be forced to cut the milk price paid to members. But that’s the dangerous position we’re in. It will have no option to do so unless it can get more money out of the market, and that will almost certainly hurt its business in the short term.

 

It will also have no option but to divert even more milk to other more profitable outlets - for example spot milk is currently at 40ppl - as opposed to turning it into cheese in the hope that in three months time and more retailers, discounters and food service sector buyers will all pay a fair price for it. That will do little for buyer certainty in the long term either. The phrase caught between a rock and a hard place springs to mind.

 

It’s easy to blame Irish imports as the sole reason for the problem. This time, though, there’s more to it. Buyer intransigence is the main reason. Both South Caernarfon Creameries and Parkham Farms (Peter Willes) have both partnered up with Adams Foods who now pack and market their cheese. Neither of these companies are idiots, nor are their milk prices at the bottom of the league table either, so Adams doesn’t seem to be selling their cheese on the cheap. South Caernarfon’s February price was 3ppl more than the First Milk cheese price in fact. Irish farmers are also getting a higher price.

 

With explosive world commodity prices providing more profitable market outlets for milk, and Irish cheddar imports down 16.5% (and production down 12%) in the first three months of 2013, the time has come for cheese customers to realize the price they pay for the cheese is secondary to ensuring continuity of supply for the rest of 2013 and beyond. But will they?

Hopefully by the time this article is published the crisis will have been averted, and First Milk will not be dropping its price but increasing it like Arla Milk Link and Dairy Crest (with others set to follow, inevitably).

 

The recent and second North of England UK Dairy Expo was staged at Borderway Market, Carlisle in March, and was well supported with over 300 dairy cattle on show.

 

It is important that the industry has successful events like this to showcase the best of the best animals in the industry, and for a morale booster. Let’s hope the Livestock Event in July (formerly the Dairy Event) is a similarly successful show, and gets a good turnout of farmers. The offer of free buses should help, although some are viewing that provision as either a shrewd insurance policy to ensure high numbers or an early sign of panic.

 

Regrettably, though, the Dairy Expo triggered multiple rumours of cattle which had been “fixed”. This is where practices like sealing teats and balancing each quarter of the udder takes place. After the event the rumours gathered pace, and, without going into detail, I was concerned to receive several calls from people who attended the event (including conversations with representatives/prominent members of two breed societies) and who said that some animals had been “fixed”.

 

I tried to make contact with the judges, who declined to comment, as well as chasing one of the show’s organisers – twice. This set me wondering why everyone had seemingly gone to ground. Then one exhibitor evidently started to trumpet that he had “got away with it”, while another has stated he will not show his animals in GB if he can’t adjust and fix them, and will show in mainland Europe instead. That’s his call. I just hope he’s not on a retailer-aligned contract, because he won’t be soon if that’s his policy!

 

The gossip may be after the event this time, but what is important is that show organisers, irrespective of size, realize that farmers and rule-abiding exhibitors are the eyes and ears of the industry and it’s their duty to police not only any show rules but the integrity of the show itself and the industry. The talk of fixing will have taken a degree of shine off the Expo event, and, as far a the whole industry is concerned, all it takes is one anti with a camera and an agenda to portray the industry as cruel and the whole industry gets tainted.

 

I now return to the raw milk selling case, where the Food Standards Agency (I am abbreviating them to FSA1, for reasons that will become clear later) is prosecuting the 70-cow family farming operation Hook & Son for selling unpasteurized milk.

 

Following that article the conspiracy theorists sprung into action and several readers were quick to alert me to the fact that Tim Smith, the former CEO of the FSA, and more importantly Arla, could have a conflict if Hooks successfully defend their case, and unpasteurized milk sales were to take off. One or two even suggested some of his former colleagues from Dairy UK might even have had a role in the aggressive stance against Hooks!

 

Jim Begg of Dairy UK has certainly commented in regard to proposed legislation on a saturated fat tax that it was not the answer and that consumers should be allowed to decide “as long as the risks are highlighted on the packaging.” (As it is with unpasteurized milk). However, Dairy UK does not seem to follow the same logic on Hooks and unpasteurized milk. It’s a curious ambiguity.

 

So why do I abbreviate the Food Standards Agency to FSA1? Cue a few comments now on FSA2 - the Financial Services Authority. They have the same initials and, it seems, the same appetite to persecute the little man – in this case it has attempted to close down Burnley businessman Dave Fishwick and his “Bank of Dave” business (). Mr Fishwick has set-up his own bank and FSA2 has effectively stopped his bank taking in deposits from locals on the grounds he was operating an unregulated, collective investment scheme. However Dave is not only taking them on he has captured the attention of Channel 4, which is filming his progress.

 

On the face of it, it appears FSA2 are sat back watching fat cat bankers (yes, spelt with a B) who have raped this country and crippled our economy get away with robbery, yet they take the easy option to close down a community bank, the brainwave of an enterprising northerner. It’s the same with FSA1 who, in the case of the horsemeat scandal have chosen not to dig deep and hit the real culprits (Big Business!), but who have chosen to pick on the easy prey who are the likes of Hooks.

 

These are both real David and Goliath battles, and I wish them success and hope the FSA’s bullies will stop harassing and picking on the small guys.

In the case of Hooks I am pleased to hear the NFU legal team are supporting the Hooks QC and legal team. They believe the case will proceed to trial so we will see what happens. Meanwhile, The Mooman Film, which films a year on The Hook’s farm, has been premiered at the O2 Arena.  Sorry, DairyCo, but this film does more for the image of real dairy farming than your recent YouTube and website films. But I guess you can’t promote Mooman given the fact your chairman is also the vice chairman of the FSA1, and thus taking Hooks to task!

The film will be available on DVD and in local cinemas from next month. Watch my weekly bulletin for further details.

 

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April 2013 Dairy Farmer Article

 

Tesco have, as we go to print, announced that their cost of production (COP) formula will see a 1.19ppl increase for the six months commencing 1st April, which will result in a TSDG contracted producer who submits costings to Promar receiving a standard litre price of 32.77ppl. That’s the good news. Now for the bad (as I see it): this is highly likely to be the last 2013 COP increase, due to two factors:

 

Firstly if milk production volumes increase by 5% nationally (as per Dairy Co.’s forecast) the production costs will be spread across more litres. In other words the 2012/13 drop in production concentrated the costs across fewer litres, hence the average COP rose. Secondly is the fact that forward feed prices are currently significantly less than the ones paid last winter, partly due to record crop  forecasts in some of the world’s major grain areas. So it is a near certainty, in my opinion, that under COP models it will be cheaper to produce next winter’s milk, and while I am not a costings guru I have checked out the relationship between a 5% increase in volume and its effect on the COP, and it’s certainly worth c. 1ppl or more, and thus is very significant.

 

There could be another big test for COP models coming if global markets continue to strengthen as they are doing, and that’s if farmgate commodity milk prices and liquid processor milk prices leap-frog retailer COP models. If that happens COP models might have a fairly short life expectancy. Having said that, markets are very unpredictable and are likely to go full circle as volumes increase, or if milk buyers back-away from their  current insatiable appetite for increased volumes of milk.

 

Farmers for Action are pushing for clearer front of pack labeling on cheese to CLEARLY state the origin of the milk it was made from. However, as one of my roving correspondents was quick to point out:  “this should be extended to butter”. She was right and Arla should be encouraged to clearly show that Anchor butter – now produced at Westbury - comes entirely from the milk of British cows. The same person recalled comments made in 2007 by the milk purchaser for retailers Booths. The buyer stated that retailers preferred own label to that of branded as they were not in favour of provenance labeling because it gave them “greater freedom to source from further afield”. I guess that’s what the beef mince people did - and look where it got them with the horse meat scandal!

 

It’s a fact that the absence of country of origin labeling can be used effectively as a big beating stick to drive down cheese prices. Retailers, the Food Service/catering sectors, as well as all Government procurement departments, should embrace clearer labeling as a way of informing customers of the source of the milk in their dairy products and as a way to encourage them to support British dairy farmers.

 

Large retailers were, not unsurprisingly, the first obvious targets of the push on clearer cheese labeling campaign. I did a bit of fact-finding and learned that none of them are squeaky clean, but some quickly could be with a bit of a push. Sainsbury’s are partnered with Arla-Milk Link for their own-label cheese, and ASDA are partnered to First Milk. That leaves Morrison’s and Tesco out of the Premier league - both of whom do trade the market for cheddar and then have it contract packed. Tesco are the biggest and, on cheese, are partnered to Adams Foods/ The Irish Dairy Board (IDB) and their Leek packing plant.

 

Adams is also tied-up with South Caernarfon Creameries and Parkham Farms, which helps Tesco in its claim that 100% of its branded  cheddar, as well as all of  its Territorial cheeses, are packed by Adams/IDB but are all produced from British milk.

 

To be fair Tesco’s CEO Philip Clark and the Tesco dairy team are changing the way they work and, from May, Irish Cheese will be packaged stating “Produced in Ireland using milk from Ireland. Packed in the UK.” It’s a step in the right direction and is certainly the sort of clear transparent labeling that FFA are calling for. Others should take note  - especially the so-called “second division” retailers, the discounters and catering people.

 

Perhaps the next step is to ensure those involved in the market improve their front of pack labeling and advertising (which is equally important). It has also been suggested that we should have a publically accessible website which states the good provenance labeling companies, and flashes-up the less transparent, ethics-bending companies for FFA’s “special attention”. It’s an idea with great potential.

 

My biggest concern with our cheese market relates to margins, however. I am worried that what happened to our liquid market in 2012 is now happening to our cheese market with margins cut wafer thin, or in some cases being non-existent, as cheese processors chase volume.

 

Our domestic cheese processors are trying hard to maintain milk volume, while their producers watch the gap between milk for cheese prices and liquid prices widen unhealthily. Consequently producers are looking at tempting offers from a myriad of liquid milk processors all eager to sign them in 12 months or less. While this courtship continues the cheese processors   are operating in a fiercely competitive market where they have to compete against the competitive advantage of the Irish, and their cheaper ‘milk from grass’ Spring prices.

 

All we can hope is that the Irish get their Chinese visitor visas quickly approved and start to produce and sell WMP to China, as opposed to selling cheese to us. When UK milk production increased in 2011 it came at the same time as the world’s dairy markets were on fire and our friends from Ireland left us alone in the pursuit of more favourable markets elsewhere. This allowed our cheddar market to grow. Demand from China is extremely strong at the moment and the drought in New Zealand’s North Island has decimated its milk output, with farmers moving to once a day milking, early drying off as well as breaking into winter feed stocks alarmingly early. It looks grim for them…  but it looks as if their loss could be our gain.

 

I wish I could envisage a situation where by one or more of our cheese processors would pull some cheese out of a supermarket contract, without breaching the terms of that contract, and put the milk through Westbury, which is doing a bit of milk but not a fat lot and is grossly under-utilised. As one industry wise owl commented “we only have one serious drying plant in the UK, but I can’t imagine a processor diverting milk through it to produce WMP for export”.

 

Finally, thank you for all the email comments in response to last month’s article and the FSA’s prosecution of Hook Farms for selling raw milk. Several readers subscribed to the conspiracy theory that the then Chief Executive of the FSA and former Arla CEO Tim Smith could have had other reasons for wanting to ensure the selling of raw milk  is nipped in the bud. Another believed Dairy UK was very inconsistent in its approach to dairy industry issues. He pointed out that Dairy UK, at one time, was concerned over a possible UK saturated fat tax and stated that legislation was not the answer and that the public  should simply be warned of the risks on the packaging. Surely Dairy UK should take a similar position with regards to the sale of raw milk, he said.

 

Finally, finally I have to thank one learned reader for pointing me in the direction as to why calving’s in Southern Ireland – currently 20% up on last year - may not be as it first appears. The increase is partly as a result of BVD tagging changes imposed on farmers which means they have to tag their calves earlier. The situation is perhaps not as bad as we first thought, but it’s still one to watch.

 

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March 2013 Dairy Farmer Article

 

Amid the horsemeat scandal comes a dairy David V Goliath Case

 

Now I don’t claim to be an aficionado, but those who drink milk straight from the bulk tank reckon it tastes much better than normal homogenised, pasteurised milk.

 

The customers of Philip and Steven Hook certainly do. The Hooks farm 180 acres and 70 organic dairy cows and, and in April 2007 Phil Hook mentioned he had started retailing their own unpasteurised milk at 75p per pint.

 

Today, the Hooks still milk 70 cows, but their raw milk business has about 3000 customers, both local and via online sales. All are given a health warning that it is unpasteurised milk, but some buy Hook’s milk under doctors’ orders. One 82-year old customer says he has 16 pints of raw milk every week following removal of part of his colon.  Others claim it clears up eczema, while others are lactose intolerant but can drink it.

 

Then the Hooks had the opportunity to rent a small space in the prestigious Selfridges store in Oxford Street, London. In 2011 they installed a self-service unpasteurised milk vending machine.

 

Westminster City Council’s Environmental Health sanctioned the Selfridges machine and an identical machine had been approved and installed in Canterbury only three years earlier.

 

It has been an exciting time for this small family farm, who were the centre piece  of a 90-minute feature film called “The Moo Man”, which looked at a year on the family’s farm and was selected as a film in the USA’s Sundance Film Festival - see .

 

But step forward the muscle-men at the Food Standards Agency (FSA). First it tried to stop the family selling their unpasteurised milk online, but failed. Undaunted, though, the FSA has recently sent both Selfridges and the Hooks a summons banning further sales. The FSA states that Hooks have “breached food hygiene regulations”.

 

This opens up a whole heap of questions.  Is the FSA prosecuting a small family farm and Selfridges for publicity, and because they are easy targets? Would they have been so keen to prosecute if the vending machine had been located in a Tesco store?  And where does the FSA’s Vice Chairman, Tim Bennett, sit in all of this when the prosecution is discussed at FSA board meetings? 

 

Now, not only is Tim Bennett vice-chairman of that organization, he is Chairman of DairyCo, and thus represents dairy farmers. The Hooks pay levy to DairyCo so, in effect, he is authorising the FSA to prosecute one of his levy paying members. Was he involved in the decision to prosecute, for example? Answers please.

 

And while this issue affects just one dairy farmer, where would Mr Bennett sit if, say, 10, 20, 100 or 1000 farmers were involved in something the FSA didn’t like, or (heaven forbid) a food scare or scandal like the horsemeat one were to hit the dairy industry? He’d have a couple of pretty uncomfortable feet in each camp I would imagine.

 

The proverbial fans at the FSA now need a decade of servicing to recover from the volume of excrement that has hit them from the horse meat scandal. And yet, incredibly, one of its priorities appears to be prosecuting one small dairy farmer.

 

The reason I bring this up is the parallel between this and the Gangmasters Licensing Authority’s court case against “prominent” dairy farmers (its word not mine).  Here a six-figure sum was spent on attempting to prosecute a handful of dairy farmers in a three-year battle, before the Judge gave the farmers an absolute discharge last week. The NFU’s headline was that the GLA were “heavy-handed” and I think the FSA could well see history repeat itself with the Hook case. Fingers crossed that a bit of common sense prevails.

 

Last month, I was invited to chair the question time at the dairy breakout session at the AHDB’s Annual Outlook Conference in Westminster.

 

Independent international dairy consultant Mark Voorbergen was bullish for global dairy demand during the next decade, which will outpace production. That’s with the exception of the EU. In the two years post 2014 and the ending of milk quotas he believed we may, for that short period, have too much milk on our hands.

 

He posed the question as to why would UK farmers invest in growth if their milk is sold into a crowded domestic market with limited growth opportunities?  This was pointing to the fact we are obsessed with our fresh liquid domestic market and have very limited opportunities to access this exciting global market. He then stated that “being late is never a reason to do nothing” – in reference to the UK getting in on the export act.

 

The DairyCo Milkbench results for the year ended 31st March 2012 were launched at that same meeting.  The report itself, I am afraid, is extremely complex and probably only of best value to the 315 farmers who contributed, and thus who understand Milkbench.

 

The average costs of production at 28.8ppl at March 2012 excludes any cost for a farmer’s management time and hence its value is questionable. Farmer wages are a sensitive topic, with a West Midlands farmer costed in at only £8.90/hour, or less than £18,000 a year. This is for his manual work only with nothing for management, which comes “out of the profit”.

 

A week later I sat with a Welsh CARA dairy bench consultant who presented his annual costings. He said his best farmers could command a salary (including management time) of £62,500 a year. And he stated that his costs were actual, while some of DairyCo’s are imputed costs and contain assumptions.

 

For example, he claimed one of his top 25% performing farmers also participated in Milkbench and the results were “poles apart” and he believed Milkbench had too many “lets pretend” figures included.

 

The question then is are the results useable and is the data accurate? More questions for DairyCo, I’m afraid. But hey, you pay them to be accountable!

 

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February 2013 Dairy Farmer Article

 

This month’s article concentrates on what I gleaned from this year’s excellent Semex Conference.

The opening tag team of NFU President Peter Kendall, and Ronald Kers, the boss of Muller-Wiseman, will certainly be a hard act to follow next year.  Both speakers spoke with passion, enthusiasm and with a determination to make a difference.

Kendall’s presentation title was “A future of our dairy industry and future leadership”. Ironically, his organisation has only a year to consider its future leadership, as Peter’s eight-year reign will come to an end.  That’s unless there is a need for him to serve a fifth term, of course.

 

There can be no arguing that during 2012 Peter Kendall was the heartbeat, oxygen and blood supply at the centre of all key dairy matters involving the NFU.  Cometh the hour, cometh the man - he took charge. While dairy farming is vitally important other membership areas will require Kendall’s attention in 2013 - not least of which will be CAP reform.

 

Kendall trumpeted the leadership shown by former Minister Jim Paice in getting the Voluntary Code of Practice (VCOP) signed off. He stated that the VCOP does not exclude co-ops. That’s a point up for discussion, however: what is clearly frustrating Kendall is the fact that AFMP members negotiated an exemption from the Code on the basis they were a business “in transition” to becoming a co-op. Five months later AFMP have failed to produce a road map or timetable. They are clearly directs, and Kendall wants its members to bang the drum to demand their organisation(s) sign up to the Code.

 

In my opinion the uptake of the Code has, to date, been painfully slow. I reckon that if Jim Paice were still around he would be kicking some backsides very hard now that five months have elapsed since it was signed-off.  From my research around 1773 British dairy farmers are able to change milk buyer within three months notice, and they supply Dairy Crest, Muller-Wiseman Dairies or Lactalis. Note an additional  843 producers supplying Dairy Crest and Muller-Wiseman on aligned retailer formula prices are excluded because they have signed-up to an independently verified formula.

 

Paice’s successor, David Heath, will be judged according to how successful the Code will be, but as I write only these three processors have implemented or will implement the Code’s three month’s notice.

Kendall was all guns blazing at Semex, declaring that the coalition will push Government to regulate if the Code is “not adopted and functioning as designed”. If processors and co-ops delay they “will face the consequences.” There is little doubt that from April the 80 approved purchasers who do not adopt the Code will be publically named and shamed.

 

So what do I think of it? Well I would argue that a milk supply team dealing with ex-farm gate milk price changes has a dramatically different attitude when it knows it could lose producers within three months, as opposed to a team who bathes in the comfort of a 12-24 month notice period, and who believe that if they get it wrong affected farmers will forget about and that the dissent can be smoothed over during that oh-so long notice period. At least one co-op effectively operates a once a year exit point, which means the notice period varies from one year, to one year and 364 days. Are milk purchasers with long notice periods missing a trick? There is surely hardly a better way to convince their customers that unless they pay a competitive market price for their products the milk supply will be down markedly in as little as three months!

But, in contrast, I can also understand why a company that has invested £250m or so in UK dairying, hasn’t had a culture of three months notice periods, is still grappling with a merger, two supply groups, etc etc isn’t going to gleefully shout “How high?” as soon as the NFU (which hasn’t invested a penny, remember) says “jump”. I can also understand why a buyer at or near the bottom of the milk price league table might be nervous too.

 

 

The Code has the potential to add power and value, and needs courageous producers and processors who want to make it work. The success will be dependant on dairy farmers, so, if you want the Code applied to you it’s down to you and your representatives to make sure your milk buyer – no matter how large or small - adopts it and makes it work. Two purchasers have rather smugly suggested to me that they will not adopt it either because, as a co-op they are exempt, or simply because it states it is “voluntary”.  I detect some naïve protectionism creeping in, but in my opinion such a policy will work in the short term, but not in the long term. It is perhaps no surprise that the bulk of the producers who have been in contact with me, claiming they want to leave their current milk buyer, do not supply either Muller, Dairy Crest or Lactalis.

 

Ronald Kers was bullish and positive as he took to the podium at a national UK industry conference for the first time since the takeover last year. Theo Muller wants the most successful, competitive and biggest dairy company in the UK. He outlined the devastating numbers behind the 2012 collapse in cream values - with  450,000 tonnes of UK cream valued at £710 million in 2011, and one year later its value was £520 million - representing a loss to the industry of £190 million.  (And the processors knocked it off the farm gate milk price, remember – the last domino in the pack rule again!)

 

Muller intends to take charge of its own destiny to be in a better position if cream prices collapse again, hence the building of the UK’s largest butter plant at Market Drayton costing £17 million. This will have the capacity to process all Muller Wiseman’s bulk cream (90,000 tonnes) into 45,000 tonnes of butter, and puts the company in a much stronger position. Kers pointed out that the UK imports £2.245 billion of dairy product and exports only £1.11 billion leaving a net trade deficit of a staggering £1 billion.

 

He also asked a similar question to that which I have previously asked in this column: “What is the strategy to capitalise on the opportunities these figures present?”  In reality with quotas ending in two years do we have a plan to restore the UK dairy trade balance?

 

On recruitment, it is set to be the Battle of the Giants with Arla recruiting to fill its new plant at Aylesbury and Muller keen to have a larger percentage of their milk coming from direct suppliers. I wonder how this will play out for First Milk, who currently broker close to 60% of their milk.

 

Finally, I will comment on the Irish Farmers Association’s plan for the ending of quotas in 2015, as presented at the conference by Catherine Lascurettes. Its 18,000 farmers currently produce 5.2 billion litres of milk, of which 85% is exported with a staggering peak to trough production ratio of 1 to 7.

Their target is to increase production by 50% to 7.8 billion litres and to export 7 billion litres (90%) of their production to an expanding global market selling Irish butter, cheese and powders – particularly in Brazil, Russia, India, China and Asia to which “Irish dairy farmers want a slice of”. It appears Irish dairy farmers have the enthusiasm, technical expertise and potential to aim so high, and the figures confirm they are world competitive when it comes to Cost of Production. Ms Lascurettes confirmed rapidly rising heifer numbers of all ages are now on the ground in preparation for expansion, with numbers expected to be 50% up by 2016 compared to those in 2010. The only question is whether Ireland will be able to find circa £2.0 billion to achieve its ambitions.

 

So, can GB compete with the Irish?  If not, why are they more efficient and cost competitive than we are?  Is it a mind-set, or are some of our leaders lacking the ambition and vision shown by the Irish, possibly because they are comfortable and ready to collect their winter fuel allowance and bus passes?

 

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January 2013 Dairy Farmer Article

 

Last year was certainly an eventful one, wasn't it! One of the key moves involved industry consolidation, with Muller and Arla commencing the battle for GB dominance.

 

It will also be remembered for the awful weather, catastrophic price drops, huge farmer protests, which generated incredible media coverage and the support of top TV chefs and the wider public, and the lowest milk supply in history. Finally Jim Paice succeeded in banging heads together and announcing an agreed Voluntary Code of Practice, having threatened to legislate only hours before he was axed.

 

On legislation, I really struggle to understand how the Government could possibly legislate over the relationship between farmer, processor and retailer so as to guard against inequalities in the supply chain.  However, the threat did play a part. The Voluntary Code is primarily about processors behaving more responsibly than some did earlier in 2012 -  for example Dairy Crest when they gave producers only four days notice of a brutal 2ppl price cut in May.

 

It now needs breathing space to bed-in, and hopefully it will lead to greater transparency in milk pricing. It will be up to the NFU’s, FFA and others in the coalition to police it and persuade all milk purchasers to adopt it.  It’s unique and I can’t think of another industry which has anything similar. So let’s all hope something positive emerged from all the protests and farmer frustration.  Only time will tell whether both sides have the commitment and determination to face the challenges of 2013 and beyond together.

 

It is a fact that “No one is going to help us but ourselves.”  The adoption of the Code is a major test for all. If it is abused, or not used, processors should not expect farmers to sit back and be demoralized by a dysfunctional and de-stabilised industry.  Dairy farmers know they have influence and power and understand that if they are used wisely they can be effective.

 

As we enter 2013 it will be a challenge to significantly increase ex-farm gate liquid milk prices until the gap between them and the milk for cheese price closes. Having said that, there is clear evidence that significant quantities of milk for cheese are now going to the liquid market which will hopefully tighten-up the availability of cheese. But remember, cheese can be imported from anywhere in the world to plug any shortfall. There is evidence cheese processors are trying to get more money out of the market place but it’s far from easy. My concern is that the merry-go-round of liquid processors dropping their trousers and offering customers milk at totally unsustainable prices may well migrate to cheese processors. We shall see!

 

I am aware of cheese processors who have either defended their existing contracts by taking a price cut, or have lost business to very aggressive competitors who have under-cut them in pursuit of volume.  All of these moves simply take value out of the industry, and once margin is surrendered it’s very difficult to recoup it as liquid processors will testify to.

 

The problem is that cheese is a globally traded commodity and you would be hard pushed to believe there is significant head room to push prices up too much. That's especially the case if we get out of line with our European neighbours, who will quickly seize the opportunity to send more product through our front door.  It used to be the weather that was the one factor a farmer had no control over which influenced a farm's profitability, but now its world wide dairy product competition, which I think has leap frogged the weather.

 

Whilst average UK milk prices were in many cases below the cost of production during 2012, they moved from near the bottom of the European 27 member states milk price league table to almost the top.

Against that is the catastrophic drop in milk production which, if it were to continue in 2013, will result in factories closing and imports increasing.

 

Recently I was invited to visit the UK’s largest cheese packing site at Adams of Leek, owned by the Irish Dairy Board, where I met two of its directors and its Chief Executive. There they pack at least a third of all the hard cheese sold in UK and half of all private  label cheese, Which has a total value of £220m. The business has a £315 million annual turnover.

 

The No. 2 UK cheese brand Pilgrim’s Choice (the No. 1 is Dairy Crest’s Cathedral City) is owned by the IDB. It is sourced from the IDB  predominantly from five Southern Irish Creameries. However it was formerly a West Country Farmhouse brand, which the IDB now pump millions of pounds of promotion money into it.

 

I challenged the Organisation's bosses over the fact the packaging for Pilgrim’s states that it is "Packed in Britain".  They were adamant that the own label cheddar-buying public have provenance as a low priority, and they are probably right - Cathedral City is not promoted by Dairy Crest on provenance, and that's a brand. First Milk's Lake District, is, however.

 “The public are patriotic on cheese until it costs them money”, they said. Note, all exported Pilgrim’s Choice cheese does come from GB cow’s milk, and Adams did confirm that they will be changing their Pilgrim’s Choice mature and extra mature packaging in the New Year, highlighting  the cheese is made from Irish milk as opposed to sourced from around the world.

The IDB have recently won a contract which starts in early 2013 for somewhere in the region of 8,000 to 9,000 tonnes to supply Iceland stores, with Arla/Milk Link having lost out.  When I heard the news I thought that’s a blow to GB cheese production, but on further investigation it came to light that Arla Milk Link have, for a long time, used Irish cheese which they pack at Oswestry and put into Iceland stores. In fact, it is conceivable, even if it’s bizarre, that Iceland’s move to source its cheese from IDB could see more British milk go into Iceland’s cheese.

 

When questioned over the effect on Irish cheese production post March 2015, when milk quotas end they/IDB  research suggests  most of the extra milk will go into butter/powder for global markets.

 

The factory was very impressive and extremely efficient and well invested, with 24 lines running. Adams don’t make any cheese they just cut it, grate it, pack it and sell it. They don’t get hung up about Red Tractor. Logos or Farm Assurance and that’s the way one or two appear to be heading.  Are these dairy businesses, which are turning their back on Red Tractor Farm Assurance, becoming the Ryanair of the dairy world: "We will deliver you competitive quality cheese, no frills, no red tape, no Farm Assurance, if you want any of those extra bells and whistles you pay. If you don’t then that’s fine”

 

I questioned their view on cheese investment in the UK versus the huge investment seen and still ongoing by our liquid processors.  They agreed it’s almost non-existent, and one day someone will have to bite the bullet and build a state of the art cheese plant aka Ronald Akkerman's vision.

The Adams are and will continue to be Britain’s biggest buyer of hard cheese and from what I saw they are  certainly in Britain for the long haul. The latest trade figures to September 2012 confirm that Irish cheddar imports are up 11% on the previous year  to 58,616 tonnes.

 

The very sudden and sad departure of the Vice Chairman of FFA, Andrew Hemming, has left a huge void in the organisation, which will need to be filled quickly.

There are a number of potential candidates who aspire to become General David Handley’s lieutenant.  For my mind, for the organisation to retain its credibility the Vice Chairman must be a professional, active grass-roots dairy farmer who’s sole motivation is to work with David and FFA to the benefit of all farmers.  He or she must be a leader and good communicator and someone who can share the workload with David.  That certainly narrows down the field and demonstrates what a good man Andrew was, and how hard his boots will be to fill.

 

Finally, discounters  like  Poundland and others have decided they  can no longer do 4 pints for £1 (2.272 litres).  The word on the street is that at least one of our big three liquid processors is close to down sizing  their standard 4 pint container to enable discounters to continue to offer £1 cartons of milk. Thank goodness for that - we need some New Year cheer, and that will do for starters!

 

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December 2012 Dairy Farmer Article

 

Recently I succeeded in taking-up a long-standing invitation from Dairy Crest to visit its HQ and have a go at its Competition Law compliance programme, and exam. It’s an area the company takes extremely seriously, following its £9.4 million fine for allegedly colluding with retailers and other companies in the Retail Price Initiative a few years ago. Penalties totalling £120 million were paid by a number of supermarkets and dairy processors after the OFT’s investigation. These fines hurt and all involved are more cautious and careful, as the legacy remains to this day. If they get it wrong the penalties are high.

 

Today all of DC’s customer-facing employees have to achieve at least 80% in the exam as a condition of employment. DC’s CEO Mark Allen describes it as “acting responsibly with a passion to do the right thing”.

 

In the UK the OFT are policeman, prosecutor, judge, jury and executioner, and if anyone falls foul of the rules the fine can be up to 10% of a company’s worldwide turnover. Individuals can also receive a maximum five-year prison sentence and unlimited fines. And it won’t get easier with suggestions that the fines could increase to 30% of turnover! It’s all about consumers enjoying cheaper products.

 

So there I was sat alone in a room having completed the online tutorial followed by the test involving negotiations with two leading hybrid retailers – inexplicably called Testburys and Masda stores, and up comes my score: 100%! Full marks! What a star! And was it easy? No. But did it make me think? Yes!  Will I be applying for a position at the company? No, but if I did one statement would stick in my mind in relation to Competition law, and it would be this: “asking a question will not get you in trouble: breaking the law will!”

 

Prices are increasing slowly and steadily, but there still needs to be more to come. Cheese prices have still not moved up, but so far there hasn’t been a major driver in the market on which the processors can push. That will change next year, I feel, because the low milk volumes and high spot prices MUST mean that the amount of cheese made is much lower in the second half of the year compared to the first, and stocks must be being whittled down. That said, there are rumours of forward deals having been done at prices that won’t deliver the sort of returns farmers need, but I have seen no evidence of that.

 

Irish imports have been as much as £400/tonne lower than GB prices this year, but that was when milk volumes were high. As volumes fall the price differential between Irish and GB closes, which is what has happened recently. Nevertheless the Irish Dairy Board are winning cheese business from our processors and are successfully migrating the Pilgrims Choice brand from a British farmhouse cheese to a 100% Southern Irish Cheddar without consumers noticing. (And not without a bit of naughty marketing too. See for an example – Pilgrims Choice cheese [origin, Ireland] in packs with huge Union Jacks [origin, er, not Ireland] slapped all over them.)

 

Some of the imports are cheap, inconsistent quality cheese, but some is undoubtedly good stuff too, and winning business with retailers. If our processors push too hard for price increases and the Irish don’t then it’s obvious what will happen. At present I am attempting to find out who is importing cheese and some pricing information but it’s proving a challenge to establish who is telling the truth.  It is a fact that the farmers’ much loved retailer Iceland is only interested in the cheapest cheese, and provenance is irrelevant. Iceland are not particularly interested in Red Tractor or Farm Assured cheese or carbon footprint: they just want it cheap. I am due to go and see the Irish Dairy Board soon, so I will report back next month on Irish, and imports.

 

Sainsbury’s move to take the Red Tractor mark off its produce sticks two fingers up to the Farm Assurance brand and its red tape. In terms of Sainsburys own label cheese it tells me they can now source cheese from anywhere in the world, and when you sell around 10,000 tonnes a year of cheddar that’s a powerful negotiating position. It’s equivalent to almost 100 million litres of domestic milk production.

 

On the liquid front prices are moving-up as the liquid premium re-establishes itself at the top of the league. Escalating costs of production, particularly feed costs, along with a below cost of production milk price, make for a long hard Winter of discontent.

 

My question is whether liquid milk prices will be allowed to leap frog the Sainsburys and/or Tesco cost of production price. To my mind there should be no lid on farm gate milk prices, but I suspect behind the scenes there is, and non-aligned liquid suppliers will never receive a higher price than Sainsburys or Tesco dedicated producers. Undoubtedly 2013 will be a batten down the hatches time for a lot of farmers. The SFP money will start in December but for many it will already be spoken for and that includes the taxman at the end of January. Buckle up everyone, you are in for a storm!

 

The New Year will herald the start of the conference season and I will be attending the annual Glasgow Semex Conference, so I look forward to a natter with regulars and newcomers there. Come on, and bend my ear!

 

I will not be at the Oxford Farming Conference (OFC) in January, however, although it will be interesting to see the RSPCA’s Freedom Foods sponsored "rolling logo" there. Perhaps it will follow similar RSPCA rhetoric: "You're soaked in badger blood, you bastards" or, alternatively, “We will expose all those who participate in a badger cull. Watch your backs!” I wonder whether the OFC has thought their “partners” through carefully?

 

So here’s wishing you and your families a great festive season and a prosperous and weather-friendly New Year and 2013. In case you get bored (and randy over Christmas) here are a few facts I brought back from a recent trip to Norway, which I will write about later, that I thought you may like to ponder:

 

1) A pig’s orgasm lasts 30 minutes (apparently). 2) Some lions mate over 50 times a day.  (Mmm… I wonder if there is anything in the theory of coming back after death as another life form, after all) And 3) Starfish have no brains. (Mmm… clearly it’s not a theory it’s a fact! Some of them work in the dairy industry!)

 

Comments to or 01335 324584 (fax)

 

IP NOVEMBER 2012

Now that Milk Link is part of a larger European co-op I have heard numerous comments suggesting GB milk processing is predominantly owned by successful foreign businesses. But is that a problem? I don’t think so.  Let’s face it, our foreign colleagues are investing in the GB dairy industry, and we need that investment.

 

I also attended First Milk’s positive AGM/conference in South Wales recently, where CEO Kate Allum stated: “If we all pull in the same direction we will become unstoppable.” She was referring to the co-op’s 2,000 farmers and 750 employees.

 

However, like all others involved in GB cheese processing they face challenges – not least cheese imports at prices considerably below UK prices at times. Will GB retailers pay significantly more for home produced Farm Assured cheese than imports? Or will those cheaper cheese imports win the day?

 

Or perhaps the third alternative will come to the fore. Some cheese producers such as Lactalis have cut cheese production and are diverting supplier’s milk into the booming liquid market and are utilising existing cheese stocks to meet demand. To me this shorts the market, and has the potential to deliver a better ex-farm gate milk price to a cheese processor’s struggling farmers. Is this an example of pulling in the same direction?

 

There were numerous excellent comments and questions about the future raised at a 500 strong FFA/NFU farmer meeting I attended at Market Drayton livestock market in early October.

 

FFA have a target for an average January 1 GB milk price of at least 30ppl (ie excluding Arla-Milk Link members, who’s milk price is based on what happens in Europe and not here).

 

The meeting agreed we have now moved into phase two, where a few week’s breathing space is needed to allow processors, their commercial teams, the NFUs and FFA to negotiate. If that fails, then by early December those who do not play their part will be exposed and held to account - mainly by FFA and its army of protesting farmers. The name of one Midlands middle ground supplier and three food service suppliers were singled out as already being on FFA’s and the NFU’s radar - Johal Dairies, Brakes, 3663 and Compass.

 

Although milk supplies in the UK, EU and the US are crashing, dairy commodity prices have levelled, with butter prices having peaked, so it won’t be easy pushing up the price. However, most retailers and processors recognise ex-farm gate milk prices have to increase to even cover cost of production, but the reality is processors will not be able to go back for more money from those retailers who have paid before December, for January 1. And some price rises paid by some processors have still yet to be fully recovered from their customers – so there’s a lot of work still to do.

 

Southern Ireland has clear post-quota expansion plans under its Harvest 2020 project where the influential Irish Farmers Association (IFA) has targets for the processing industry to invest £400 million in capital projects which would require an additional £500m of annual working capital. On top of this it predicts farmers will need to invest £1.5 billion in their own farms. In an attempt to make this happen soon the IFA has devised a tax efficient loan scheme which is attractive to farmers and non-farmer investors – now that’s what I call pulling in the same direction!

 

The funds and investments will see dairy production in Southern Ireland increase by an estimated 50%, creating almost 10,000 additional jobs. In its own words the IFA stated “we believe this is a very good deal for the Irish economy.”

 

Some European countries clearly see a green light to turn the taps on full bore after 2015 when quotas disappear – that is less than 30 months away, and it’s time British dairy farmers had a clear picture of how they fit into the equation. Are there any export opportunities we can bag, or should we brace ourselves for even more raids on our industry from Johnny Foreigner.  DairyCo are planning to do some research in this area and the results cannot come too soon for me.

 

I am worried about the outcome, and even more worried we don’t appear to have a plan of action. If we don’t look out we will continue to be fixated on our liquid market obsession while others work on maximising any potential which will arise from the removal of milk quotas - including some of our non-liquid markets.

 

Over in mainland Europe, the European Milk Board is organising a huge farmer demonstration in Brussels in mid-November ahead of the European Parliament’s vote on agricultural markets.

 

Poland, Portugal and Spain are calling for continued regulation in milk and given the current European milk price, large demonstrations by farmers calling for milk quotas to continue will be influential. As one industry insider recently commented to me: “British dairying has a perfect storm brewing, with quotas ending, Single Payments reducing, the need to spend more money to meet environmental targets and a general recession.”

 

Consequently we need a very loud call from all farmer organisations, from the dairy coalition and farmers’ representatives for clean, transparent, honest milk pricing. Today we have conditional and unconditional price increases (some dependent upon increased volumes) and I would like any of you who have milk contracts with these terms to email me.

 

I also call upon milkprices.com and DairyCo, as two respected independent analysts, to strip out the spin and conditional bits so league tables compare apples with apples and not apples with pears.

 

Call it the Potter campaign for clean milk pricing and transparency, if you like. Whatever you call it, it needs to happen, and it needs to happen now.

 

Email comments to

 

IP OCTOBER 2012

The world truly is a global village and we now know what is meant by the saying “When the US sneezes we all catch a cold.” A record US drought with numerous fields of corn and soya completely written off, and others cut for silage, will cost our dairy farmers a fortune in higher feed costs. Add to this the forecast that Russia’s wheat harvest will be 31% down on 2011 and lower than its 2010 “disaster crop” and everything is set for a very bleak, expensive winter.

Global feed costs have exploded and some US dairy units who were already finding life tough have reached the tipping point. Entire herds have been culled.

 

Back here there is no disputing that the second brutal liquid milk price drop did long-term, irreversible damage. An alarming number of dairy farmers looked at the two drops in two months and could not see even the smallest glimmer of light at the end of the tunnel. I understand why they decided to quit and wish them well.  I suspect they will miss the monthly milk payment, but in time will not miss the bills, the cows and the work.

 

This year’s annual Dairy UK Conference and dinner is likely to be the last now that the Dairy Event has moved its dates to July and somewhat diluted its emphasis on dairying through its controversial re-badge to Livestock.

 

One of the highlights of this year’s conference was the unveiling of Nicola Adams as one of three 2012 Olympic gold medalists who will front the last Make Mine Milk (MMF) promotional campaign.  Nicola, the first woman boxer to win an Olympic gold medal joins double Olympic cycling gold medalist Laura Trott and Taekwondo gold medalist Jade Jones in an “m powered make mine milk” strap line. Regrettably they could be the last celebrities, as funding is running out. MMF Chairman, Müller/Wiseman’s Sandie Wilkie, said that independent research has shown the campaign had increased awareness amongst teenagers by 73%, and in mothers by 62%. An additional 110 million litres of liquid milk were also sold in 2011. 

 

There have always been unanswered questions as to who benefits from increased sales of milk from such campaigns, and whether any of the additional income filters down to farm level. I can’t answer those, but they certainly make me proud of dairy to see Olympic stars fronting milk promotion campaigns convincingly extoling the benefits they believe they obtain from drinking milk, and how it helps them succeed in their sport. It’s a fantastic message and I do hope when the EU funding dries up at the end of this year a solution can be agreed which allows the campaign to continue.

 

The conference also held a lively debate involving key people from The Grocer, Farmers Guardian (FG) and Farmers Weekly (FW). On the question of recent farmer demonstrations Alistair Driver (FG) believed recent farmer blockades were justified and effective. However, to the surprise of some in the audience FW’s editor Jane King did not agree with blockades believing they disrupted other businesses and did not show dairy farming in its best light. One delegate challenged Jane to differentiate between types of direct action (blockades and protesting) and that FW had at the time championed direct action producing posters. It looked like a U-turn.

 

Milk Link members will (all being well) shortly receive their 57p in the £1 payment for the cancellation of their qualifying loans post the 1st October merger with Arla. All members should be immediately exploring any tax saving  opportunities, with a view to reducing or in many cases eliminating any tax bill. According to advice received from HMRC by Milk Link the entire payment will be treated as a gain and will not be available for roll-over relief. The windfall payment from Milk Link is treated as a capital receipt and therefore subject to Capital Gains Tax. Essentially we are talking about crystalizing and utilizing any capital losses, therefore.

 

That leads me onto the option available to farmers who over the years have purchased milk quota for their business, especially now quota is only worth around £1,000 for 1 million litres. There is still an opportunity to sell your existing milk quota to create that capital loss and legitimately mitigate how much money you hand over to HMRC. In many cases the amount your business will be handing over will be a five figure sum, so it’s better retaining the money in your pocket than putting it in HMRC’s! The average Milk Link member payout will be around £17,000 and a 1 million litre member should receive around £28,500.

 

For several years now a large number of dairy farmers have traded their milk quota and, after a suitable waiting period, have acquired replacement. It’s really quota re-cycling and sounds simple but it’s not as straightforward as it sounds. We have already heard of Milk Link farmers who believe they can simply swap their milk quota with a friend or neighbour and create a capital loss. Such farmers will not be the first to come to us asking for help with an HMRC investigation on the grounds that the transfers were connected, or invalid or breached anti-avoidance rules. For those who have proceeded down this route it will be six years before you can sleep easy. So please take advice before taking action.

 

Now to some porky pies in the middle ground. Reports suggest at least one middle ground milk processor is claiming Force Majeure on his contracts with several customers. Force Majeure is defined as “a chance occurrence, unavoidable accident or Act of God” and it is claimed this is the reason why they cannot supply customers the milk they have contracted to. Me thinks God is innocent in this instance. The real culprit is the processor who sold ridiculously cheap milk in a bid to chase volume, and who surrendered both its farmers and its own margins and who agreed totally unsustainable prices. They have been caught in the sea with no trunks on, and the tide is going out fast. This processor needs to be an Olympic swimmer to avoid being exposed! With spot milk at close to 40p and short term one to three month contracts on offer to farmers at 34p to 35p these processors had better pay up or they’ll reap just rewards from their suicidal volume chasing campaigns.

 

The Voluntary Code of Practice has been ably covered since it was signed-off by the industry ahead of the Livestock Event and just in the nick of time before Jim Paice was hung out to dry.  The only time I winced was when I heard one industry leader suggest any dairy processors who did not buy into the Code would need to be given “special attention”, implying they would be challenged. So, a word of warning: it’s a Voluntary Code, it’s not mandatory. I agree the industry needs to make it work but any suggestion that any rebellious processors who fail to adopt the Code will be dragged in kicking and screaming is likely to be met with the strong arm of snappy lawyers. At least one lawyer has looked at this and my advice is let’s not go down that route and potentially wreck the good work those involved in the Code have achieved. Keep moving forward together for the good of all.

 

Turning to the NEC Livestock Event I sense from the two days that attendance was well down, no doubt affected by the pressing need of many farmers to cash in on the two dry harvesting days. There was certainly lots to talk about – not least the motorised opening and closing cow legs on the JCM Shackles stand! A lot of farmer’s wives, partners, girlfriends and mistresses are clearly reading or have read Fifty Shades of Grey and view the shackles as a useful accessory!  Apparently, according to Mrs P, a red room of pain is the thing to have these days! I’m not so sure… so I’ll be keeping-up my spare tins of red Massey 1250 paint for my tractor for the time being!

 

Comment to

 

IP September  2012

 

Demonstrations. What demonstrations! Wow. They were all a huge team effort involving farmers, their suppliers and supporters. Agricultural engineers, consultants, vets, sales people and friends completed their day’s work and joined the protests. Some brought much needed refreshments, catering and even music too. Politically, all parties and organisations worked well together under the banner of the Dairy Coalition including FFA, NFU, NFUS, NFU Cymru, RABDF, TFA & WFU. NFU chief Peter Kendall put his arm around Handley and FFA (metaphorically speaking), and worked cleverly with a good cop, bad cop routine. It was a huge test for the NFU, which Kendall took charge of. He dragged the old school NFU dinosaurs by the neck and did it his way. Credit to him it worked. Those within the NFU who argued that the NFU is big enough to negotiate this problem alone were old school, and wrong. Time to man up and remember leaders lead, they don’t sit around the table and chair committees.

 

For me it was great news that the dairy industry got its act together and also maintained public support and that we didn’t end-up dumping milk, disrupting supplies to the Olympics, or culling lots of cows. The coalition aimed at specific targets, fired and moved onto the next one rather than machine-gunning all and sundry who got in the line of fire.

 

Others behind the scenes also require some recognition.  The press and media coverage was by and large first class and very supportive. DairyCo provided credible, independent, market intelligence to the media, FFA, NFU’s and commentating dairy farmers who wanted accurate facts. This information was invaluable and almost all of the farmers and representatives I heard on the TV and radio used it and portrayed a very professional on-the-ball, no nonsense commentary with snappy, punchy answers. It’s the first time I can recall when all involved knew where to go for the facts, as well as some tips and coaching for those who wanted to get involved and do interviews, but needed some guidance. Levy money well spent, DairyCo. I have, in my time, been a critic of DairyCo and have frequently questioned how it invests, spends (and sometimes, in my opinion, wastes) levy payer’s money. But there’s no doubt it should be the automatic one-stop shop for information in these situations.

 

If I had one slight criticism of the campaign it was of the much-publicised RABDF milk bottle showing incorrect retailer profits, which was unfortunately used. DairyCo should have a new bottle ready at a moments notice, with up to date margins and profits. I guess for the short term its back to the day job for Dairy Co of promoting of all that is good and positive about our great industry (supply chain / fair pricing aside) and raising the profile of it until the next big crisis. If DairyCo hasn’t read the tea leaves I’ll spell it out: market information and promoting milk and dairying are what the majority of farmers want their levy money spent on!

 

For all the effort put in by everyone we have to be realistic and recognize that the achievement to reverse the 1st August liquid price cuts is only like sticking a plaster on a bad wound. It has changed nothing, long-term. Farmers were angrier than anyone has ever seen them before, and the protests, whilst yielding short-term results, have done damage to confidence which will take time to restore. We know the same wound will open up again when someone picks at the scab unless some major surgery is carried out to rid the disease underneath. The only language the (non-aligned) market place seems to understand is “we will pay what we have to when we have to and rarely any more”. But then who can blame them, really. Processors and retailers are price driven, and the sooner they are short of that precious liquid milk they desperately need every day the better. Today’s pricing mechanism is broken, almost beyond economical repair. We need to sell milk and negotiate differently.

 

Many milk processors and retailers listened to the cry for help, and either recognized the pain or did what it took to get the mutinous farmers off their backs and stepped forward with increases. There is still some “tidying up” to do as I write, including tackling the harder nuts like Iceland and Farmfoods, who have not even blinked at the protests and should be pressurized or shamed to pay a price for their milk which reflects the cost of production. ASDA are still on the radar, as are Freshways for importing milk from Belgium during the protests, which is scandalous and for which there is NO excuse. Not only does Jamie Oliver buy his milk from Freshways, but Vice Chairman of FFA Andrew Hemmings sells his milk to them! This prompted a headline in The Daily Telegraph of “Oliver, the fair deal champion pays farmers less than their costs for milk.” Bally (Nijjar, Freshway’s owner) is this imported milk Farm Assured, branded as Red Tractor, or is it just cheaper at 31p than paying your existing farmers more? What’s your answer?

 

Finally, its fine for Jim Paice to pressurize retailers to do the right thing when purchasing liquid milk but he should first get the Government’s own house in order for dairy product procurement. The farmers supplying the House of Commons and Lords catering suppliers are also paid below COP and the various Government departments still source on price.

 

August will be a month to get on with farming, to give the retailers and processors more time for longer term thinking, and to reflect how negotiations on the finer details of the Voluntary Code shape up. Let’s hope European milk production also continues to drop.

 

By 1st October the Tesco price will, baring a miracle on falling costs, certainly increase and if Wiseman/Muller dares to implement a 1st September price cut I think I can safely predict more than a small riot on their doorstep.

 

Returning to my last article concerning the fact that the abolition of milk quotas in 2015 would affect us and could hit us hard, I’ll share with you now the Irish Farmers Association’s (the equivalent of our NFU’s) view.

 

Its plan is called “Food Harvest 2020 Dairy Expansion” and its analysis is telling dairy farmers that “National production growth of 52% by 2020 is realistic, from 390,000 more cows and better yields.” This, it claims, would result in a 54% increase in annual export earnings, creating an additional 9,400 new jobs.  And - guess what? - not only does it have a plan the IFA is now working hard to persuade their Government to provide additional tax relief for farmers who invest in dairying. And that’s on top of the Dairy Equipment Grant Scheme in operation!

 

The IFA is travelling the country with meetings entitled “Focus on confident Growth “ asking how will the dairy expansion be funded? Where will your extra milk be sold, and into what products? Clearly the Irish are pretty confident and intent on seizing opportunities while we are in total turmoil.

 

Come on GB industry - do we want to continue to (for want of an expression) scratch around the yard with the hens or soar with the eagles? One reader suggested we need a Fonterra plan. I’m not sure what we need, but I can’t see anyone who is taking the threat and opportunities serious enough. We are looking through our rear view mirror, let alone looking forward.

 

Who is going to step forward to drive the GB dairy industry forward? Who will analyse the direction of travel, fuel, speed and engine performance? We need an experienced driver. If we haven’t we could be heading towards the brink of a disaster. The next few weeks and months will be critical, I feel.

 

Comment to

 

IP August 2012

 

The solidarity shown by a very, very large number of dairy farmers in July has been fantastic. Well done to all and sundry – you know who you are. I have never seen so many angry farmers all wanting to have their say - many with good ideas, some tame, some radical. The August 1st price cuts by our three big dairies were described to me as a milk tornado which quickly sucked-in every liquid milk purchaser/processor which got in its way. Hence the reason why most believe if we can sort out the big three, and their big liquid customers, the rest will automatically fall into line. Not that you’ll need reminding, but here are the big three liquid non aligned prices from August 1st - Arla 24.27ppl (and this does not allow for the 0.5ppl levy), Wisemans 24.48ppl, Dairy Crest  24.58ppl. Yes, the Danes and the Germans are paying the lowest prices. Both have invaded Britain and it’s not just The Danes who, with an awful lot of help from the retailers, are doing the pillaging.

 

I still hear stories of prominent aligned farmers who are sitting back smugly thinking / commenting that they’re OK and are not joining their colleagues at any meeting or protest. Surely they realise that the bigger their price differential to “normal” farmers the less sustainable their price becomes?

 

Some so-called farmer representatives are leaving all negotiations with retailers and liquid customers to their processors. But others are actively working with their processor to extract more cash from customers. Look at the facts: Arla dropped their 1st August milk price by way more than DC and Wiseman. Does this indicate that the other two had more success in obtaining extra money from their customers, particularly those in the middle ground? Maybe, maybe not. But its high time some so called negotiators and representatives got off their backsides and started to deliver results and soon. There are still an embarrassing number of representatives who simply relay messages instead of battling for their farmers.

 

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.

 

Meanwhile the formation of British Producer Organisations (PO’s) toddles along. Farm Minister Jim Paice recently announced £5m funding to help the industry on this. But who will run them? Well I believe one outfit that could do so is First Milk, who could potentially do so alongside its other activities - assuming its members buy into the idea and do not resent their co-op representing some retailer aligned farmers whose milk is not processed by First Milk. Remember that Co-ops, in themselves, cannot be PO’s.

 

A PO is not a silver bullet, however if one is set-up correctly with the right people running it it will certainly help put dairy farmers on a more equal footing with processors and retailers when it comes to negotiating. I also envisage a PO which is involved in hedging mechanisms and futures contracts to smooth out the peaks and troughs of prices. I believe dairy futures will, during the next five years, become a useful and frequently used tool to add certainty to prices. Let’s face it fixed rate mortgages and loans are common-place, as are forward buying contracts of winter fed and fertilizer, and they are similar to futures contracts.

 

Let’s face it, this volatility isn’t going to go away. It could get worse. I am stunned at the number of farmers, experts and so called leaders who still trot out the utter rubbish that the end of milk quotas in March 2015 will not affect GB farmers and the market here because we are, and will remain, well under quota. They clearly are taking an island mentality and have failed to understand the likely effects of quota removal on EU milk supply - the signs of which are already evident.

 

Just look across the water to Southern Ireland where, if their dairy Industry only half succeeds in their eye-watering target to increase milk production by 50% post the end milk quotas in 2015, then we have a BIG problem. Any increase in milk production will not be consumed domestically and will increase their exported powder and cheese output. They will certainly be involved in futures markets and if we want to move away from our beloved liquid market we should be looking 100 yards down the road to see what is coming our way in 2015 and not looking at the dashboard as to what is happening now. We need to plan now and explore fair and transparent formulaes between markets, commodities and the ex-farm gate price and have contracts to match them. First Milk have almost got there with their Eilers and Wheelers milk contract - hence why I am legging them in for the PO job without prior warning. Yes such contracts will be more volatile – but you’ll get more of the ups as well as the downs.

 

The current uproar in the liquid market is partly because we are fanatically obsessed with what some still call the “premium liquid market”.  Post 2015 we need to be ambitious and think beyond it.  If we don’t then we may as well shrink our milk production and processing to the size of that ever-shrinking liquid market. Any extra production will have to be exported, so let’s not sit back while others explore the opportunities.

 

Most, if not all, member states are already producing significantly more milk each year as their quota increases - with the exception of the UK, which, given the current turmoil, is now in decline.  The suggestion that the abolition of milk quotas will not affect the UK could not be further from the truth.  It’s going to be a hard landing, and is likely to hit us hard.

 

Back in April the Polish Minister of Agriculture, Marek Sawicki, advocated keeping milk quotas until 2020 to give time for the Commission to come up with new solutions.  At the same time the Latvian official and milk producer Dace Pastare stated “When quotas are abolished in 2015, the dairy market will collapse with a big bang.”  She drove more than 1,000 kilometers with the Chairman of a Latvian Dairy Co-Operative to deliver her one line message to officials.

The very active European Milk Board have recently stated that the EC’s “soft landing” by 2015 will be a crash landing and have stated there is an urgent need for action.

 

I am not suggesting the EU will do a U-turn on quota abolition, however, there is clearly pressure and all, apart from most of the GB dairy industry, are gearing-up for the end of it. I admit it will be a slow burn but someone has to take the lead and we have to do things differently.  As I have stated in this article before the British dairy industry needs a Mr or Mrs Fix-It - not another maintenance and bodge it man. And it needs them fast.

 

Comment to

 

IP July 2012

 

I start this month’s article by referring to another one -  an article by Dragon’s Den guru Deborah Meaden in a recent Farmer’s Weekly. I won’t waste valuable column inches analysing her comments, but can’t ignore the article. John Allen of Kite Consulting summed-up Meaden’s surprise appetite for dairy farming matters in his well-crafted letter with “Let’s be clear – WSPA’s agenda is not to save the dairy industry by showing farmers how pasture-based systems are better economically, it is a campaign entirely focused on trying to prevent a certain type of production system.  As an industry, we should ensure that we do not allow such an organisation to turn farmers against farmers.” Meaden openly admits she supports The World Society for the Protection of Animals Campaign “Not in My Cuppa”, and is anti large dairy farms. 

 

I was particularly disappointed that (according to my records) there was no cohesive “one hit” industry response to the article politely acknowledging her points but telling her dairying matters are in no way shape or form her area of expertise. In other words she should stick to the multitude of business opportunities she does know about.  She is undoubtedly out of her depth commenting in trade journals on the best dairy farming model farmers should adopt. If I meet her in person, for example, I can’t wait to ask her about the efficiency of processing in relation to spring calving operations. I can image her answer: “Er, wot…?” Focusing exclusively on small family farms is admirable, but it must be in conjunction with the acceptance that globally competitive commercial units in the UK need to be developed and supported.  Come on NFU, Dairy UK, DairyCo and RABDF you are once again letting the industry’s communications down.

 

The European dairy package has seen the adoption of EU wide Producer Organisations (PO’s) which for the UK means any PO will be subject to European competition law and not our infernal National competition law and bodies.

 

It’s disappointing to learn that the UK is at least a year away from having the legislation in place to enable PO’s to be formed. Germany, for example, already has 190. It was clear from the recent NFU dairy farmer representative meeting that farmers need one point of contact to which all groups of farmers investigating the PO facility should be directed to learn how they function and the benefits and pitfalls.  For me that job falls to EFFP, who are best equipped to establish and constitute PO’s.

 

There are calls from within the NFU Dairy Board for the union to set up a national dairy farmer database to help co-ordinate PO’s.  Well I know a man who already has such a database, which is always up to date and could potentially be put to good use: me. For the record I’m happy to help, but state now I won’t run one.  I am also not convinced the ability to form a PO (which has a legal right to negotiate up to 33% of the entire UK milk production, remember) will be a silver bullet.  In fact at the moment I can only really see one PO, on the radar.

 

That’s a PO for the 3,000 (1 in 4) GB producers on retailer-aligned contracts, which I would like to see kick-started by Tesco (TSDG) farmers. A PO will not be a panacea, but it will facilitate producer collaboration, help balance farmers’ negotiating power, put them on a more even, competitive footing and could prove to be a benefit to the likes of the retailers themselves. But let’s be clear: PO’s must be driven by farmers and that brings me back once again to your current producer representatives. Self-interest must not dominate decisions. What is right for the producers they represent HAS to be the objective. I hope I am wrong in my belief that one or two farmers who sit on the TSDG farmer representative committee are likely to block the formation of a PO, perhaps fearing their position, salaries and bonuses.  Time for our so-called leaders to be brave to demonstrate they want to make a difference and ensure retailer-aligned farmers are early adopters. They should take the lead and be a voice for those who feel they have no voice. Fingers crossed Tesco and other retailers will support the PO idea. It can be argued that a PO will be a threat and an opportunity, and if one or more are formed my plea is that they are professionally run with qualified negotiators doing the negotiations.

 

Recent news highlights where a PO could have had influence. DC, Arla and Wiseman have been knocking seven bells out of each other to secure extra volume from the retailers, and recently DC lost 50 million litres of Tesco business. For DC it certainly was not a case of a dedicated supply, as Tesco, in the end, were in no way dedicated to its suppliers.

 

First Tesco informed me they intended to retain the farmers by transferring them to Arla. Er, whoops  - that was not contractually possible as they are DC’s farmers not Tesco’s. Second Tesco told me they would give six months contract termination notice to the DC Tesco farmers, and pay them compensation for any shortfall. Then someone at Tesco had a look at the contract and figured out option 3 - that if the DC’s Tesco volume allocation was reduced to zero from 16th July the farmers were still TSDG members but, because no milk was going to Tesco, there was no requirement to pay any compensation.

 

The bottom line is Tesco took the decision to dump DC’s liquid contract without any consideration for the 25 farmers. It is my belief if a proper PO had been operating Tesco could have negotiated to switch the producers to Arla or Wiseman, and would not have had to resort to worming their way out of paying compensation.

 

At the Dairy UK dinner Jim Paice did not hold back in expressing how disappointed he was not to be in a position to announce more progress on the voluntary code of practice.  As it was all he could do was to inform the audience that it needed a final push with a long-stop target for an announcement of the final compromise deal at the NEC Dairy Event in September.

 

Paice clearly wants the code agreed and has minimal appetite to intervene with legislation. I have previously criticised DC for what I term a series of gaffs. Well I am pleased to say when it comes to the voluntary code DC have been on the front-line agreeing significant concessions and trying very hard to make a deal.

 

One of the hurdles appears to be that for the code to work all Dairy UK processor members need to adopt it, hopefully followed by other non member processors. Arla are currently unwilling to concede on anything less than a 12-month notice period, and there lies a major blockage to progress. Time for a good negotiator to step in and persuade Arla to join the party, I say!

 

Finally (and please don’t shoot the messenger) - by the time you read this article I fear a number of 1st August milk price cuts will be on the cards. Given the fact all intelligence points towards commodity prices having bottomed and starting to turn up it’s likely the price drops will be the last of the year, and hopefully soon will be followed by at least one price increase. That’s where I am nervous because knowing August or September could be the last chance for processors to try to justify price cuts, the word is one or two will seize the opportunity and cut deeper than necessary. I do not subscribe to the view when it comes to farmgate milk pricing the market operates normally but I do live in hope that one day at least one purchaser will take the lead and be more open, honest and transparent. Roll on the voluntary code and a new way of doing business.

 

Comment to

 

IP June 2012 DF

 

This year’s Annual Dairy Industry Newsletter conference posed the question “Is dairy recession proof?”. A more apt title, said one acidic farmer on hearing how quickly his cheese buyer had followed DC with a nice round 2ppl price drop, would be: “Is dairy collusion proof?”

 

The volume of milk now being sold through the big supermarkets enables them to squeeze the processors hard, because with that volume it becomes an imperative part of those processors’ business to ensure that they do not lose those major customers – at all costs it would seem (which is paid for by the farmers). The only thing the processors can do is squeeze the dairy farmer, and the only thing the farmers have left to squeeze is the cow’s tits.

 

How long will the low prices continue for? Well quite a while, said David Dobbin, the boss of United Dairy Farmers, at the conference. Until next year, probably. Chinese demand has been a key factor in the rising world dairy commodity prices in recent years, and while oversupply has crashed prices it is a fact that in the long-term China’s potential is the largest cog for what looks to be an existing future in world dairying. We need them to start buying even more than it does now! Just look at the numbers - the population of China is 1.35 billion people, which is almost double that of the EU 27 population and more than four times the population of the mighty USA.

 

Worldwide the increased global production is resulting in stocks mounting. Domestically the result is all our UK processing being at 100% capacity, and we have ended-up with distressed milk delivered across the water for less than 20ppl. For the future I do worry where the phenomenal amount of milk from low cost producers in Southern Ireland, and who are already gearing-up for life post quotas, will be sold. This was another point from the conference, and it will have a significant impact on our ex-farm gate milk prices, without a doubt.

 

Between now and 2015 the industry will have to respond, and positively. At the DIN conference Kate Allum said this year would be one of major change in the industry. Well there’s only six months left so if she’s right something has to happen soon! Let’s hope the strong businesses will get stronger (for the farmers) and the weak won’t try and pass-on the pain to the farmers through the milk price.

 

Currently Arla Foods UK is seemingly on the up, but Dairy Crest isn’t. Arla has reported sales for 2011 up 7% to £1,587.2m, just 1.1% less than Dairy Crest. However operating profit was down 14% to £31.4m, and operating margin was down from 2.5% to 2.0%. However the company paid a record dividend to its Danish parent of £97.4m during the year. It’s a shame Arla’s UK farmers don’t get a share of the profits like Milk Link’s farmers did, but hopefully they will do one day. Next year Arla is likely to become the biggest dairy company in the UK after DC completes its current divestment programme.

 

Last month I said that DC was definitely the worry - especially its liquids division – and those comments were timely and appropriate. The company gave farmers a brutally short notice period for the 2ppl price cut, and instantly there were strong rumours that it was the first cut of at least two - with another planned soon. Was it coincidence that DC announced the 2p drop so close to the end of the month, making it nearly impossible for farmers to arrange another buyer, and to give notice (which they have to do before the end of each month)? This meant DC had its producers “cornered” for another 13 months. Despite that observation from a furious farmer the short timescale didn't present a hurdle to dozens of farmers who did actually submit their notice to DC, however. Their reaction to the price drop was huge.

 

No doubt DC, or whoever has its liquid business within the next 12 months, will be planning to charm and cuddle up to the resigning producers with a view to sweet-talking them into rescinding their resignation.

 

Some farmers, though, are wondering if DC’s kamikaze price moves might be a bit more strategic than it would appear. For example, they question whether it is deliberately trying to lose producers to make its liquids business easier to sell, and also speculate if it is working with a potential purchaser who will pick-up producers who leave the company. Clearly DC is currently in knots, but equally obvious is that it has a plan to untangle itself for the future. Whatever we might think we shouldn’t underestimate it. The two main questions, to me, are whether DC shrinks, or shrinks, smartens-up and sells-up. For what it’s worth my money is on the latter. It is being restructured into a fundamentally different business, especially if it concludes the side of its very profitable St Hubert business. Certainly there’s lots of speculation around at the moment concerning the major companies, some or all of whom could be involved in major moves in 2012.

 

One thing is for certain, with DC having given producers only four days notice of the price cut and Lanchester Dairies trumping it with a backdated 2ppl price cut these two companies have done more to ensure either a voluntary code and contract change will be agreed and implemented than the NFU has done in years of banging their drum. The message to Jim Paice and the devolved Governments is simple: push through change and a meaningful code, or sharpen your teeth in other ways. Such short or negative notice periods have set relations with producers back at last five years, farmer confidence has been shattered and investment and growth plans wrecked over-night. Some producers have thrown in the towel already. I hope those in this camp do not feel they have failed and enjoy, and thrive, on their change of direction.

 

I’ll finish, though, with some good news. Contrast the above with the situation of Sainsbury’s producers. At the same time as the price cuts were announced the retailer declared it would be paying a cost of production price of 30.3p to its 324 farmers supplied through DC and Wiseman. This cost of production model, prepared by Kite, is a genuine effort by Sainsburys to assist their farmers through these very volatile periods. The model is fair, uses transparent, publically available data, and is great news for those farmers. Some years they will be the winners on the scheme, other years Sainsbury will, but overall it will balance out. It is a shining example of best pricing practice in the industry, and long-may it carry on and succeed. Hopefully the model can be mirrored by others going forward. Quickly.

 

You can email any comments to me at

 

IP May 2012 DF

 

Some farmers never cease to amaze me about the business acumen (or lack of it) they have when deciding where to sell their milk.  One particular example which caught my eye recently was the case of one of the 84 dairy farmers who were caught in the collapse of Farmright.

 

Having worked hard and to wake-up and find you have delivered up to eight weeks of milk for absolutely no return is sobering. It should make everyone scrutinize their milk purchaser/processor for “longevity” and to assess them for being a financially sound business, and the degree to which they are re-investing in their facilities on a regular basis, as opposed to sticking plasters on problems.

 

But low and behold in the case of our highlighted farmer he informed a potential new secure well-invested milk purchaser he would not be signing with them because he could get the grand sum of an extra 0.1ppl elsewhere.

 

So on 1 million litres that’s £1,000 gain per annum, and the difference between a safe haven or a risky home.  If a ppl gain is your only reason for selecting a buyer then you have a problem, given it will take any farmer years if not decades to make up the tens of thousands of pounds of losses from a buyer’s collapse.  However, perhaps I should give this farmer the benefit of the doubt on the basis he was under the impression he could negotiate a “special deal” with the ‘secure’ milk buyer who would cuddle-up, massage his ego and throw money at him to secure his milk supplies. It has worked for some with one or two buyers, but not for this farmer, and all we can hope is the new buyer is safe and secure.

 

Milk pricing is in the middle of a storm. The latest GDT auction was down nearly 10%. Full marks to Arla and Wiseman - both of whom have near enough confirmed they will not change their farmgate milk price in May. Both are taking a robust bottom-up approach to extract more money from the market place to offset increases in fuel and plastics, as well as the dramatic fall in cream values. But will these increases fix the problem?

 

The problem for some is that they have knocked seven bells out of each other in a battle to secure additional volume. In doing so they are operating on very thin, non-existent or negative margins.  It’s OK if you want to be the low cost Ryanair of the dairy industry but it’s no good if you get caught swimming with no trunks on when the tide goes out, as is the case at the moment. Some processors, in particular some who are heavily involved in the middle ground liquid market, are hurting big time.

 

The problem is if one of the big five milk buyers drops its farmer price others are almost certain to follow. Retail customers will say “I’ll have some of that, thank you” and will instantly be holding their collection tin out the next day claiming around a third of any saving. So for a 1p drop it will be an estimated 0.35ppl passed to retailers leaving 0.65ppl to cover extra processors costs.

 

Arla and Wiseman appear to be determined to hold out and not to be the front-runners with any attack on farmers. It’s going to be a rocky ride and we will all have to hang together to face up to the challenges. Dairy Crest is definitely the worry at the moment. Its liquid division is clearly in a muddle. It currently makes no money, and the loss of the Tesco business is a blow. It’s true 3% may not seem much but it was an achievement to get its toe through the door in the first place.  Closing two plants comes as no surprise really given that something has to be done to restore its business to profit if it is to keep the division.

 

The problem that Europe and indeed the world has is that collectively we are increasing milk production quickly at a time of lacklustre demand and a build-up of surpluses. There’s a perfect storm brewing of falling commodity markets (butter mainly) and rising costs. If cream drops much further it will be at the level triggering EU intervention buying, at which point we need to sell 40,000 tonnes plus as soon as possible to bring things more into balance. But the more product that goes into store now, the longer the delay for the upturn.

 

Now for a brief word on the latest investigation to cross my radar, which I briefly explored about four years ago. It concerns the calibration of flow meters on tankers which one team of trading standards officers is apparently looking into on the basis some farmers might be delivering more (or possibly less) milk than they are being paid for. Watch this space, and if you have any comments or information please let me know.

 

The appetite from the media for negative ‘large dairy’ and ‘zero grazing’ stories seems to have no end, and even our own early morning Radio 4 farming programme has jumped on the bandwagon.

 

Communicating the huge technological advances and variation in production systems is a big issue for the industry to get to grips with, and dairy farming is starting from a position of having been badly let down by previous industry communication attempts.

 

With Nocton no one informed or tackled the policy makers and MP’s – a job I believe the NFU should have taken the lead on. Instead Non Government Organisations got away with ignoring the facts.  I have seen no evidence confirming welfare declines as herds gets larger. Good communication is a task which requires commitment and will require all dairy farmers, no matter what their preferred production model is, to pull in the same direction. The clock is ticking and we need one common message from the dairy industry. Dairy Co has made a start and we need to build on that. We must explain to the public there is room for many dairy farming systems, but each has its own merits and all employ the highest level of stockmanship and animal welfare standards.

 

Finally on May 9-10 I will be in London for the Annual DIN Conference.  I will be keen to hear the speakers discussing the theme of “Is Dairy Recession Proof?”.  Next month I’ll give my take on their thoughts, in particular on whether the recent weakening of dairy commodity returns will do a U turn or whether it will take us back to the 2009 levels where they are currently heading!

 

You can email any comments to me at

 

IP April 2012 DF

Commodity market prices continue to soften. However, this is against very low EU and international stocks.  Against that milk supplies are increasing across Europe, and there has been significant weakening in EU and world commodity returns since December.  In addition cream prices have fallen from their peak of £1.80 in June 2011 to a mid March price of £1.15 per kg, down 36%. All of this is exerting unwelcome downward pressure on our markets.

 

There is still no justification for an overly-depressed outlook on milk prices (and significant cuts), but there are bound to be plans afoot in some quarters I’d have thought for a price “correction” from 1st May. I hope if it materializes it will be minimal. 

 

Dairy farmers who can’t make a turn at these current prices are likely to struggle on until the replacement for Entitlements and the Single Farm Payment (Basic Area Scheme) is confirmed and fully tradable (expected to be in 2016). If, at that time, they are unable to receive a stable realistic return of Cost of Production + Margin then I can see a significant exodus, and consequent reduction in production.  There is little, if any, room for a reduction in farm gate prices because such a move would seriously reduce (if not eliminate) profitability. It’s a crucial junction and I worry about the long-term consequences of any major cut.  Having said that, for producers who supply milk for commodity markets a price drop is the equivalent of a train coming towards you.  You know it’s coming… it might look a way off (for now)… but when it does arrive it’s still a shock! Remember Kite Consulting has calculated a break-even milk price of 29.33p, and the Sainsbury’ figure is 30.3p - both of which are higher than the average farm gate milk price.Note the difference in the two figures is down to the additional cost for Sainsburys farmers to provide a near level supply.

 

Couple these facts with the demise of milk quota in less than three years time and the anticipated dramatic increase in production by some member states and the combination will certainly prove to be a challenge. All dairy farmers will have to hang together. Fortunately the long-term fundamentals for dairy products are very good.

 

Meanwhile farmers are playing the power card in increasing numbers. Resignations from dissatisfied milk producers are plentiful, and without doubt some of the big hitters are scratching their heads.

 

Dairy Crest continues with its fascinatingly unique milk procurement policy, where it signs-up large producers with around 3 million litres plus on its Farm Business (Special Deal) contract, also known as “Milk Suppliers Contract”. This is accompanied by a five-page confidentiality agreement, which is the Dairy Crest equivalent of the Official Secrets Act.  Several of the ones I have seen have guaranteed prices for the first six months, and most have been for a price of 30p or more, and have been offered to new suppliers and selected Dairy Crest Direct producers who threaten to tender their resignation.  It is certainly an interesting deviation from the level playing field approach that has been the case with their long-standing and loyal DCD suppliers!

 

Then there is Arla, who’s handling (mis-handling) of its so-called 4p/litre producer “investment” has resulted in unprecedented resignations, which now exceeds 100 million litres from farmers who have simply had enough. It’s a serious issue for the firm, which has resulted in its AFMP board members personally visiting the revolting farmers in an attempt to get them to rescind their resignations.

 

When a firm is building a new factory the last thing it wants is member defection and unrest.  While recent difficulties encountered by some middle ground farmer suppliers have highlighted the need to find a safe and secure house for your milk, but that has still not resulted in a rush of farmers wanting to join Arla.  Hence the new 1 billion litre Aylesbury factory is, I believe, short of at least 150 million litres. Add to this the 100 million plus currently under resignation and the 250 million total represents an eye-watering 25% shortfall. It’s a hole which has to be plugged to ensure the factory runs efficiently.

 

There are, to my mind, two solutions – one to arrest the stream of resigning producers with a combination of a market leading milk price and better investment prospects e.g. full membership of Arla or a return on producers’ investment and two to quickly team-up with someone else or buy an existing large operation to fill the shortfall. If DC, Arla or others want to retain existing suppliers the advice has to be to try and weather this commodity price storm and, where possible, maintain farm gate prices at current levels and to rectify any profit shortfalls by other means.  Shiny stainless steel processing is worth nothing without milk.

 

As I stated in this article only a few months ago 2012 will be a pivotal year for a significant number of producers, and the Wiseman-Muller deal was the tip of the iceberg.  The main question for me is not so much as who might team-up with who, but who might be next to bale-out and go under. Fingers crossed two milk purchaser collapses in two months is our full quota for 2012.

 

On the matter of the unfortunate producers who have been caught up in the collapse of Farmright and Rock Farm Dairy Limited I wonder what benefit they derived from the latest DairyCo levy payer funded report: “Is your milk buyer moving in the right direction?” Once again this report focused on the big seven “top of the premiership” milk processors which covers the lion’s share of dairy farmers’ milk processors but neglects entirely those buyers in the championship or division 1 equivalents. Time to look at all buyers, I think.

 

Finally, I cannot resist commenting on the milk quota cobblers printed every week by Farmers Weekly in conjunction with The Dairy Group.

 

For at least the past two quota years they have published weekly milk quota leasing prices under the final “Prices and Trends” prices, recently with lease values of 0.07ppl (£700 for 1 million litres) and quoting previous weeks, four weeks ago and one year ago price comparisons. If anyone still looks at these then don’t, they’re total rubbish and here’s why.  Between April 2010 and March 2012 only 11 lease transfers were submitted to the RPA and, of those, this year there have only been two.  Add to that the fact we are responsible for the lion’s share of all milk quota transfers submitted to the RPA and divulge no prices to anyone it means in the past two years the lease prices quoted are for a maximum of six deals.  Time to stop reporting on a non-existent market, me thinks.

 

Comment to

 

IP March 2012 DF

 

This year’s NFU Conference title was Meeting the Challenge, and there certainly are some big ones to tackle! The move to the ICC at Birmingham was inspired, and  is best summed-up as one similar to the decision made by the RABDF to relocate the Dairy Event to the NEC. There can be no going back for the NFU, who saw around 1100 enthusiastic delegates enjoy their conference in identical surroundings to those enjoyed by the main political parties.  

 

Two key industry challenges were given a good hearing - namely bovine TB (inevitably) and CAP reform.

 

President Peter Kendall described TB as the biggest agricultural issue on the domestic scene.

Delegates entering  the conference  on the first day were greeted by around 50 demonstrators who would best be described as very low key and almost sleepy holding placards stating “No” to the Badger cull and “No” to a repeal of the hunting ban. All looked pretty well fed, mind. Their protests don’t extend to boycotting food!

 

Kendall emphasised how important it was for all livestock farmers to do some local PR on TB, informing the public what the badger cull trial was all about and TB’s impact on farming. He made a plea not to leave the PR to NFU Office holders, and for all to do their bit. 

 

All present, including Government, were unanimous in their opinion that if the pilot cull was successful it would take the TB battle to the next stage, but it would be many years before results are seen – perhaps 20 years. Most also agreed that the only real long-term solution to eradication is a vaccine, but that’s several years away still.

 

Minister Jim Paice commented that TB, and the decision to cull, was one of the toughest challenges facing Government. His message was that culling badgers is not the solution to eradicating TB, it is simply one tool in the toolbox. He then issued a warning that "any wrong step by anyone could jeopardise the whole process". In other words if one farmer does something stupid the consequences  are likely to be that the pilots will be axed and not rolled out to other areas. Any activity that damages the industry’s reputation will be seized on by the antis. 

 

I’ll comment on the other big topic in the Industry aired at the Conference at a later date - namely CAP reform. However it’s worth mentioning now that there is a long way to go with the proposals. At least Dacion Ciolos, as EU Commissioner, has stated publically that they will not “penalise champions”, which was taken to recognise the fact that when it comes to agri-environment schemes Britain is ahead of the other member states. However Peter Kendall was quick to point out that UK farmers are effectively penalised today, being the only member state with voluntary modulation. This has to be scrapped in order to put us on a level playing field with the other 26 states. It’s a real the challenge for our Minister to deal with in her negotiations.

 

Following last year’s “Blamefest” Dairy Breakout fiasco I am delighted to say that this year’s session saw a seismic turnaround from that demoralised, destabalised victim talk into one with positive signs of cautious optimism. 

 

Two people on the NFU's Dairy Board questioned why we (i.e the UK Dairy Industry and The NFU) did not have a strategy and plan for the Industry post 2015. The Irish have one, and it’s a certainty that Muller and Arla have their own ones. Jim Paice’s response was not that we shouldn’t have a plan, but that we certainly don't want a Government run one. It reminds me of what Kate Allum stated at this year’s Semex Conference: "The UK Dairy Industry is fiddling and faffing about at the edges and we need to think differently,” she said.  Incidentally Jim Paice did comment that he thought our two main GB milk co-ops had come of age and were "both led by extraordinary people". It was great to hear people at the very top have such confidence in them.

 

So step up to the plate the men and women who want to sort out a long term UK Dairy Industry plan. (Or was that the idea of Dairy 2020? We’ve heard very little about it for a while and I’ve never ever been briefed!). Step aside those who are only around to milk the industry and sup tea. It’s time for all parts of the Industry to work together, and the NFU will need to take a lead on this. Arguing amongst ourselves is not the solution, in fact it’s one of the main problems. This was a point highlighted by Jim Paice, which prompted a round of applause after his comment that liquid processors in GB have been squabbling over who battles for a particular supermarket’s business, and, in doing so, have failed to focus on other markets.

 

The Commission’s Dairy package was also debated, in particular the fact that regulated contracts would not be adopted in the UK. Instead Government has opted for a voluntary code of conduct. Paice is right that regulated milk contracts would be a case of farmers picking and choosing when they want regulation, which was clearly referring to the fact that only a few hours earlier a press release from Government had adopted over 150 recommendations of the MacDonald report agreeing to slash red tape. The next move must surely be for NFU and NFUS to take the lead and to set about pulling together existing farmer representatives into formal Producer Organisations, along the lines I suggested last month, and starting with Retailer aligned groups. Little mention of this unique opportunity was made at the break-out, but someone will have to grab the opportunity and make it happen.

 

By the time you read this article there will be less than 20 days to the 31st March quota deadline. Remember, if you have quota and have not milked against any of it since 1st April 2011 you have to dispose of it or face having it confiscated. Last year 339 farmers had 123 million litres of milk quota confiscated, worth around £250,000. It might not be worth much, but if you allow the RPA to confiscate it you will get nothing for it and for most producers it will pay for a very good weekend away with the wife (or someone else!)

 

As we approach the spring milk price negotiations I am going to make a prediction (which, in reality, is a calculated guess)

.

I reckon Tesco and the others who operate cost of production models will at least stand-on with prices, and could (at a push, maybe) even stretch to paying a shade more. Such a move would be a great boost for farmer confidence, however the story might not be so rosy for some other farmers supplying liquid dairies. It’s a fact some of them are hell-bent on dropping prices as soon as they can, presumably using cream and/or AMPE prices as their main excuses. It will be interesting to see how this plays out, and who dares to move in that direction first. I may be slightly biased, but as I write I can see little justification for prices coming down, although I admit commodities have fallen. Muller were more stupid than bold, and have lost significant amounts of milk as a result of their price cut. Others will suffer the same fate if they drop prices.

 

Finally a short reference to the demise of Farmright, especially the estimated £4million plus of hard earned money from farmers that they are unlikely to see again. It brings home the fact that security of supply and the financial security of the buyer are fundamental, and several farmers had better do some homework on their milk buyers PDQ. The big question is whose bankruptcy will be next? For sure there will be more.

 

Comments to

 

IP  February 2012 DF

 

Well I was nearly right, last month. I predicted major processor mergers and rationalisation, and that three liquid milk processors might become two.  Right on the first bit, wrong on the second. The recent takeover of Wiseman by Muller came as a complete surprise - not that Wiseman sold, but who the buyer was – but this deal does not give the industry the liquid processing sector the consolidation it needs. It will be interesting to see how Muller gets on in the fiercely competitive UK liquid milk world.

 

Muller is certainly in the spotlight over prices, being the only purchaser to trigger a 2012 price drop, of 0.5ppl from 1st February. But why? Because it is under pressure to improve margins (mainly due to competition from NOM) and can’t improve them via retailers.

 

The bit that really got me was the cheek that the company had to state in their letter to farmers that the cut was due to “softening commodity prices and recent falls in the AMPE index.” How come the NFU, Muller farmer groups and others allowed it to get away with such an outrageous statement?  Muller did NOT track AMPE when the price was rising, so why the heck should it track it, and blame it, on the way down? Muller was the last milk buyer to implement a price cut in 2010 and is the first to do so in 2012. Some record. I hope it isn’t a wealth warning for Wiseman’s farmers.

                                                                                             

Muller will only fool some of the people some of the time with such statements. The real influencer on most GB farm gate milk prices is NOT what happens on international markets but the price supermarkets are willing to pay.  Retail buyers are paid big bonuses to keep prices down, and they appear to be succeeding.

 

This year’s excellent Semex Conference confirmed my belief that the day of the co-ops is dawning. Several large-scale dairy farmers have recently concluded their direct supply contract with their processor and/or a major retailer is the equivalent of a one night stand with an ugly sister, rather than being a long-term relationship with Cinderella.

 

Suddenly value is being seen in these businesses, as farmers seek to capture any value added post the farm gate, rather than let the benefit be exported out of the UK. The dam is leaking, and could soon burst as farmers once wedded to direct supply contracts decide their long term future is best served by being co-op members, taking out the middle man and profiting from as much of the supply chain as possible.

 

Mention a UK dairy co-op and the vast majority of GB dairy farmers only think of First Milk, Milk Link and (for some) the bitter experience of the chronically mis-managed DFOB. However, the most successful UK co-op post de-regulation has been United Dairy Farmers of Northern Ireland (which was allowed to keep its processing business at deregulation, unlike our co-ops.) UDF is also processing milk in England and Scotland, and is currently seeking direct supply contracts for an additional 50 million litres for their Cumbrian and Dumfries & Galloway factories.

 

The recruitment is sure to appeal to the numerous farmers in this area who have already served notice on their milk purchaser, and have no shortage of buyers looking for recruits. United has a 0.25ppl levy payment applied to the first five years deliveries , which buys a proper share holding and it has no plans to ask farmers for more. If you want to leave you can redeem your shares immediately and most years you receive bonus shares. It’s a simple system and their CEO David Dobbin CBE has been in charge of the co-op for 11 years now. He’s one of the industry’s best - a Sir Alex Ferguson of dairying. Milk Link’s Neil Kennedy is also highly rated too, which means our top three co-ops have top class managers.

 

It takes strong individual leadership to pull a co-op or any business out of a near crisis, and the early signs are that First Milk’s duo of Kate Allum and Bill Mustoe are on the right track.  At the Semex Conference Kate Allum said her company are looking beyond this island and exporting milk products and, in doing so, are shorting the domestic market and probably (by default) increasing the cost of the milk they use in their cheese plants. Their members’ future is to move away from battling with retailers on price. Other co-ops are doing the same.

 

Kate openly questioned whether the industry had a plan for the UK post quotas (2015). Her question was met with a deafening silence. She said we were not going to wake up one morning and find every dairy company in the world had screwed up. “The UK is behind other countries (particularly Southern Ireland) and they will not simply stand to one side for us.” What she effectively meant was some industry leaders simply state there’s a crisis, trumpet their passion for the industry, but don’t come-up with a plan or strategy to resolve it. If she was truly blunt she would have said the industry lacks leadership, and the ability to state the raw truth and find solutions.

 

That brings me neatly onto the NFU’s and their various Conferences/AGM’s. I will be crossing the border to join the Bravehearts of NFUS at their AGM soon. NFUS is run from a single floor in a building close to Glasgow airport and few staff, but the ones it has appear to be very effective and punch well above their weight. The NFU, meanwhile, has a huge brand new fancy office in Stoneleigh.

 

Following that we have the NFU (E&W) conference, where potential candidates appear to back off competing for the top job. The NFU has faced similar leadership problems before, when potential candidates have climbed the leadership ladder only for them to stop short of the top rung.  It has usually sorted itself out with someone parachuting in at the last minute, however.  But I have an alternative solution - why not merge and consolidate both NFU’s and let us have some of that Scottish drive and openness intravenously injected into England & Wales! I can hear the old farts and Scottish Independents groaning and resisting already, but at least it might deliver people who want to lead down here.

 

Finally, the recent milk purchaser trend to jack up milk quality standards on bactoscan and cell counts is an issue which concerns me. Numerous farmers have seen new targets introduced almost overnight and I do wonder whether milk processors and major retailers appreciate what steps farmers are taking in order to achieve the top bands, and to qualify for any bonuses.

 

If a dairy farmer wants to cut cell counts quickly he will normally cull all high cell count cows. But I have also heard of another tactic, which I don’t intend to write about now… suffice it to say that I know of farmers doing something, which they shouldn’t be doing. It doesn’t harm the cows (it is nothing to do with them)… but I can’t see the practice doing the industry’s reputation any good if the practice was widespread. That said, I do understand how far processors and retailers are pressuring their farmers to hit their targets. I will keep my ears open on this. If you hear of it you’ll immediately know what it is too, so please contact me and let me know what you come across.

 

You can email me at

 

IP January 2012 DF

This year’s EFFP Annual conference, entitled “Volatile Landscape”, was attended by 349 of the great and good in our industry (plus me) and the concluding message was clear: we no longer have any world food mountains or milk lakes, and for many food is quickly becoming a challenge to afford.

 

Also discussed was the extraordinary punching power of the NGO’s and the multitude of pressure groups we now have who challenge farming on almost every front. This was compared to an almost “embarrassing deathly silence” from their farming counterparts, who struggle to educate and inform the public on a range of issues.

 

So far as the dairy industry is concerned, in most cases we miserably fail to dispel the myths and get on the front foot with our PR and our positive stories. Instead we either hide in the hope the issue vanishes, or mount a last minute defence attack with a very complicated message which often confuses the public. As Farmers Weekly editor Jane King commented “we seem to have lots of talking shops with no action.” How true this is - particularly in England and Wales.

 

The conference was told that farmers need to “up their game” in order to feed an extra 80 million people a year in addition to a Far Eastern population who are quickly transferring from a diet of rice to meat. The global pressure to feed this increasing population was referred to as a “Nutritional Revolution” by one speaker.  In terms of dairying, China is still the biggest cog driving the success of world dairying. The Chinese population of 1.3billion may not have the money today to buy fresh dairy products but they certainly are a very exciting long-term opportunity.

 

Whilst NIMBYS and Middle England do-gooders (supposedly) fret about plans for a 2,500 breeding sow unit less than 10 miles from my offices, China is planning to build a single 600,000 breeding sow unit. Uk Agriculture will have to pull together to do things differently and adopt new technologies. As was stated in the conference summary “The old assumptions as to how we do business do not apply”. It’s a fact that without change no living systems can survive. And remember, unlike pessimists, optimists are not afraid of change.

 

So what’s in store for our GB dairy industry in 2012 according to Potters builder’s tea leaves? Well some of my money is on major processor rationalisation and with a good wind 2012 could see the first vestiges of our largest three GB liquid milk processors concentrated to two businesses – driven largely by Arla’s new Aylesbury plant. Hopefully other takeovers and mergers will happen. When / if three become two perhaps there will be less aggression to gain market share, where, throughout 2010/2011, all three have fought like gladiators to win volume and retailers have simply sat back and said, basically, “thanks lads we will have a slice of that cake”. It cannot carry on. In addition I genuinely feel GB milk Co-ops will become more fashionable because it’s slowly dawning on most switched on dairy farmers that with good management and implementation of the right business model they will be increasingly successful. Non Co-Op minded (direct supply) farmers are increasingly starting to see the personal value in the Co-ops. It’s not been an easy birth but I sense they now have a golden opportunity.

 

If I were the UK’s Dairy fairy with my magic wand (and not the unleashed Rottweiler) I would also like to see the formation of an Association of retailer aligned producers so the 25% (1 in 4) of the GB aligned farmers join forces for discussion, representation and (who knows) negotiation purposes.

Under the new proposal from the European Commission such producer groups will be subject to EU (not UK) competition law. The new regulation will allow dairy farmers to form a group to account for up to 33% of total national milk production, which, for the UK, is around 4.5billion litres. With that quantity and the right negotiator it should be easier to collectively negotiate the right contract and milk price. Producers will be able to collectively negotiate with both the supermarkets and their processors. Only then will some normality in the balance of power kick-in, and the never ending domino effect of retailers squeezing processors, followed by processors squeezing farmers (leaving dairy farmers with only the cows tits to squeeze even harder) might stop or reverse. The only major hurdle I can see which would prevent this happening will be existing representatives who have their own personal agendas and positions at the forefront of any decisions as opposed to what is best for the collected benefit of the farmers they claim to represent.  We must not let their personal interests miss this opportunity.

 

I hope if / when such a Producer Organisation is formed the farmers will employ a professional negotiator with the skills and experience to negotiate.

 

I am afraid if the squeeze and price war which the supermarkets thrive on continues they will succeed in  permanently shrinking and shafting the UK dairy industry. I still cannot understand why numerous people in this industry still believe the retailer aligned liquid contracts are the dogs whatsits when I and many believe they are restricting all milk prices.

 

UK production next year, in my opinion, is unlikely to rise significantly. Cull cows are selling for almost record prices and farmers will offload them rather than feed them to produce marginal litres for an unreasonable return. Retailers have been given advance warning that they need to exercise extreme care over the Spring pricing signals they send down the chain.

 

GB ex farmgate milk prices are determined more by processor competition than the World and EU dairy commodity prices and Dairy Co data confirms that retailers are making far more profit from liquid milk and cheese than the farmers or their processors.

 

There is a secret ceiling/cap on the maximum price a dairy farmer can receive for his milk and it’s controlled by our much loved retailers. If one of big retailers sneezes in March you will all catch a cold.

 

Meanwhile I will continue to  voice my observations for the thousands of UK dairy farmers who feel they have no voice – unless they tell me to shut up shop. Be warned it’s inevitable I will tread on more teats as I rattle more cages. I don’t have all the answers but I do have a big stick with which I am not afraid to poke a few tigers! If anyone wants to help me counter some of the crazy proposals and the unexposed truths behind this industry then you know where I am!

 

Comments and additional ideas please to

 

IP December 2011 DF

 

The half year results from Dairy Crest (DC) and Wisemans confirm what we suspected, that GB liquid processors have had to pay farmers more at the same time as receiving considerably less from retailers (and, seemingly, supplying milk at prices so low in the middle ground it can practically be given away.) 

 

Given DC’s awful results I question where they intend to go with their liquid business, remembering it accounts for two thirds of its volume and returned a pitiful 0.2% margin (excluding property). And I’m questioning it even more now Arla’s new plant at Aylesbury has got the go ahead.

 

Back in September I was given a copy of a DC presentation to analysts where the firm gave an insight as to how they view the future under a heading of “full of bright ideas.” One thing hit me: out of 74 DC slides only one mentioned liquid milk as an innovation priority, with the remaining 73 slides focussed on driving DC’s brands. The rest concentrated on DC’s cheese and Friji brands.

 

The first slide was headed “An interesting year for the UK dairy sector.”  I can’t help but feel 2012 will be an even more interesting one for our three big liquid processors, and wonder what state they will be in by the end.

 

Accordingly, there is an extremely worrying whisper doing the rounds among retailers and processors, and it boils down to the fact that irrespective of world or EU commodity prices the game plan from some companies is to soften farmers up for a New-Year price drop. To my surprise one publication recently commented on Wisemans and DC’s results stating “most analysts believe farm gate milk prices will come down in the New Year, giving the dairies (processors) some welcome respite.”

Well  I have to respond to that!  Is it only NFU Scotland who can see this industry going down the plug hole?  All NFUS wants is a fair, transparent market-related price paid to farmers. If retailers / processors succeed in a move to reduce farm gate milk prices the improving commodity returns will partly bypass farmers, who will miss out on receiving a fair percentage of the gains in their pockets. Instead the extra money will end up going to retailers to fund price wars on liquid milk, which were kick started by ASDA and show no sign of ending.  Some retailers seem hell bent on doing whatever it takes to secure cheaper milk, with some farmers wondering if cost of production formulas might be a tool to do this. So just at a time when patient producers have waited long enough for the price time-lag to pass, and expect to break the 30ppl barrier early in 2012, the demons are out there plotting the opposite. Thank goodness the co-ops and cheese prices are there to bolster the market and reduce the risk. Fingers crossed that world powder and cheese prices continue to nudge upwards. The only reason people are talking prices down is to line their own pockets. There is no justification on predictions that commodity prices might fall, or that on farm costs have eased. This talk needs heading off at the pass and retailers had better get a grip and ensure sustainable realistic prices are paid to farmers and processors next year.  If they don’t we will see the GB industry follow in the same direction as the UK pig industry – down. A family farm producing one million litres of milk should be able to make a reasonable living and re-invest.

 

Exactly one year ago I closed my pre-Christmas article with the following message “Let’s not let liquid processors get away with dropping your milk price to plug their profits gap.”  Twelve months on and the same message applies. And

woe betide Dairy Crest, especially, if they try to reduce prices with some of their Countrylife branded milk being sold in middle ground stores in Birmingham for the equivalent of just 6ppl.  Yes … 6ppl!! Come on DC, tell us: why is it nearly always your milk being discounted?

 

Now Arla. Arla suppliers are generally positive about what they see as an improved business under Ash Amirahmadi, who has worked his way to the top, knows right from wrong and has respect from all in the dairy chain.  But a lot aren’t happy about MPL (Milk Partnership Limited which is the jointly owned investment arm of Arla and Arla Foods Milk Partnership), and especially its annual accounts. The section on remuneration has particularly excited some of Arla’s farmers - one or two of whom have erupted, Vesuvius style, on the matter. 

 

The Chairman and Secretary of MPL is non-other than John “Teflon” Ovens who has received a £110,000 bonus this year, taking his grand total for the year for his part time job with AFMP and MPL to around £250,000, plus expenses.

 

Other bonuses for the year were as follows (Note figures in brackets denote the total received by each director for the year excluding expenses):  Wes Abbey £50,000 (£155,000), Wil Hosford £50,000 (£105,000), Fearnall, Haydn and Evans £25,000 each (£65,000 each) and Flether £25,000 (£62,500) on account of not joining the board until July 2010. The self-awarded MPL bonus payments are in connection with their negotiations with Arla in relation to the additional farmer investment. On a ppl equivalent, based on the amount of milk each of them delivers, the figures range from 43ppl (Teflon) down to 28ppl (Fearnall).

 

Several of those who contacted me claimed the bonuses are an own goal, and sadly for some they appear to be the final straw.  They are staring down the barrel of another 4ppl deduction and watching their board take what they see as more than just the cream off the tank. As one stated “the directors have negotiated a £58 million producer investment in Arla, where farmers receive no interest and may never see the money again.” The own goals as I see them are that the MPL bonuses were paid out before the deal was finalised, were not set by an independent remunerations panel/committee and were conveniently rounded figures with everyone getting a slice of the action irrespective of input.  It’s called fixed pre-agreed fees.

 

Remuneration packages have previously caused ill feeling, especially if they are not transparent, accountable and independent.  The AFMP/MPL board’s pay packages have understandably been compared to those of Wiseman, DCD, Milk Link & First Milk directors - with the result that if you add up all four of the farmer representatives/directors’ pay for those you will come nowhere near to the £767,500 the seven Arla directors bagged in one year.

 

One thing is certain Teflon and the directors have a lot of work to do on the communications front to sell their remuneration packages. MPL must have regard to normal acceptable commercial disciplines in order to gain the support and trust of all dairy farmer members. At the end of the day, though, one question will settle the issue: if they achieve a far better milk price than the others as a result of their efforts and skills then perhaps the awards will be justifiable! We will see.

 

Finally, I wish to publically set the record straight concerning my last article and the way some readers may have mis-interpreted my observations and comments.  When I referred to a ‘defiant’ Holstein UK Chairman I was not suggesting that his replacement as Chairman was connected to the teat sealing fiasco, or any rule change.  The word was used in a different context and I apologise if I may have inadvertently trodden on a few teats.

 

Finally finally, Merry Christmas to everyone and a prosperous New year. Retailers, processors and lunatic industry – destroying middle ground wheeler-dealers allowing, of course.

 

Comments and additional ideas please to

 

IP November 2011 DF

 

Last month’s article on teat sealing triggered by far the most responses I have ever received in 20 years of writing this article, even eclipsing those from the Dairy Farmers of Britain suicide bombers. And not one of the 82 comments received supported teat sealing.

 

Several readers comments were amusing. For example, two suggested sealing the appendages of offending exhibitors for the same length of time as the cows were sealed, while another suggested I was not normal if I didn’t have a penchant for, well, large you know whats.

 

Even the RABDF Chief Executive congratulated me on my article, despite being in the thick of the controversy. He promised that next year there will be no teat sealing at The Dairy Event, and that he and his organisation would not cave in to any bullies. 

 

The Association of the Show and Agricultural Organisations (ASAO) were also quick to react, and have written to all members supporting a complete ban on teat sealing. The ASAO commented that “we totally endorse any Breed Society in a move to eradicate this totally unacceptable form of malpractice.”

 

Since the last article, Holstein UK have seen their defiant chairman depart and have confirmed that its show rules will ban teat sealing from January 2012 (I am not clear why a delay is necessary, and why a ban can’t be introduced now, however).

 

The next event was The Bath & West Dairy Show in early October, which fully supported a non-teat sealing policy, having previously communicated rule 41 to all exhibitors. . .  only to find, on the day, one Jersey breeder potentially sealing teats.

 

After the cow had been judged The Jersey Society, commendably, approached The Dairy Show’s Steward, and The Chairman of UKJ placed the required £50 on the table to get a vet’s opinion. The result was confirmation that the cow’s teats had, indeed, been sealed and the breeder was disciplined and suspended from showing his own, or other people’s Jerseys, until 2013. The Jersey Society should be applauded for their actions. They send a very powerful signal to all society members that they are determined to stamp out any practice which compromises animal welfare, or has the potential to adversely affect the Industry. Other Societies should follow their example.

 

The next major event on the radar as surrounds sealing is AgriScot, with suggestions circulating that a small group of cattle breeders are minded to “bully” the stewards, judges and officials at the show (16th November) with a view to getting it to allow teat sealing. My message is simple - don’t do it. The breeders should compete fairly and squarely with good stockmanship; they should think about the cows, and uphold the good name of British dairying. There is no defence for employing intrusive practices just to win a rosette or financially gain from further sales of stock and/or semen.

 

So it looks like we will soon have a level playing field for all to exhibit their cattle in a welfare friendly acceptable manner with the new rule supported by the cattle vet association BCVA. The next move should be to make sure people selling cattle comply with the same rules to include auctioneers, photographers, semen companies etc. It’s now time for all of the organisations to step forward and confine these unsavourary practices to the history books. I look forward to receiving confirmation they have received the message loud and clear, and executed the change.

 

Teat sealing needs to be stamped out now. Failure to implement this simple, non-contentious rule will result in yet another dairy industry own-goal. Selfish, over-indulgent, cheating farmers and handlers who break the rule risk damaging the industry’s reputation. The Kennel Club (KC) is under attack for having no teeth and bowing to bullying from dog owners, having suspended random testing of dogs for banned substances like hairspray. It has been described as the canine equivalent of using performance enhancing substances.

Perhaps the agricultural shows need to consider random testing of cows too, with a name and shaming

policy adopted for shows, societies and exhibitors who do not support the ban.

 

Now to Tesco and what I feel are double standards.

 

Tesco core and seasonal liquid milk suppliers are prevented from selling calves to export markets on mainland Europe and/or Southern Ireland. The Tesco ban is not connected to the journey time (as is the case with organizations like CIWF) as the export would come within Tesco’s journey limit of 8 hours. Instead it is due to the destination itself, with Tesco commenting to me that calves could end up in rearing systems which are illegal in the UK. And yet the RSPCA have no problem with calf rearing systems in Southern Ireland.

 

So far so good, until you factor in that the mighty Tesco appear to sell Irish beef raised in calf systems that Tesco does not audit. So Tesco’s rules as to what is good, bad and acceptable boils down to whether it suits their purchasing policy. They ban calf exports because it does not affect their pocket, but readily buy Irish beef, which does affect it.

 

Michelle Waterman of Tesco with whom I  corresponded with stated “I have also visited, and carried out audits on many veal units across Europe and I do not agree with your statement that the standards in these are higher than in the UK.” I wonder what the Irish Farmers Association’s reaction is to Tesco’s position.

 

However her audits must have been performed for a previous client/employer, and not Tesco, yet she is using the information to decide Tesco’s policy. It is not exactly right, or helpful. I believe Tesco should carry out their own audits on such a critical issue to their dairy farmers.

 

Finally, my jaw dropped when I read that the 2011 Supreme Champion British Cheese Award had gone to a goats cheese from Southern Ireland.  The awards are in their 18th year and described as The Oscars of the dairy world. Try as I can I just cannot see an English cheese winning an Irish cheese award, no more so than the English winning a French award. However, according to the organiser it’s only Ian Potter who seems to mind! 

And if that wasn’t enough I then saw the annual news announcement of Dairy UK’s Milkman of the Year, sponsored by Highland Spring – which is a bit like Yorkshire Tea sponsoring MacMillan’s coffee mornings! What a shame the dairy industry can’t sponsor its own awards.

 

 

Comments and additional ideas please to

 

IP October 2011 DF

 

Proud of Dairy? Yep – mostly, but not always as the Dairy Event show ring proves!  

The second NEC Dairy and Livestock Event appeared to be a huge success, having catapulted the UK dairy industry into the modern age when it comes to having a very professional and business-like show that ranks alongside other shows held at the NEC.  There can be no one, other than the odd nostalgic old timer, who could regret the move away from the tired-looking and out-dated old dog called Stoneleigh. The move last year did not come a moment too soon.

 

Prominent at the event was the “Proud of Dairy” Campaign, which Dairy UK kick-started, and which has been boosted by DairyCo’s injection of enthusiasm. It invited farmers and industry people to tell them why they are “Proud of Dairy”, with yours truly saying: “Me?  Proud of Dairy?  You bet!  But being proud's not enough.  We need to be loud'n'proud! That's why I hope all farmers will pledge their support for this campaign."

Attending the NEC Event gave me a sense of pride in what dairy farmers and all involved in the industry achieve.  That was until I heard about the rumpus between the show’s organisers, the RABDF, and a mob of Holstein UK (HUK) members over a very questionable practice that might have gone on in the past but in this new modern age, where dairying is far more in the spotlight than it ever was, is now definitely past its sell by date. It’s the practice of teat sealing when showing or selling cattle to artificially enhance the udder appearance.

As one of the key dairy organisations, RABDF implemented a new show rule that no teat sealing, inside or outside of the teats, would be allowed. This rule was introduced following prior consultation with all of the breeds, including HUK, and was done so for one obvious reason: animal welfare. The change  was backed by the British Cattle Veterinary Association (BCVA) and communicated to all breed societies and all exhibitors before they entered their cattle.

 

All was running fine in the judging until the first morning, when Holstein exhibitors were caught using sealant. Rules being rules the RABDF stewards promptly gave the offending exhibitors two options:

(a)         Withdraw their animals prior to going into the show ring (thereby avoiding any potential embarrassment)

OR

(b)        Go into the show ring and be immediately kicked out of the competition.

 

At this point “all hell broke out” (as it was described to me) as a “posse” of Holstein UK members/exhibitors ganged up on John Jamieson, the cattle show director, with HUK breaking rank with the other breeds and demanding they be allowed to use teat sealant on their animals.  If not they would pull out and abandon the show - the first “National Show” to be held at the event, remember, following the amalgamation of the Dairy Event showing and National All Breeds Show event last year.

 

It was, therefore, time to whistle in RABDF’s Chief Executive, Nick Everington, to calm the angry mob of rebellious cattle exhibitors, who had, by this time, got the backing from HUK. The end result was that the new rule banning teat sealant was instantly overturned, and sealing them would be allowed after all. Cue the Holstein exhibitors trumpeting their victory.  Rules, apparently, aren’t rules.

 

But that was, by no means, the end of the tale. Step forward into the argument, or rather exit stage left, the Honorary Veterinary Surgeon for the show Kim Simkins of Hampden Vets from Aylesbury – who only agreed to remain in her position for 2011 if the rules were changed. As soon as the rule was overturned Kim resigned from the 2012 event on the first morning of the show. Kim would have resigned from this event too if the welfare of the cows wouldn’t have been compromised. Kim and the BCVA have sent out a very clear signal that they cannot be seen to back or support practices that compromise animal welfare  - or could be seen to be compromising it.

 

With hindsight many will say the RABDF should have stood firm and let the angry HUK exhibitors take their cows home.  However, faced with a 20 plus strong mob on day one of effectively a brand new showing “sub event” the RABDF was stuck between a rock and a hard place.  One described the mob as intimidating whilst another commented that HUK members had blackmailed the RABDF. Adding to the potent mix of frayed tempers were other Holstein exhibitors, too, who were also pro the new rule, were abiding by it and indeed had left animals at home because of it. Several were extremely angry at the RABDF’s U turn.

 

For what it’s worth, this is one of the few areas where I am certainly not Proud of Dairy, and I simply cannot see any credible argument as to how HUK or others could defend the practice of sealing, especially to the numerous anti-dairy lobbyists.  How could we ever convince the public that using a proprietary teat sealant like Orbeseal, an aerosol gas or even dare I mention super glue to seal the teats and bag up cows for what is effectively a beauty parade is acceptable, or that these practices are not detrimental to animal welfare? I don’t think we could. Whilst this practice does not represent what happens on 99.99% of dairy units, and is not normal commercial practice, it is nevertheless irresponsible. And I am not alone in these views. Aside from the stand made by Hampden Vets it appears the incident is being looked at by at least two of our major retailers, with their dedicated farmers. As one said to me me: “since when has super glue been approved for use on a lactating dairy cow?” Another was quick to point out the advice issued by Pfizer (Orbeseal’s manufacturer), which reads “Do not use during lactation.”

 

The insinuation was clear - some of those farmers would be well advised to study their milk contract where phrases such as “compliant with UK and EU legislation” and “compliant with The Red Tractor Logo Scheme” should be fully explored to ensure no breaches of those terms and conditions are occurring.  For the avoidance of doubt “that would clearly include complying with the licensed usage of all animal medicines and our own standards”.

Now this practice is firmly on the retailer’s radar it has become a far bigger issue than the one between the RABDF, HUK and a handful of cattle exhibitors. The risks of non-compliance with the detailed terms of milk purchaser and retailer contracts are extremely high. 

This, then, is not good news for the dairy industry. So what’s the solution?

The simple one would be to remove all dairy cattle showing from the event, which, while it would not be anything like the event it is today, it would remove what must be a huge challenge to accommodate dairy cows at the NEC.  Another route is for the RABDF, having opened up the debate, to close the matter by working with the BCVA and all involved to start 2012 with new show standards for all breeds where a less than full udder is not looked at in an adverse light.  There should be new rules and standards applied fairly and evenly to all breeds in all UK shows.  These rules need to come from the top down, and they need to be adhered to.

The practice of teat sealing - some would call it the trick of teat sealing - has to stop, and the UK dairy industry has to get its house in order.  Crufts ignored the warning signs of changing public opinion and paid the penalty by being removed from the BBC’s airwaves.  The dairy teat sealing issue, whilst different, is not too far removed.

 

Here in the UK we have some of the finest cattle and breed examples in the world, and we should be proud to show them as they are, at their most practical peak, not necessarily at the peak of their beauty.

So, let’s consign this practice to the history books once and for all! The cows don’t need it, the BCVA don’t support it, the processors don’t want it, and if it is allowed to carry on it will only do the industry harm!

 

Comments please to

 

IP September 2011 DF

 

Direct supply contracts have increasingly hit the headlines and crossed my radar in recent months - including First Milk’s Eilers & Wheeler (FM/EW) contract and some from Dairy Crest. The FM/EW contract, which I know was taken by one 20,000 plus litre a day man, guaranteed him a net price of over 30ppl for a three month period, including a volume bonus. It’s a tempting market related price and more akin to a level most producers feel they should be achieving in the current market.

Then there’s DC, who are certainly keen to secure (or retain) a greater literage on direct supply. Normally this recruitment would have been carried out exclusively through Dairy Crest Direct (DCD), however relationships between the two appear to require the service of Relate, or Dear Deardrie, and DC are now recruiting farmers outside of the DCD family. I am not clear where this milk procurement policy leaves DCD other than weakened (like The Wiseman Milk Partnership in their recent spat) and with a fight on their hands to avoid being sidelined, or even ditched. 

 

DC’s milk procurement strategy has significantly changed, with the offer of special “one off” deals to selected farmers around Davidstow, with three large producers I have spoken to all claiming different prices around 30ppl. In addition, other groups of farmers have been offered similar deals all under the basis they have signed confidentiality agreements and the DC equivalent of the Official Secrets Act (But clearly with one exception that they are allowed to tell me!) Bizarre, to say the least!

 

The evidence from the DairyCo Supply Chain Margin’s report confirms that liquid processors have had their margins seriously squeezed, again, as our giant retailers have fallen over themselves to offer the cheapest milk in Britain. Once again the report is confirmation that retailers make a healthy margin from the sale of milk, whilst farmers and processors are squeezed hard. So far the cheapest milk to date is believed to be Dairy Crest’s Country Life Milk, sold for 16ppl to customers visiting the Johal supermarket in the Midlands. So it’s 30ppl to special farmers on one hand, and half of that if you’re a special retailer buying through a special Bottle Milk Buyer. One wonders whether DC are using profitable world markets to subsidise the madness of the middle ground.

 

However, whilst DairyCo are to be applauded for their Supply Chain margin work, I think it needs to sharpen up on other areas of its work, frankly. For example, in the week our position as the lowest paid dairy farmers in Europe was confirmed DairyCo not only failed to report this significant fact it decided to lead with a story which trumpeted the fact that the DEFRA average farm gate price for May was the highest on record!  And within days its next Dairy Market Update lead story was headed “Have wholesale markets peaked?” implying that wholesale markets were falling. As one prominent dairy industry person stated in an exchange of emails to me: “What the heck is going on at DairyCo?” With liquid processors and hungry retailers examining the evidence to support liquid milk price increases in the reign of 2ppl it will be music to their ears to learn that the one “organisation working on behalf of Britain’s dairy farmers with a remit to solve market failure in the dairy industry” believes prices have peaked! It’s a staggering tone. OK, admittedly, DairyCo held their hands up for failing to report our European league position and issued an amended update, but get a grip!

 

Now more on the excellent Westminster debate on the future of British dairy farming, as prompted by Dan Poulter, MP for Central Suffolk & North Ipswich, and as reported in my July article. (See www.ipaquotas.co.uk and click on Westminster Discussion)

 

Director General of Dairy UK, Jim Begg, put a blustering pen to paper in response, stating that “normal practice in the UK is for contracts to leave pricing to the discretion of milk buyers with one of the reasons stated for this evolution of contracts being the fact dairy farmers need to sell their milk on a daily basis”.  In other words, you’ve been got by the short n’ curlies.

 

Dairy UK then stated that “unless milk purchasers continue to pay a competitive price farmers will resign”.  That may be the case with three month notice period contracts, such as those operated by Wisemans and McLelland, but this is not an option for farmers who have to give up to 21 months notice.

 

Apologies Jim, but your claim that milk purchasers “continually adjust their prices to ensure they are in line with market developments and that they are competitive and that the market is operating effectively to protect farmers” is not backed up in reality. Specifically, liquid milk purchasers adjust their prices so they remain competitive in comparison to their competitor milk processors, and not in relation to market developments. The bottom line is the liquid market is presently failing GB dairy farmers, and liquid producers are relying on the big cheese guns like Milk Link to drive prices up. The reality is that retailers and some mainstream and middle ground liquid processors are shafting dairy farmers. As for retailer aligned contracts - well most are holding prices down now.

 

If only Akkerman had built his (export orientated) cheese plant, or FFA’s planned plant was up and running, then things would undoubtedly be different. Some of our more commercial dairy farmers – such as the FM/EW man - would take a chance on world markets and take a chance on higher prices and transparency in return for volatility, and other processors would be forced to take notice rather than to sit on their backsides.

 

In his letter Begg also comments that milk contracts operate to the benefit of both producers and processors, and that they should not be subject to regulation. While I agree that regulation could easily result in more volatility with shorter contracts, I reckon if the maximum producer notice period were limited to six months and/or larger producers had the facility to sell to two milk buyers the game would change and some of our more lackadaisical milk purchasers would have to sharpen up their act.

 

It’s not healthy or sustainable for everyone in the GB dairy industry to hide from the fact that the market is failing farmers. Dairy UK claims (laughably as far as the NFU and its ardent followers are concerned) to be “The Voice of the Dairy Industry” and is commendably striving for people to be “Proud of Dairy”. Well, market failure is nowt to be proud about, frankly, and trying to justify the unjustifiable will get Dairy UK nowhere. Please, everyone, don’t miss the chance to negotiate fairer deals for hard working dairy farmers, because the consequences will be an even greater blood loss of dairy farming families. And everyone will pay the price.

 

Finally, I am hoping to visit this year’s NEC Dairy Event. However, a prior engagement in Bulgaria may restrict my visit. Regardless of my attendance, though, please go to the event, support your industry, and if you agree with what I say tell your buyer, Dairy UK, Dairy UK and whoever! If you don’t, tell me!

 

Comments and additional ideas please to

 

IP August 2011 DF

 

The Make Mine Milk liquid promotion campaign has passed its half way point, having started a three-year journey in October 2009. The programme involves a £9m spend, split into two campaigns of £7.5m and a £1.5m complimentary campaign, with most of the adverts appearing on the side of buses in big cities. And believe me, they have been, like, EVERYWHERE! Full marks for creativity and visibility!

 

The EU has contributed £2.5m towards the main campaign with the other main backers been Wiseman, Arla, Dairy Crest, Milk Link and First Milk. The campaign is working with the USA’s Milk Moustache Agency and has plans to add more personalities to the current ones of David Beckham, Simon Cowell, Jamie Oliver, Gordon Ramsey and Harry Potter star Rupert Grint.

 

The first 18 months research, where 100 random consumers are contacted each week to monitor what adverts they have noticed as well as sales trend data from T N Neilson, has been very encouraging, with liquid sales having increased by 2%, and with a high awareness of the adverts.

 

But what happens in October 2012 when the campaign ends?  If it has been a success the momentum from increased sales will continue and the campaign will not stop dead on one date, but there’s no doubt it will gradually peter out over a period of months. However, the big question now is whether the industry should make plans to continue to fund the promotion beyond 2012, for which a tidy budget will be required.

 

The Milk Marketing Forum (part of The Dairy Council) believes the return on investment is good, showing “both encouraging results” and that it is changing attitudes and will permanently increase liquid milk consumption. And if numerous processors and industry bodies are convinced the promotions deliver increased sales and help the long term sustainability of liquid milk consumption there is clearly merit in exploring all options for the campaign’s extension.

 

So, if the conclusion is that it’s good, and we should keep it on then who should fund it beyond 2012? In Canada farmers and processors fund similar campaigns on a 50:50 basis, and we used to here. We recently carried out a poll of over 100 random dairy farmers whilst updating our database and asked them whether they wanted milk promotion, and, if so, who they think should fund it? Their views were revealing.

 

Clearly there is significant confusion among dairy farmers of the difference between DairyCo and The Dairy Council. They didn’t know. And most of those same farmers were clearly under the impression their current DairyCo levy was either ALREADY funding the Make Mine Milk adverts, or that it should go towards it. They were shocked when we told them it wasn’t. But the fact is that not a penny of the levy is used for generic promotion of milk and dairy products beyond the farm gate.

 

This highlights the fact there is still a cloud over how farmers think DairyCo spends the levy money, which, I have to say in recent weeks, has raised an eyebrow or two. That’s because I received a couple of comments recently concerning DairyCo’s annual sponsorship and promotion of the RABDF’s Dairy Event promotional flier. DairyCo sponsors the flier which promotes the event in the first instance and then its own presence. “Talk to DairyCo about life, the universe and everything” is its “take on the world” positioning, as it was put to me. You couldn’t help but notice Barclays the main event Sponsors had one mention in the 4 page flyer whilst Dairy Co had umpteen.

 

I am sure Dairy Co have crunched the numbers and concluded that the NEC Event is the one to push and invest in on the basis they have a good chance of having face to face contact with the maximum number of levy payers. However their decision to contribute no funds to any generic campaign to promote milk and milk products is one they will have to continually re visit.

 

Anyway, clearly more accountability is required still, and more explanation of what DairyCo does and doesn’t do. I also think that DairyCo will never truly capture the hearts and minds of dairy farmers while it has a policy of rejecting generic promotion like Make Mine Milk. I know it hasn’t got much money, I understand its brief is to make farmers more competitive… but farmers love seeing their product promoted and clearly it does work!

 

I have received a couple of emails from my burgeoning fan club (No. of members, three) pointing out that I have yet to make any comment on the soon to be introduced Wiseman Co-operative Dairy Group contract/ guidelines and premium. Yep, you’re right. But the truth is, I simply haven’t had time!

 

However, news from my friends at the Co-op (CTRG) did flash across my radar when I was alerted to Compassion in World Farming’s (CIWF) “Good Farm Animal Welfare Awards”. When I learnt those idiots at CIWF had awarded one of its new “Good Dairy Awards” to CTRG for “sourcing dairy produce from higher welfare cows” my jaw fell so much I had to fetch it from Australia. If I was M&S I would be hopping mad to learn that, having worked closely with a small group of dedicated dairy farmers for several years, CTRG won this award in its first year – and for something they haven’t done yet – they haven’t yet had a cow milked on their behalf, or paid a single penny more than they have had to! Utterly crazy and not at all deserved.You couldn’t make it up!

 

Much is spoken and written by commentators on the need for further ex-farm gate milk price increases and the fact we are now firmly rooted to the bottom of the European milk price league table of all 27 member states. It’s a disgrace and embarrassment. While I have no doubt that by September at the latest one or more of our main liquid milk processors will deliver another increase to liquid contracted producers the big question is why are GB liquid prices dragging their heels, and being pushed up by cheese and manufacturing processors? Well – here’s an example: a supermarket in the Midlands is selling Dairy Crest’s Countrylife milk brand at 16ppl. Yes, 16ppl! (It’s actually six litres for £1.) At this price it’s worth buying the milk and tipping it back in the milk tank to re-sell or banging on the door of Dairy Crest and Johal Dairies, who jointly supplied the milk, to ask exactly why it is being sold at this market crashing, wholly detremental price. One for Dairy Crest Direct to get their teeth into!

 

But hey – why should people be surprised about such a price, given Dairy Crest’s desire to get hold of cheap milk!

 

Witness its latest incentive to encourage producers to increase production. This pays 2ppl on the extra litres produced in excess of 3.5% above the volume produced last year. Having crunched the numbers, a Dairy Crest producer who produces an extra 4% more milk on last year would gain less than £100 in a year! Clearly Dairy Crest are not as generous to their famers as they are to their Bottle Milk Buyers!

 

Comments and additional ideas please to

 

IP July 2011 DF

 

During the past month I have taken a keener interest than usual in matters political.

 

First, on the 7th June Westminster saw a one hour discussion on the future of British dairy farming, spearheaded by Dr Daniel Poulter - the Conservative MP for Central Suffolk & North Ipswich. This was triggered by the reality that in the mid 1990’s we produced 70% of our own food requirements and today it’s around 50%, plus the fact that in the European 27 milk price league table we lie third from bottom, fractionally ahead of Slovenia and Romania.

 

In March 2011 the EU average milk price was 29.72ppl, whereas the UK one was 26.59ppl - more than 3ppl or 12% below the average. And remember, if we exclude the Northern Ireland average price the GB one would be even lower at 26.33pp.

 

Such low prices to our dairy farmers are impossible to explain to consumers and farmers in a country which regularly trumpets how valuable and precious its fresh dairy market is - in particular its liquid market and its “ground-breaking” retailer-aligned and segregated contracts.

 

Perhaps the harsh reality is that the GB dairy industry and its representative organisations need to acknowledge it is our love of the liquid market and its associated contracts which are the main factors in disjoining the majority of ex-farm gate milk prices from the “normal” market. Witness the EFRA Committee inquiry hearing on the 3rd May, when the Committee asked a witness - Herman Versteijlen, Director of Directorate D in DG AGRI - to make a statement as to why the average price of milk in the UK continues to be below Europe’s as a whole and he replied “it is largely due to the high volume of liquid milk sold in the UK”.

 

Daniel Poulter’s Parliamentary debate recognised the dysfunctional market and unfair pricing mechanisms. And while it was a highly commendable achievement to see him secure the debate, surely the first step for this Government to do their bit to support farmers would be to ensure all milk and dairy products are procured at national and regional level at FAIR prices as opposed to the CHEAPEST. There’s little point lashing out at the soft and easy targets of the big retailers for their practices when national and local Government do not have a clue whether the price paid to producers is above or below the cost of production. Until this is in place I will not believe this Government is really serious about backing British dairy farmers. Let’s make sure the government, NHS etc are not guilty of paying low prices for milk and dairy products.  And the same applies to Wales and Scotland.

 

At the recent AHDB Outlook Conference, Sodexo declared it served 1 million meals daily in the UK, and that it takes its responsibilities “very seriously”, and collaborates with DEFRA over its public procurement procedure.  I asked Tony Cooke, its representative, how responsible and sustainable the approach to Government dairy product procurement was. He said the procedure was crystal clear: if it meets the quality, it’s the cheapest that wins.  “In the public sector and central Government it’s price only!”, he said.

 

In the debate Jim Paice, Minister of State, said "the Government will lead by example".  It’s time for all three devolved Governments to take the lead and accept they have a responsibility to pay above cost of production for not only their dairy products, but ALL products.

 

Jim Paice made one key observation in his contribution, which for me comes back to bite dairy farmers and dilutes the arguments for a higher milk price and the notion that the industry “is in meltdown”. He commented that "milk production in the UK increased by 500 million litres last year and is now almost back to the level of three years ago".  This fact is without doubt counter-productive to farmer’s arguments.

 

Overall. full marks to Daniel Poulter and to those who briefed him, including, I am reliably informed, Peter Kendal, Ben Watts of Kite Consulting and numerous Suffolk and Norfolk dairy farmers - all of whom are witnessing a significant 2011 run on big dairy units who are quitting in the two counties. It’s worth you reading the transcript, which covers 12 pages and which can be found at . Click on “”. It certainly outlines the key problems and difficulties dairy farmers face, and must be used as a spring board for change. (NB, mind, I wish to point out one typo which refers to “£300,000 for the average 1 million litre farmer”, which should read £30,000, so please don't email me thinking you have spotted that one!

 

When I took a brief look at the latest EFRA Committee enquiry investigating the EU proposals for the European dairy industry my jaw dropped: the first witness on the 3rd May was the MD of The Co-operative Farms, Christine Tacon, who was asked to comment on current problems facing the UK dairy industry. Why the blazes did EFRA call Mrs Tacon to give oral evidence when her first major decision when she took charge of the Co-op farms in 2003 was to sell ALL the co-op’s cows and its 34 million litres of quota?

 

Today the Co-op farms have no cows, having once held by far the largest dairy quota in Europe. And its retail arm – CTRG – has, to date, failed to pay any liquid premium to dairy farmers. CRTG sold its processing to DFOB for a Knights ransom (OK, so DFOB offered one), then took its liquid supply business from DFOB which was the final nail in the coffin for the co-op.  Before giving evidence to the EFRA committee Mrs Tacon had to ring round experts for a crash course on the UK dairy situation!. In my opinion the EFRA Committee has manifestly failed in its duty, because it has called for oral evidence from a business which is not relevant to the UK dairy industry and cannot possibly have legitimate concerns on the matter. What a joke! The point of an EFRA inquiry, in my book, is to call for factual oral evidence from businesses and organisations at the coal face and not from people who have no idea what they are talking about or relevance. It could only happen in England! Or maybe it’s the classic political tactic of inviting witnesses to give you the answer you want in the first place, rather the one that is required.

 

On the 27th April two of our leading representatives organizations gave oral evidence to the same EFRA inquiry. Dairy UK decided to wheel out the heavyweights and pull the stops out, and taking to the stand to give evidence were Jim Begg, Director General and Peter Dawson Policy Director of Dairy UK, plus Mark Taylor, Procurement Director of Dairy Crest and Rex Ward, Chair of Dairy UK’s Farmers Forum.

 

On the same day former NFU Dairy Board’s Chief Policy advisor Tom Hind - now Director of Corporate Affairs - gave evidence. Now I will be the first to admit Tom Hind is the best equipped person within the NFU to be cross examined on matters dairy, but how come not a single member of the NFU Dairy Board attended? It does not send the right signal to the industry or the NFU’s dairy farming members when neither the Chairman, Vice Chairman or current Chief Dairy Adviser attend! What a golden opportunity to put at least one dairy farmer in front of the committee!

 

Last month’s article concerning the need for change within the NFU certainly caused a stir, and seems to have reached arable as well as livestock members.  Comments to me fell into two camps – with by far the majority agreeing that the NFU needs to change. Others, including some Council members, were in favour of a slimmed-down Council via a one-hit cull. However, there were a few for whom the article touched nerve cords, who couldn't see a problem, but who clearly felt their positions were in danger. And didn't they let me know it!

 

The funniest one was the man who called our office to give me the benefit of his opinion but wanted to remain anonymous. Except he forgot about call line identification! If brains were dynamite!.

 

I fear that the two groups will simply end up arguing amongst themselves, rather than getting on and agreeing a plan and getting it implemented ASAP. This will involve a change to the DNA composition of the NFU and I hope they clone the right people to breed from in the future and confine some of the rare breeds to the sanctuary. At the end of the day the winners – or losers - will be the members it represents and the industry it serves.

 

Comments and additional ideas please to

 

 

IP June 2011 DF

 

Well this month it has been one step forward on milk prices (First Milk, Wyke farms) and a bit back (Arla, Dairy Crest  and Dairy Crest Direct), but some significant developments have taken place on a macro front too – notably from the NFU Scotland which has come out with a new idea for milk pricing, and which I will turn to in a future month. All credit to them for coming up with something new.

 

Meanwhile the NFU has held another farmer representatives summit, and has taken its ‘fairness for dairy farmers’ campaign to MP’s to lobby them to lobby Government to get stuck into the industry to sort out the mess. At a meeting on 17 May Peter Kendall, Mansel Raymond, Rob Newbery and a good number of the Dairy Board all piled into Westminster to give our MP’s and Lords the big What for on all things milk. Whether it does any good remains to be seen. A lot of MPs that should have been there  weren’t there.

 

And this gives me the perfect opportunity to cover a subject I’ve been meaning to cover for a while – the NFU itself, and The Dairy Board in particular.

 

Peter Kendall, I believe, is good. Very good. But he’s also increasingly looking like the equivalent of a lone pilot of a 747 Jumbo Jet – steering it, analysing its fuel levels, air speed, engine’s performance - everything.  I know Meurig Raymond and others are there too, and I know they do very notable stuff that is essential for the future of the industry but isn’t exactly headline grabbing, but in terms of a front man Kendall is the man of the day. But is he flying the Union in the right direction, and is his plane potentially heading for a crash landing?

 

Let me explain. That’s because the NFU needs to find the next Peter Kendall for the 2015 era and beyond – and pretty damn quick.  It’s a serious issue. The NFU needs to have the right people in place for what will be a dynamic period in agriculture, and, let’s face it, Kendall and Raymond aren’t the “next generation” men for that era. Gwyn Jones also has the sword of the GLA hanging over him, and the Court of NFU Moral indignation / Hypocrisy (depending) will more than likely sit in judgement of Paul Temple for many moons yet ignoring the fact he was of the next generation and was prepared to face change head on.

 

The problem as I see it is that there aren’t any obvious successors to Kendall and Raymond within Council and the Commodity Boards - who represent the “next generation” and who  hold in their hands the future of not only the NFU, but farming as a whole.

 

This is even more stark when it comes to the Dairy Board. I don’t know what the average age of the NFU Dairy Board is, but if I checked their teeth and sorted them there wouldn’t be many in the “youngsters” pen. A few would also struggle to score many marks on a dynamism test, or indeed a communications skills test with a few incapable of joining in on a conversation let alone starting one. Perish the thought of them interacting with politicians and the media. Mansel is doing his best for dairy, I’ll grant him that, but his Board don’t seem to be giving him much (any?) support.

 

Similarly, several County Chairmen are in their posts largely because other farmers don’t want the job. And while some are undoubtedly high calibre switched-on individuals there are some that aren’t the sharpest needles in the veterinary cabinet.

 

The reality is that an increasing number of farmers who would have climbed the NFU’s ladder in the past have decided instead to make their mark by representing farmers with their milk purchases or co-ops. Shining lights like David Christensen (Milk Link), Stuart Roberts (Wiseman MP), Arthur Fearnall (Arla FMP), Phil Allin (DCD) etc. And others like First Milk’s Roger Lewis (chairman of the Next Generation Dairy Board) want to concentrate on their own businesses for a while before getting into industry politics.

 

These farmers have been (will be) head-hunted by their processor to help take their businesses forward, which means they don’t have time for NFU business. I also suspect they’re growing tired of the NFU’s one track mind on contracts, which it has as yet failed to secure a buy-in from processors.

 

The NFU’s “recruitment” process into these important industry-shaping positions needs a radical overhaul. Currently most of them rely on elections. But this clearly isn’t working, so one solution is for the NFU to supply its regions with a detailed job specification for its vacancies so those putting themselves up know the qualities required.  If the NFU continues to rely on the (admittedly noble) but failing democratic process they will continue to lose more competent young people who could drive the organisation forward.  The NFU must have a procedure for evaluating each candidate’s strengths and weaknesses. Consideration should then be given to an independent annual 360 degree review which assesses their performance.

 

The organisation needs to think outside the box. Several years ago I controversially wrote in this column about an NFU meeting I spoke at where two candidates left the room while the small congregation of rather elderly members/committee discussed who would represent them at regional meetings for a particular subject.  The result was that George (the old man whose best mate wrote the Doomsday Book) retained his position whilst the younger farmer (aged around 35) was told “your time will come, lad”.  I could have wept, but I fear little has changed.

 

Late last year I travelled to Ontario and visited the Schouten Corner View Farms dairy farm - the home of Jessica Schouten, who was selected as the representative for the American Soybean Association and Dupont young leader programme. Jessica is involved in a programme designed to train Ontario’s future farm leaders where young people benefit from public speaking lessons and meet successful farm leaders.  The aim is to grow the next generation of well trained future potential leaders for the North American soybean industry. Jessica does not work on the farm, though, and is a crop advisor. What a contrast! I ask this, then: do the NFU’s positions all have to be filled by farmers?

 

It’s no point having Board and Councils with dinosaur members who are well past their sell by date trying to perform duties way beyond their capabilities, and who have limited motivation.  It is, therefore, time for a shake-up – a cull - in the interests of the long term future of the NFU. The NFU needs to indentify young people, head hunt them, train them and support them, and then get the old farts to move over and allow them to over take them.

 

The NFU is a fantastic organisation – farming’s best. And a lot of farmers give a lot of time and effort to do what is right for farming. I know that, I recognise that. A applaud you all for that.

 

But there is a talent and a leadership storm approaching, and it’s time the NFU looked ahead, adjusted the flaps, checked the altitude, fuel level, rev counter and so on.  The Jumbo can change course to miss it and avoid a disaster. 

There are some brilliantly talented dairy farmers out there that can step up into the cockpit – that is not the problem.

The NFU just needs a plan to attract them. And it needs one soon.

 

Comments and additional ideas please to

 

IP May 2011 DF

I make no apologies for returning to the subject of milk quota, and the four remaining years running up to their demise in March 2015.

 

During the past couple of months there has been a noticeable increase in the number of farmers keeping a closer eye on the production figures once again.  That’s because last year production increased by 514.3 million litres (4%), which marked the end of a seven year cycle of a continual decline in UK production.  That means, in simple terms, if we increase production by 370 million litres year on year we could get pretty close to our national threshold in 2014/2015.  Note, this back of the fag packet calculation does not take into account the 50 million litres we see transferred to direct sales quota each year, and assumes we will not trigger our 3.97% national butterfat base.  Despite the surge in interest in milk quota, and with prices up 50% in four weeks (OK, admittedly from 0.2ppl to 0.3ppl) my money is still on the UK not hitting quota. But I don’t gamble, and I won’t have to pay any of the super levy!

 

Production in this new quota year has certainly got off to a flying start for a host of reasons, but putting any threat of super levy to one side the biggest problem producers face is that more = less.  The more milk that is produced the more it will put the dampers on milk price increases as the additional production will not help processors push the market upwards or forward. The fact that production was up this year compared to last did us no favours in convincing those higher up the chain to pay more. “”What’s the problem,” was a common cry. “Farmers are producing more milk than last year so what’s the problem.”

 

Now on to our friends at Arla. There are certainly signs emerging of some green shoots of a new, improved Arla following the return to Denmark of Hanne Sondergaard and the promotion of Ash Amirahmodi.  Recently Arla pushed ahead with a 2ppl producer price increase and they didn’t opt to take the easy road by following Dairy Crest and Wisemans with a mere 1ppl.  Following their competitors and setting AFMP producer prices at the average increase was not the standard Ash and his team wanted, as Arla sent a very strong message that the new kids in town were here to set superior price increases not be also-rans. What a contrast to Dairy Crest, who, up until the last price increase, had followed the market four times.

 

In his first public statement Ash commented “I am committed to the journey towards securing a sustainable supply of raw milk and bringing AFMP closer to their processing partners.”  Does this translate to the goal of AFMP members achieving equal status with their Swedish, Danish and soon their German comrades, I wonder?

 

However, on the so called 4p “investment” levy Arla has an uphill battle to pacify the natives. The £70 million to be paid by Arla Milk Partnership producers from January 2012 is a thorny subject, mainly on the grounds that if it’s an investment it should pay a market rate on any capital invested in the business.  If as stated the £70million is to be invested in Arla Foods UK plc in the form of additional shares does such a move require the issuing of a prospectus?

 

AFMP members were told in their March AFMP gazette by partnership Chairman, Jonathan Ovens, that “We have always made a point of AFMP being an organisation that listens to members views”. Really? Grass roots farmers are questioning whether their views on the investment levy are valued, or whether AFMP are already part of the Arla business and do as they are told!  In the same article it states "Voting for your district representative at the meeting is another way to ensure that your voice is heard through the democratic structure". But does the evidence support this statement?  I agree the Board must make the final decision and, like others, I believe they decided what was happening back in 2010 and are going through the motions of listening to members, but are taking little, if any, notice of their views.

 

It has also been suggested that The Arla levy proposal could be something the Financial Services (FSA) could take an interest in. I hope AFMP and MPL have taken legal advice to ensure the correct procedure has been followed under The Financial Services and Markets Act 2000, or that this investment is a “qualified exemption” from that.

 

The area is a minefield. However, it revolves around whether this is a “financial promotion”, which in itself translates to an invitation to engage in an investment activity.  Unless MPL are authorised under The Act to communicate a proposal (e.g. solicitors etc) they could be in breach of the regulations.

 

Perhaps this could all be a red herring if members freely sign-up to allow MPL to take the money off their milk cheques.  It’s a very specialised and a complicated area of legislation, but I wouldn’t be surprised if the FSA or Financial Ombudsman were easily persuaded to take an interest in the proposal if they feel there are grounds for doing so, especially if the master plan is to eventually utilise the farmers’ money to buy shares in Arla.

 

Finally, following last month’s article I received a number of comments with reference to Farmers For Action’s idea to build a powder plant (which FFA and their International Associates call a milk fractionation plant), in the North in a bid to capitalise on world markets and short the market to hand power back to the producer.  To the retailer aligned producer and Board member who commented that “there was no benefit for him or his fellow retailer aligned friends to be involved” could I suggest he wakes up to the reality of the situation.  Don’t think milk prices are being held up by your much loved retailer aligned contractor!  In some cases, at some times, they actually cap prices and hold down milk prices. You can see that from the times the Northern Ireland price exceeds the mainland one.

 

Similarly, to those who sell milk to cheese producers (co-ops and plc) and who say it’s not in their interests to short the market because it will automatically increase the cost of the milk they put into cheese I say cobblers to this too! If the milk costs more then cheese will have to cost more too, and the processors and retailers will have to cough up. With ALL of the offers there has been on branded cheese over the last year or so (and for so long – including buy one get TWO free) – don’t tell me there isn’t the money in the supply chain to pay for it! If they can afford to give cheese away, they can afford to pay you more. So, whatever your preferred self-help idea may be, recognise that dairy farmers will have to play on the pitch to make a difference. You can’t make a difference to a game if you sit on the sidelines!

 

Send your comments and suggestions to

 

IP April 2011 DF

 

The milk quota system has clocked up its 26th birthday and unless there is a spectacular u-turn they are set to reach their 30th birthday on April 1st 2015. Then, well, that will be it!

 

So far as the UK is concerned we have exceeded our wholesale quota in 15 out of the past 26 years, and over that time producers have paid £258.5m in super levy.  The bookies favourite is for the UK to end up failing to fill its quota as many times as it has filled it during the 30-year span. However, there are some optimistic analysts who predict we could exceed quota in the 2014 / 2015 quota year, which would tip the balance 16 to 14 in favour of exceeding our quota.

 

I admit there are groups who are campaigning for the continuation of the quota system and for so called “market management” beyond 2015, but I doubt it will happen.  I question the Commission’s appetite for the idea of paying dairy farmers to reduce production, and can’t see how that would work. All I can see from such a manoeuvre is easy compensation money which, for UK farmers, would be handled by the RPA and would be a fertile ground for some creative thinking and juggling.  Politicians controlling or supervising any market is a recipe for disaster. 

 

The after-effects of the Nocton application continue to be felt all around the industry. My jaw dropped when I read that Compassion in World Farming (CIWF) felt its Nocton campaign should be a strong contender for The Observer’s Ethical Awards 2011, on the grounds that CIWF “was instrumental in defeating the main application for Nocton Dairies”.  For CIWF to claim it was a key player to any defeat is fantasism.

 

Let’s face facts, though, Nocton has left the likes of the Daily Mail, CIWF, Peta and WSPA with an insatiable appetite for highlighting the negative aspects of dairy farming i.e., cloning, large dairies, exporting male calves (which is happening), TB and badgers, and 365 day housing, which they call zero grazing. In reality, though, was Nocton’s vision really so outrageous in its scale?

 

Recently I read up on the largest integrated dairy operation in the Middle East, and almost certainly the world. In 1976 Prince Sultan of Saudi Arabia recognised the potential to transform traditional methods of dairy farming to serve the needs of the rapidly expanding Saudi market, and decided to build a dairy farm. And now it has become the first in the world to be accredited with ISO9002. That’s impressive. But so too are the results – look at milk quality for one, normally a good barometer of standards: average mastitis levels are less than 0.5%, SCC’s are 160,000, and TBC’s less than 1,000. And do the cows go out to graze? No! Of course not - the unit is in the desert! (Bedded on, er . . . straw, do you think?).

 

And how big might this unit be? Well no less than 105,000 cows, housed on just seven farms! It’s another example that disproves the views of the antis that the greater the scale the more welfare issues arise.

 

Then I came across AF milk in Vietnam - one of Asia’s largest dairy units. It started construction of a new dairy in October 2009, and is rapidly building-up from its current 12,000 cows to a target of 137,000 cows by 2020. The lady director of the bank financing the project commented that “milk is an essential requirement for the human development of Vietnam.”

 

So, let’s see how CIWF or WSPA get on with their anti-farming campaigning in Vietnam or Saudi, and their insistence that cows graze in grass fields! We (and I mean all involved in the UK dairy industry) are in danger of allowing noisy, ignorant, tin-rattling activists and well off, Middle England, white, vegetarian do-gooders to determine the future direction of the GB dairy industry and how we – you - farm.  If we don’t override this then who knows how deep their tentacles will penetrate. We have all, thanks to Nocton, been warned.

 

Last month’s article and my call for fresh ideas and solutions prompted a flurry of emails and comments, the majority of which were constructive and positive with the odd one either completely missing the point or, in one case, rubbishing the idea simply because it didn’t come from their pet organisation. Same old, same old.

 

At the same time, David Handley and FFA came up with another idea to explore the benefit of building a new milk powder plant in the North West or SW Scotland, to take milk off the market and hand more power to producers.

 

Well, here goes with another idea that has come in. The NFU has been banging on about contracts and the need to change them for years, and has, frankly, made minimal progress. One milk buyer, or two, may have adopted its template, but that’ll be about all.

 

The idea suggests ALL contracts have a three-month notice clause on them. According to my knowledge only Wisemans and The Caledonian Cheese Company (Lactalis) operate contracts with such a short notice period. But they certainly help keep those processors on their toes.

 

Let’s face it, other than the block resignation by the Stewartry Group in 2007 neither firm has experienced problems with their notice period, and the reality is both are duty bound to pay a competitive milk price, or face resignations. Other buyers have notice periods of around 12 months, and if you are a First Milk member a producer can face almost 18 months if he times it wrong. Purchasers with long term notice periods defend them with excuses like they are needed for “security” or  “planning” etc. But the reality is long notice periods are favoured by the idle, the concerned, or the underperforming.

 

The Commission is currently proposing to allow up to a third of dairy farmers in a country to join together to negotiate contracts and terms. I wonder whether someone will be bold enough to take full advantage of its proposal to allow a third of our producers to come together to force through a change to notice periods. While the Commissions’ current proposal is that co-ops like Arla, First Milk and Milk Link are excluded from this “coming together-fest” there is strong opposition to its idea on this point, and the end result could see co-ordinated producer efforts involving all milk purchasers as well as an increase above the 33% limit. What an opportunity for pressure bodies like FFA, and Dairy Farmers of Scotland etc to sensibly improve dairy farmers bargaining power!  If I were a dairy farmer I’d be asking my processor representative to really put this at the top of the agenda.

 

All of these are fresh ideas from thinkers who are not constrained by career paths, or who duck difficult decisions. If you have an idea worthy of consideration, or comments on the others that have been sent in, then e-mail me. But only positive and constructive ones please. Keep the negative and destructive ones to yourself!

 

 

Send your comments and additional ideas please to

 

IP March 2011 DF

 

The NFU Conference dairy breakout session was titled “Dairying for the next decade”, and consisted of a panel including Jim Begg (Dairy UK), Kate Allum (First Milk), John Allen (Kite), Mansel Raymond (NFU) and some bloke from Morrisons who looked as if he had got in the wrong queue through the door, ended up on the panel, and was hemmed in on each side.

 

Despite some occasional good points being made from the panel, there was, inevitably, much harrumphing and negativity, and questions from the floor quickly turned into an acrimonious Jim Begg / processor baiting session. Here we are again then, clearly. Back down at the bottom to where we always end up: discontent, mistrust, excuses.

 

 John Allen spelled it out that we could have a vibrant industry, if we wanted, or we could sit back and allow it to decline and be exported.  But the cautiously chaired debate generated few suggestions as to what the industry needed to do to ensure the former, and, as a result, no “strategic measures to ensure British dairy farmers are able to thrive and take advantage of the opportunities that lie ahead” (as was billed) came through.  Instead it focused on last year and this, not with a view to looking to 2020 as it should have done. No new ideas. No nothing.

 

In this article, therefore, I am going to concentrate on one idea put to me whose origins stem from the old DFB camp. But I’ve fleshed it out and developed it a bit, I think. It isn’t a solution now, but it might have something to contribute.

 

The crux of the problem is that the farm gate milk price has, put politely, been extremely slow to respond to the 2010 and 2011 market signals. Many farmers watch the world dairy commodity markets monthly and sometimes weekly through AMPE, and the United Dairy Farmers and Fonterra auctions. Farmers have plenty of instant access to up to date world dairy commodity prices, and consequently have a very clear indication of prices, and volume signals.

 

In GB, things are “different”, so we are told. That’s because we are awestruck by our beloved domestic liquid market and obsessed with dedicated retailer aligned contracts. But it’s that sector that has failed us recently. If we aspire to be one of the leading European dairy nation’s post 2015 then we have to look towards the world market more than we do. The alternative is to simply sit back, allow the retailers to dominate us through the liquid market, and see the industry shrink to less than 8 billion litres. That’s not healthy in the first place, and with advances in UHT technology is not a secure market anyway.  UHT has the potential to decimate our fresh liquid market because technology will increasingly lower the taste differential between UHT and fresh milk, it can come in from anyway, and arguably has better carbon credentials. We need to plan for the happy marriage to end now, not when it happens.

 

In GB we have two modern driers at Westbury, which, whilst not located in the ideal place, do have the capacity to process around 800 million litres/annum. As I write and since last Spring one of the two driers has been shut down, leaving one to run at around half capacity. Overall, for the majority of the year, Westbury is operating at less than 25% capacity! That’s staggeringly poorly utilised, given world prices! The efficient use of Westbury is an opportunity we are missing and I feel we need to find better commercial mechanisms to fill it. If, today, a Westbury contract delivered 28p+, then other milk purchasers would have to pay to secure supplies. Is it a coincident that Arla has come out with the highest price rise of the liquid processors but also has a share in Westbury?

 

All Westbury requires to run at optimum capacity is milk to the tune of 800m litres/year, representing 7% of each GB dairy farmer’s output, and a rejig of the contractual allocations of the three co-op owners there – Milk Link, First Milk and Arla. Currently all of them have set volume allocations, which can’t be used by the other as I understand it. But the crux of the matter is this: if we fill Westbury all year round we short our own market, and the processors and retailers have to pay more.

 

One idea put forward to me is to persuade all 12,000 producers to cooperate and  accept a transparent Westbury milk price for 7% of their milk. This could be contracted, on either a fixed price or a transparent  formula price, and would effectively be a pledge rather than result in physical delivery of 7% of each producer’s milk.  Producers would receive 93% of their milk price from their processor/retailer and 7% via Westbury. Producers contracts  would be with Westbury Dairies who would then source the milk from the market place knowing they required the milk to fill the factory.

 

An alternative idea is for Westbury Dairies to offer, say, six month contracts direct to dairy farmers on either a fixed price or on a transparent formula price linked to say the published AMPE price with say, a three month notice period. Such a contract should be attractive to a number of farmers who are fed-up with their current contract, and who can get out of it, of course. I am not sure whether the take-up would fill the factory.

 

I can’t see how either of these ideas breach our dreaded competition laws. What the first idea would require, however, is for all producers to stick together, for once, and that undoubtedly would be the hardest element. We’ve been here before of course, and nothing, whatsoever has happened.

 

That has always been the downfall of progress, but whatever you think of such ideas any new one has more merit than simply holding out the begging bowl and blaming retailers and processors, as happened at the NFU conference and all last winter.

 

Many people are telling me we need a fresh start with a blank sheet of paper, with new people and new ideas. Although there are encouraging signs of new people and new thinking (Mark Taylor, Dairy Crest, Ash at Arla, perhaps) none of “the establishment” (they know who they are) involved in GB dairy politics should be involved. They have had their chance, and we haven’t got very far with them at the moment.

 

Any project group should not be about the polite balancing of representation from the NFU’s, Dairy UK, Arla, Wiseman, DC etc but about getting fresh people with commercial experience from each end of the chain and with the right mentality who can think outside the box.

 

We need some real leadership to pull the British dairy industry out of the current crisis, and to prevent it going back into another one next year, or the year after that.  We need new thinkers, fresh ideas and people who are not constrained by the need to protect their career path, or who buckle at the first difficult decision or sign of trouble. And before you ask, no. I’m nowhere near the right man for any of this.

 

There’s an opportunity out there that the industry cannot afford not to grab. If we don’t sort out the mess and the future then John Allen’s later prediction will come right.  And the industry will pay the price for that failure!

 

Send your comments and additional ideas please to

 

IP February 2011 DF

 

Milk prices are creeping up at last! At bleeding last! Triggered by Milk Link’s and Tesco New Year rise others are clearly following. How much damage the intransigence of the liquid buyers over the last year will have done to the moral of farmers remains to be seen. Fair treatment, that’s all you want. Fair reward and respect.

 

Meanwhile, Dairy UK continues to wind-up producers with comments which undermine their reputation and severely hamper their efforts to forge links across the industry. They are the “Voice of the Industry”, they claim. No way.

 

Following a recent Dairy UK board delegation meeting with DEFRA Minister Jim Paice it was reported that Dairy UK argued that the UK dairy market is functioning “normally”. Normally?  Dairy Zimbabwe might claim that, but no one here 

will swallow that claptrap.

 

The GB dairy market is far from functioning properly. Only someone totally ignorant of the market or an utter fantasist could make such a claim. World dairy markets have bounced upwards in huge strides in 2010 and early 2011, but this has not resulted in a fair percentage of the gains flowing in to farmers’ pockets. But you can bet your life the moment commodity prices dip some liquid processors will execute a price drop to plug gaping holes in their profits. There is minimal transparency or accountability in today’s liquid milk pricing, and improved producer returns have been extremely slow in coming. 

 

Northern Ireland Co-op United Dairy Farmers paid a base price of 25.75ppl for December deliveries and its producer’s February base milk price is expected to be close to 28ppl. If commodity prices fall, so will its price. Now that’s a functioning market, but back on the GB mainland farmers have been insulated from such gains.  We were officially at the bottom of the Dutch 2010 LTO 12 month European milk price league table - below even Southern Ireland! And we’re supposed to have the best milk market in Europe! Working normally? Pah!

 

The price war in the supermarkets this autumn shows that the obsession with the liquid markets will limit the industry in the UK. Far from being the “cherished market to supply” it has been a liability this last year.

 

If we aspire to become a significant dairy producing nation, post 2015, we clearly need to be in quality commodity processing. Commodity is not a dirty word and it’s not a second class market, as it was once viewed.  It will suit some farmers’ to ditch producing to a level profile, cut costs and focus on margin, and not what his aligned neighbour is getting from Tesco or M&S.

 

Many are questioning whether dedicated producer groups have run their course, having set farmer against farmer with the “haves” and the “have nots”. On the one hand the NFU continue their love-in with supermarket contracts, whilst others believe they are a one way ticket to the devil, where the retailer determines the price paid to its producers, but which then has a direct and negative effect on the others. i.e the have nots.

 

 

Slowly but surely questions are being asked by grass roots farmers to those who (supposedly) represent their interests in negotiations. More and more voices are complaining about their teams’ abject failure.

 

For most of them their representatives were initially enthusiastic farmers keen to do their best. But that’s changed. They are now bogged down with politics, loyalties and conflicts and it’s evident to some that their roles are more about money, positions and the maintenance of the status quo. They don’t want to rock the boat. Something has to change.

 

Now Knockton Dairies (yeah, I know it’s Nocton, but this spelling definitely suits it better).

 

When “expert” reports land in my inbox a significant number end up in the delete bin. However, the recent Foresight report on the Future of Food and Farming grabbed my attention in its suggestions to ensure a world population rising to 9 billion plus can be fed ’sustainably and equitably’.  It made me ask what role dairy farming plays? 

 

There has been an “unprecedented” public response to the Knockton (proposal with a staggering 14,000 direct objections and petitions, with over 70,000 signatures (meaning of course that the other 59,930,000  equal to 98.88% of people in the UK don’t care a jot about it). The petitions claim the farm will be cruel and it will force other dairy farmers out of businesses, both cobblers. Many of the objections relate to welfare issues, but also, in recognition that welfare is not a planning issue, also contain objections on grounds of environmental damage. 

 

While the local council and consultees will be clear about their roles in weighing-up the application on its merits and the risks it poses, they will be acutely aware of the public pressure and scrutiny they face both collectively and personally.  The temptation to take an overly cautious and risk-averse approach must be extremely high – no one can be immune from that kind of exposure.  At the moment I can’t see planning permission being granted, unfortunately.

 

The hoops being jumped through by the Knockton duo are way beyond those any other dairy farmer has previously experienced. They have stuck their heads above the parapet with an ambitious plan that, on the face of it, could address many of the aims of the Foresight report. But in return they’ve had them shot off by masses of people most of whom have limited or no knowledge of dairy farming, nor who have any desire to know.

 

As I have previously stated in this column the time has come for the farming industry to put its foot down and take control of its own destiny.  Not all of you will like the super dairy proposal, but we must all embrace future challenges and their proposal would give us some fantastic insights into how we can adapt to meet these new challenges. Moreover we need to decide whether we are going to let people who know little about our industry manipulate its future direction in this and many other areas, for example, TB wildlife controls, GM technology and cloning.

 

For this reason I urge industry leaders to support Knockton, and to make it known that there must be fair treatment of such applications, regardless of the weight of misinformed public opinion. Such proposals must be weighed-up on their own merits and with a can-do approach.  If the proposal fails because it hasn’t had a fair hearing, then we have to ask where this leaves the dairy industry and UK agriculture for addressing the challenges of the future. Nowhere, basically.

 

This is not about one super dairy. It goes much deeper, into areas like TB and GM. It is about the industry, and about the numerous organisations who claim to represent you all taking a firm stance on its future direction, rather than hiding in case they offend someone. We have to educate the public to accept technological advances in agriculture and if we don’t do it others will step forward to do it for us and potentially damage our future competitiveness. For me the treatment of the Knockton case is pivotal for future advancement.

 

Finally, Happy Birthday to me! On the 7th February it was 25 years since I placed my first quota advert in Farming News, which started my quota business. The advert is framed in our office reception and was next to an Abertay paper sacks advert. Abertay and its girls have long gone, but not their mug coasters which I still use daily to brighten up my desk.  I bet some of you are wishing the Abertay girls had stayed and I had gone!

 

Comments please to

 

IP January 2011 DF

 

Firstly, Happy New Year to you all! What will 2011 bring, I wonder? Well two things are certain: controversy and more agro, unless there’s a breakthorugh soon. And two organisations which could see more of these elements than most are, I believe, Arla, and Arla Foods Milk Partnership. 

Back in August AFMP unveiled plans for its supplying farmers to invest around £70m in Arla’s new £150m+ super dairy, to be deducted at a rate of 0.5ppl per annum for eight years, which will total 4ppl.

 

There is no argument that the proposal is an extremely hot potato for AFMP’s Chairman Jonathan Ovens, who claims that most members are happy about the prospect.  I have to confess I have only found three producers who fall into that category – two being on an ASDA/Arla contract and one being an ex-DFOB producer, who is no doubt happy to have any contract, with any number of strings attached. I reckon I have spoken to dozens and dozens of Arla farmers, and have also received over 50 emails from those who are violently opposed to the idea.  Some were seeking help and clarity, while others required no help with the interpretation, with statements such as: “Have you seen AFMP’s latest way to shaft members?” and “How can this be a good investment with no interest, no dividend, no equity, no trading facility and no straight forward instant escape route on retirement?” being typical. The frustration is most evident amongst Arla’s non-aligned suppliers, who desperately need the money to invest in their own businesses.

 

The question most suppliers ask is simple: Why should AFMP members invest £70m in a dressed-up contribution which is effectively an interest free loan to Arla?

 

Although the planned launch has been delayed it is surely pouring petrol on an already raging fire of discontent – especially in light of the proposed merger between Arla Foods Amba (7,625 Danish and Swedish farmers) and German co-op, Hansa-Milch (1,000 members), which might be confirmed this spring. After all, a small German co-op supplying 700m litres of milk will be given the opportunity of full and equal membership of Arla, while UK farmers who supply 2.5 times more milk than the German co-op are expected to offer free money to the businesses – WITHOUT any share! Surely the merger opens up the opportunity for GB farmers to also have full membership of Arla Amba on equal terms!

 

AFMP is trying to justify the merits of the investment through independent benchmarking via milkprices.com, carried out by Dairy Farmer milk prices analyst, Stephen Bradley who is as straight as a gun barrel. Stephen’s task is to compare a 24-month rolling average of the base liquid milk prices paid to farmers by Dairy Crest, Wiseman, First Milk and Milk Link, and the letter to producers states AFMP members should receive 0.25ppl premium above this average, which increases, following the completion of the new dairy, to 0.5ppl.

 

However, the devil is in the detail, so I decided to look back at what the past 24 months would have delivered to Arla farmers if they had been paid on the same basis - taking the average paid each month by all five stated processors, and adding 0.25ppl, and comparing it to the actual Arla price paid. And the result? - the new formula would have meant a 0.15ppl milk price CUT!  The figures were checked by another independent milk price league table expert, and he confirmed each of my figures were accurate.  So you might have a clear transparent formula on which you can monitor the value of your 4ppl investment in Arla - but don’t expect more money!

 

There is thus a real chance Arla producers will lose out in a similar fashion to how they were encouraged to change calving patterns to increase production in September and October each year, only to be penalised with a 3ppl balancing charge in 2010! They were shafted on that balancing charge and the removal of the incentive scheme, and if producers swallow Arla’s benchmarking propaganda before a full assessment of the facts and figures then the odds are they will be shafted again.

 

As the saying goes “Fool me once shame on you. Fool me twice, shame on me!”  Going back to 2004 previous farmer investments with Arla have been left wanting, with high associated costs and a significant loss for those who have retired and / or left. The proposed new investment by farmers – effectively an interest free loan – would ensure the Danes bag a benefit equivalent to nearly £100m! That results from the 0.5ppl, plus the 0.15ppl cut (assuming what happened before happens in the future) which totals 0.65ppl extra money. On a throughput of 1.6 billion litres per annum, this totals £10.4m per annum, which racks up to £83.2m over the eight years. And on top of this Arla will save in excess of £13 million in bank interest charges!

 

Have the AFMP directors crunched the numbers and realised all of this, I wonder.  If they haven’t they could arguably be guilty of negligence in confidently trying to sell the deal.  The directors have a responsibility, and must be sure they are not involved in any form of deception of the members they represent, as there are potentially serious legal implications if they are. 

 

There is certainly a lot of unease and frustration in the Arla camp and it’s time for some straight talking and not for steamrollering the idea through.  I, and they, can already see more than a few squirms by the architects of the deal.

 

Let’s face it, the easiest, most transparent, way forward is for Arla to borrow the money from the banks for its proposed investment, in the same way that farmers have to do. If the banks won’t lend the money then the investment is not worth the farmers considering it!  At least the bank would take security against any money they lend – farmers won’t have this safeguard.

 

This is a very big issue for both Arla suppliers and the whole industry.  Whilst both Wisemans and Dairy Crest have declared they “have no (current) plans to follow Arla in making compulsory deductions from its milk suppliers”, realising their producers are finding it tough to invest in their own dairy farms without having a compulsory interest free loan imposed upon them, neither can afford to sit back and see Arla gain a competitive advantage by gaining access to such cheap money for so long.

 

Like I said at the start, this will be one of many controversial subjects that will rear its head through the year. Remember, keep me posted with your news and views so they can be fully aired and debated. We wouldn’t want any wool drawn over your eyes, now would we?

 

Comments please to

 

IP December 2010 DF

 

There’s only one topic worth discussing this month: porridge. Those who saw my weekly bulletin will know it was the hot “poll” in mid November on Dairy UK’s website. Unfortunately I know naff all about porridge, so I’m going to concentrate on a far lesser subject – milk prices and how, over the past six months, tens of millions of £Pounds have been thrown out of, or squeezed out, of the GB dairy chain.

 

Now we know farmers accept time lags between on farm price changes in relation to market realities. However, in 2010, the evidence points towards vast sums of money gained by processors from strong commodity prices having been handed over to retailers, or used to supply middle ground and discounters with cheap milk.

The reality is that improving commodity returns in 2010 have not resulted in a fair percentage of the gains flowing into farmers’ pockets, but you can bet your life the moment commodity prices dip some liquid processors will execute a price drop to plug gaping holes in their profits.

 

The bottom line is that the retailers, large and small, have been handed most, if not all, of the commodity gains by the liquid milk processors. During the last six months several contracts have been re-negotiated, and during these negotiations the big retailers have been able to squeeze their liquid processors - in some cases with just cause.  For instance, as soon as last year’s accounts were released by Wisemans retailer economists quickly worked out their contribution and concluded they were paying a high price for their processing, that discounters and middle ground retailers were obtaining cheaper milk, and that this took business from them. The big retailers were no longer prepared to sit back and watch discounters grab 250m litres of milk from them, as happened in the past two years.

 

Competition between the three largest GB liquid milk processors and other second division middle ground processors has been fierce, largely because the likes of Wiseman have decided to sacrifice margin in favour of volume (bearing in mind its desire to bring its Bridgwater factory closer to 500m litres/year capacity.)  So all the retailers  had to do was sit back whilst the processors knocked seven bells  of SH1T out of each another – with some processors  throwing up front cash payments to the retailers as they did it! All the retailers had to do was ping pong between the processors to see who would pay the biggest bounty, and then be cheeky and ask for a bit more!  Part of this freely available processor cash was squirreled away from booming cream prices, and part from previously charging too high a processing margin. The net result is that all major liquid milk retailers are now paying less for their milk than they did in summer.  Whilst Mike Coupe from Sainsburys declined to answer Ian’s question at the NFU/WI Mission Milk debate over exactly how much less they are paying Dairy Crest and Wisemans, the evidence Ian has indicates its between a whopping 5 to 6ppl less!  This equates to a £23m to £28m saving to Sainsburys, and a loss to all of you!

 

The question now is will the NFU and WI’s influence work, or is picketing the silver bullet again?

European style multi targeted protests are currently scheduled for the 15th/16th December. Whilst Jim McClaren, President of the NFU Scotland, is prepared to protest the NFU’s Peter Kendall, and the other NFU top bods, are shying away from doing so.

 

The big question for me is should the retailers with aligned dairy farmers be the target? We know that retail pools are extremely divisive, setting retailer aligned farmer against non-aligned, and creating a “haves v have not” society.

The major retailers are an easy and lucrative target in terms of gaining maximum publicity and potentially causing the most disruption. But for me they are the wrong target. If anyone is to be targeted surely it should be discounters like Iceland and Farm Foods, who are close to the heart of the problem by continuing to sell cheap milk, and have all had their snouts in the trough for years?

 

The jury is still out on whether FFA will receive the necessary support from farmers, and whether the protests will be a success. Above all I hope we do not alienate the public, but for some farmers going down and out of the industry it’s a case of wanting to go down fighting!

A less confrontational solution is to get Westbury up to full bore producing powder. Currently, as I write, Westbury is running under 25% of capacity. Isn’t it logical to use Westbury to short the liquid market of cheap liquid milk and discounted cheese, and switch milk into booming commodity markets? Those who don’t want to pay the price don’t get a drop!

 

We desperately need stronger sellers. Some say Arla recently walked away from Tesco, which cost them 85million litres. (Others say they didn’t, mind). I’d like to think they did, and that they didn’t drop their trousers on price as low as others. Because that’s what’s needed! If we are to have a sustainable supply chain, which everyone wants, then we need processors, and the likes of the brokers (First Milk mainly, as it sells far more brokered milk than Milk Link) to be stronger sellers, to sell less cheap milk into the liquid sector, to produce less value cheese, and to get powder production up.

 

Now some comments about Dairy UK, the self proclaimed “Voice of the Dairy Industry”, and its Director General Jim Begg. For those who aren’t sure about Dairy UK it mainly represents the processors, and also has a Farmers Forum to represent farmers. That does a good job on the likes of Johnes disease, but, like Dairy UK, does nothing on prices whatsoever. This year Mr Begg was awarded the Dairy Industry Award at the Dairy Show dinner, which was met with polite applause from a room full of the industry’s great and good, but who had temporarily turned into startled goldfish impersonators.

 

Increasingly, though, Mr Begg is looking either like a cross between the apologizer in chief for the retailers and processors and the conductor of the string quarter on the Titanic. In a turgid six minute plugathon at the Mission Milk conference for all things good, (nearly dressed up as a question) he was clearly trying to justify the unjustifiable, and make out that everything in the dairying garden is rosy. He also commented that “milk production, farmer confidence and farm gate prices are moving up, so what’s the problem?” and pointed out that “farm gate milk prices were rising, on farm investment and confidence was up, and that UK production was increasing”.  He said he was “trying to put my finger on what’s really troubling Britain’s dairy farmers at present.  Things should be good.”

 

Well, Mr Begg, here’s your answer, in this article. And while you may be right that farmer confidence was up, it certainly isn’t now. It, and milk supplies, definitely won’t be on the rise unless something changes, and fast. If, as some of your liquid members are lobbying for, the milk price will be savaged in January, then I’m afraid respect levels from farmers towards your organization and members will sink lower than ever. And with it will go more farmers out of the industry, and millions of litres of milk with them.

 

On that happy note, then, here’s wishing you and your families a healthy, happy Christmas and a PROPSEROUS New Year. Let’s not let the liquid processors get away with dropping your milk price to plug their profits gap!

Oh, and next year I really will talk about porridge. From “The Voice of The Industry” it is clearly vital to the success of the sector going forward!

Comments please to

IP November 2010 DF

So Morrisons renewed their contracts with Dairy Crest and Arla, freezing out Wiseman.  But accusations are rife that both had all had to drop their trousers to retain the business.

 

We are unlikely to ever learn to what extent the retention of the Tesco, ASDA and Morrisons business has hit the profits of the likes of Arla.  However, the impact of the trouser-dropping Dairy Crest will go undetected in their current financial year, due to the fact the new extended Morrisons deal does not kick in until 2011.  Then we are sure to see which processors are swimming naked without any trunks on when the tide goes out!

I attended my third First Milk AGM recently, only this time Chairman Bill Mustoe made me sing for my supper by giving me the pre-dinner speaking slot, and promptly pincered me between Kate Allum and himself during dinner.

 

Kate is now the undisputed top girl in the UK dairy industry following the departure of the Iron Lady from Arla, Hanne Sondergaard.  In her AGM presentation she was honest with delegates, recognizing the co-op is “still off the pace on milk price” and stated that for every 0.25ppl additional money paid to producers First Milk needs to generate an additional £4 million in sales revenue.

 

Meanwhile, Chairman Bill confirmed when he joined First Milk his first job was to “muck out the stables” which to most of you and I, means get rid of the you know what.  He also commented he will continue to look at the stables and having taken the First Milk business apart, is now re-assembling it with new higher performance parts.

As much as I have christened Robert Shearlaw in the past with a few mischievous nicknames, I did recognise the fact whilst at the time he was considered by some members to be a traitor and was criticised for what he did, he officially was the catalyst for change.  He played an important role and I dare not even consider how long the previous regime would have remained in place had he not made his move.

So it’s Mustoe the Magician and his female assistant, Kate.  Let’s hope they continue to work their magic and pull more rabbits out of the hat.  Having changed the farmer representatives on the board and brought in The Magnificent 7, it will be interesting to see whether Mustoe feels further board changes are necessary when he next mucks the stable again in a few months time.

Last month’s article prompted one of the biggest responses I have ever encountered from an article from a wide range of people spread across the dairy supply chain.

One reader commented to me how his enthusiasm for dairy farming was instantly sapped when a 4 litres for £1.50 retailer liquid milk promotion mail shot dropped through his letter box.  It made a dairy farmer, who was proud to have just come into the house for his breakfast after milking his herd for almost 4 hours in a 30-year old parlour, question whether to continue.

Now DairyCo.  It is undeniably, having a tough time, and not just from a few of its levy paying farmers! Its future, and that of its parent company AHDB hangs in the balance.

For all its criticism its latest 2009/2010 Dairy Supply Chains Margins report was exactly the sort of independent well researched information those involved in the producer and processing industry require, especially running up to the second Women’s Institute Great Milk Debate in London on 16th November.

DairyCo’s report confirms that retailers have once again succeeded in increasing their gross margins in liquid milk, mild and mature cheddar, which more or less account for 80% of the UK milk product utilisation.  Here you will see my variation on the graph produced by DairyCo which shows the ppl share of the retail price each of the three segments receive.

 

 

 

 

 

 

 


So in the past 10 years retailers have increased their share of the bottle from 20% to a whopping 34% at the expense of processors and farmers.  In terms of ppl the retailers share has jumped from 7.9ppl to 22.4ppl, a mouth watering 14.5ppl increase.  It was a similar retailer success story for

Milk and mature cheddar margins.

 

Equally concerning is the fact that 94.5% of liquid milk is now sold in retail outlets with only 5.5% sold via the milkman.

You have to hand it to retailers for their brassy success to increase their margins on all three dairy products whilst processors and retailers had their margins squeezed.

Next month I will be reporting on dairy farming in Canada.  Meanwhile, log on to   to view the very impressive Yeo Valley Organics advert.  Having seen it perhaps it’s time for the milk moustaches to be shaved off once and for all, to be replaced by a more funky and fun approach!  More on that next month.

Comments please to

IP October 2010 DF

Thursday 16th September started like every other day in the dairy industry. The fact that it quickly turned into one of the darkest for many years was lost on many, if not most, farmers. 2009 saw the demise of DFB, but unless something changes quickly then 2010 will see more permanent damage to the industry, and farmers had better buckle up for a hell of a bumpy ride. History could well mark this day as the start of the chaos.

The day began well - Tesco took the unusual step of trumpeting the fact it was to pay its direct milk suppliers an extra 1.28ppl. However, at the same time Wisemans issued a thumping profits warning. Fierce competition, coupled with a retail price war with milk at its heart, resulted in the warning, and this sent Wisemans share value plummeting 35% to £3.39 from £4.85, almost instantly wiping £100m off the company’s value. And it is likely that Tesco has also beaten up Arla as well, radically lowering both its supplier’s margins. You can be sure if Arla was still a Plc it would also have issued a similar profits warning to that issued by Wisemans. You can almost imagine the conversation to (NB not between)  Mr Tesco and Arla and Wiseman. It goes something like this:

“We are increasing our price paid to our dedicated suppliers. . .  but at the same time you will cut your processing margin or risk losing the business. Oh, and if you attempt to pass these cuts back to the farmers who supply you direct, and the finger of blame gets pointed at us, we will have you, so don’t do it.” The result is that Wiseman was stuck between a rock and a hard place and opted to retain volume at the expense of margin.

Asda takes the blame for triggering the war, after reducing its four pints at an original price of £1.53 to £1.25, which Tesco and others have subsequently followed. But with Wisemans having confirmed that negotiations with CTRG (Co-op) and Sainsburys were concluded, the Financial Times blogger Neil Hume appears to be correct in his assumption that the Wiseman profits warning was almost entirely Tesco triggered. The alternative theory is that Wisemans and Arla were both charging the retailer a high price for processing its milk, and Tesco have simply reduced the price they pay to “normal rates”. Dairy Crest certainly want more retailer liquid business and were as keen as anyone to drive a wedge into the Tesco processing instead of sitting back and saying “After you Robert”

The end result, in the case of Wisemans, should certainly sober up most, if not all, dairy farmers because a retailer has once again successfully screwed a large slug of profits out of the UK processing industry -  and that’s nothing short of a disaster for the industry. We all know who pays in the end.

The profit warning saw Wisemans declare a raft of cost cutting measures in an attempt to re-build margins, as well as attempt to increase volumes to boost throughput of its newest Bridgewater factory, whose capacity ramps up to 500 million litres per annum from next month. Marry this with the fact Arla is now building the world’s largest liquid processing plant in Aylesbury (adding a massive amount of capacity), with the fact that Medina has brought back Blaydon into being (more capacity) and it’s certainly a case that the pressure is on for all liquid retailers. I doubt Arla will decide to abort the planned super dairy due to uneconomical margins. It will be a climb-down too much, but anything can happen in this day and age.

Fortunately Wiseman’s balance sheet is strong and, yes, they can stand it (for a while). But if the exercise is repeated by other retailers, especially on Dairy Crest, the move will be harder for it to swallow, with its net debt standing at £337m compared to Wisemans mere £20m. Dairy Crest’s comment that it is “not too bothered by this price war” completely stunned me.

Nor will we see the end of musical chairs with the retailers and their suppliers. Back in March 2009 Tesco took almost 100 million litres of Wiseman’s business, and gave it to Arla, remember - once again based on price. And this January Sainsburys gave Arla 5% of its business at the expense of Wiseman and Dairy Crest.

As we stated at the time “old habits die hard” and there is only one reason these moves are made – and they aren’t to put the milk price up! So now Wiseman has been beaten-up three times, and it will be shaking its feathers to ensure the fourth bout is a knockout contest in which they are training to win.

That bout is undoubtedly the current contract negotiations with Asda (currently exclusively supplied by Arla), and Morrisons (currently 50% Dairy Crest and 50% Arla). While I would personally not bet any money on Wiseman securing a litre of the Asda business from Arla, the predictions on the outcome of the Morrisons contract could well be nothing short of a blood bath. Let’s face it, Wisemans are out to secure a greater volume of milk processing, do not currently supply Morrisons and will want to seize this opportunity to gain marginal business. It has nothing to lose by piling the pressure on its rivals. It could be mayhem in the market.

Now the Dairy Event. Few farmers or exhibitors at the first NEC Dairy and Livestock Show regretted the move, and looked back to Stoneleigh with fond memories. So what will be next to drive the Event to even greater heights?

Well one obvious move, assuming the show is to remain a two day event (which several exhibitors question the need for), is to consolidate Holstein UK’s National Show from Stoneleigh’s museum of farming. Then to move the various beef shows to appear on day 2, to bolster attendance and interest. Then bringing in Agrilive Smithfield into the event will be a further logical move. This event is the latest casualty in the RASE’s long list of failures, of course. Others mentioned bringing in a National Cheese Show as well – another good idea.

But excellent as the event was the RABDF does get a brickbat. At this year’s event the RABDF issued a crass press release calling for processor consolidation. Hold on RABDF - that’s not your area of expertise! “Button it!” was (is) the message! I suggest you stick to what you are good at, and work for the consolidation suggested above. The world is your oyster to create an event to rival those in France and Germany, as a celebration of the best in UK livestock, even if the date might have to be put back later in the year.

As ever, though, there may be one hurdle - convincing the dinosaurs and old farts in charge of the other shows that merging is a good move. As ever they fear change and the loss of their positions and egos, which could, once again, block progress.  I sincerely hope it doesn’t!

Comments please to

 

IP September 2010 DF

 

I have attended The CLA Game Fair every year, bar two, since I was in shorts at the tender age of 8 back in 1968 and have enthusiastically followed the event around England.

 

This year 144,000 visitors attended a new location in Warwickshire, which was a shrewd move by the CLA as it gave them a golden opportunity to grab former Royal Show attendees. 

 

I made a point of listening to a panel debate billed as “Killing Foxes, Culling Badgers or Protecting Birds.  What should the new government do first to help the countryside?” This involved Jim Paice, Peter Kendall, Mark Avery (RSPB) and a hatful of others, including some of our bunny-hugging friends in rope sandals and the like.

 

Kendall thought it was open season and fired his shots off as accurately as the clay pigeon winners did: “TB is destroying our livestock industry and culling badgers is a definite priority”, he stated.

 

This prompted some amusing remarks from other panel members, including Pauline Kinder from the Secret World Animal Sanctuary, evidently the largest badger rescue operation in the UK, who is also a former dairy farmer’s wife (it was not clear whether they sold the cows or split up) and she agreed that “the TB situation is serious.”  No st Sherlock!  Then came Douglas Batchelor from The League against Cruel Sports whose best response was “farmers and the industry want more government money.”  As for the comments from the floor Lyn Sawyer, a self declared hunt saboteur and animal rights activist, well, I'm afraid this was comical in the extreme, but showed what we are up against. She wanted us to stop killing badgers and animals, but control the human population instead! Presumably through forced culling! And she is a midwife too! She (they?) really have ludicrous arguments and should be with the other clowns in the pantomime. 

 

Jim Paice was calm, measured and clear in his response to these irritant activists – he declared that no country in the world had reduced or controlled TB in cattle unless they control it in the wildlife.  “We need to take a balanced view and culling is part of the solution, not the solution.”  Paice made his position crystal clear; he wants to get on top of the disease and will not pander to any group or campaigners.  One person from the audience summed up his view, which judging by the audience reaction was enthusiastically shared.  He commented that we have a duty of care to all animals and must not allow the animal rights industry to make more money for their campaigns and greater fools of us again.  “Not long ago these campaigners donated £1.1 billion to the Labour funds – those days are over.” 

 

Finally, I had to smile when I overheard a lad in a café near Stoneleigh, state that the Game Fair would be worth checking out to see the latest video games.  Possibly the only Game he had heard of.

 

But onto milk matters - The NFU have been banging the drum over the need for fairer milk contracts and recently former First Milk board member, now NFU Dairy Board Chairman, Mansel Raymond, was certainly OTT in his condemnation of First Milk’s decision to only pay future milk price increases to members who had not tendered their resignation as a contractual weakness farmers should be protected from.

 

Playing Devil’s Advocate, I question why the vast majority of First Milk’s resignations are what I term “speculative” meaning they are resignations tendered with no new home to go to and in most cases with no intention to leave the co-op.  Not only are the majority speculative a number are effectively revolving evergreen notices because come 30th December some co-op members will rescind their resignations and re-submit a new one 24 hours later.  This is surely a contractual loophole Mr Raymond & Co should have plugged whilst seated around the First Milk top table.  How on earth can anyone expect Mustoe & Allum, and their sales force, to run a business when, on the 29th December they expect to lose tens of millions of million litres, only to find 24 hours later, they have to find a profitable home for most of it, if not all, of the literage.  Its madness and a better contractual way for all must be found.

 

Liquid milk price increases, or rather the lack of them, will be the number one talking point at the forthcoming NEC Dairy Event and Livestock Show.

 

For the record this is how I see the situation at the coal face.  Milk is a number one key selling item for retailers and they have struggled to compete with discounters and their mouth-watering offers on milk.  The result is, retailers have lost large volumes of milk sales and with those lost sales has gone revenue from other groceries those consumers have purchased at the discount stores.

 

Hence retailers decide enough is enough and attack the discounters to take back their sales volumes with heavily discounted milk using their margin, or so they claim.  Whilst I buy this story to a certain degree I know those same retailers have witnessed healthy end of year results turned in by the likes of Wiseman and Dairy Crest and I have the sneaky feeling they have been quick to flex their muscles to have a slice of the profits, thus squeezing processors hard instead of allowing those same processors to pay a better milk price to their non-aligned suppliers.  Is it a case of what we give the farmers with one hand we take away with the other hand?

 

Then there is what I call “The Tesco Factor”, which, simply put, means all liquid processors will sit back until late September to see what price Tesco announces for the next 6 months.  This is partly because it’s easy and they can get away with it as well as the fact the  agreement Arla and Wiseman probably have is along the lines that Tesco’s dedicated producers will always receive xppl premium above the non-Tesco aligned liquid suppliers, which means the others cannot have the increase even if it’s available.  As every Tesco   aligned supplier knows it’s very easy and quick to get out of a Tesco contract, so if other prices topped the Tesco price they could quickly lose volume.

 

So my prognosis is liquid suppliers are likely to receive little, if anything, before Tesco declare its hand and certainly not whilst the discounters and middle grounders cause chaos and bloodshed in the liquid market. 

 

Who would have thought Milk Link’s member price would eclipse that of Arla, Dairy Crest and Wiseman’s liquid price and that cheese and ingredients would exert the pressure on liquid?  So Wiseman’s Bridgwater factory recruitment field officers had better go on paid gardening leave rather than think they can tempt Milk Link members to jump ship.  As for the Dairy Event it could be another time of discontent because liquid processors and retailers should hear loud and clear how farmers’ view the lag in upward milk price movement behind the market realities.

 

Numerous dairy issues have hit the media radar in recent weeks, which have required a well informed, coordinated, industry response. Recent examples include plans for 3,000 to 8,000 cow greenfield units and milk from cloned cows.

 

Education is essential, as is a one stop shop to highlight the skilled, welfare orientated operation of a modern dairy farm.  DairyCo have, on numerous occasions, been challenged as to whether they provide value for money for levy paying dairy farmers, especially under their old guise of the MDC, where at one stage, 11 directors had 6 staff – almost 2 directors each.  Recently they have launched a well thought out website aimed at explaining to the media, consumers, teachers etc what happens down on the farm.

 

It’s a fascinating source of information, including a virtual farm tour with video and photographs showing every aspect of milk production.  I would urge all involved in our dairy industry to take time to study the site and make any suggestions or comments to DairyCo to help them develop the site further. 

 

So, next time anyone asks you questions about dairy farming point them to this site as a one stop shop and platform to promote the positives of what you do.  The site should help consumers accept on farm technological developments and dilute their automatic resistance to the modern way milk is produced.

 

It’s time all of you held your heads up high and boasted of how proud you are of what you do.

 

I will not be taking any blackboards to the Dairy Event this year but I will be present on both days.  If anyone wants to catch up, email me or meet me at the Dairy Farmer stand both days between 2pm and 3pm with the other panel speakers.  Here milk prices, confidence to build large greenfield dairies, this is dairy farming and a clone of Potter getting into the dairy world, will be discussed.

 

Comments: fax on 01335 324584 or

 

IP August 2010 DF

 

It may be August and the silly season, but let me assure you there's nothing silly about what will be going on in the dairy industry over the next few months.

 

Two historical and industry changing events are about to take place.

 

The first will be the inaugural Dairy Event and Livestock Show at the NEC, which I believe will catapult the RABDF’s showpiece into the 21st century with the modern facilities that exhibitors and show-goers expect these days.

 

The only problem for me is deciding whether I to go to watch Switzerland v England or attend the Event and join a breakfast panel on the new principal sponsors stand – Barclays - each day. For fear of disappointment my loyalty has gone to the show.

 

The second historical event will be the opening of the Skimmed Milk Powder futures market by NYSE Euronext.

Recently I took time out to attend one of the organisation’s seminar briefings to learn how trades will operate and who is likely to benefit.

 

Before all that, though, what’s the need for such a market? Well we all accept that there is likely to be volatile dairy commodity prices going forward. This, in itself, is not bad, in fact it can be pretty healthy. However extreme volatility and large price fluctuations are bad for all involved. The SMP futures contracts are being introduced in an attempt to provide a financial tool for businesses involved in SMP to manage this volatility.

 

Every company involved in dairy commodities says they want greater price stability, so I was expecting the room to be packed with milk buyers from every denomination. Alas, not. The main surprise was that the only UK milk purchaser who attended the seminar was arguably the one least likely to attend – Wisemans.  Their commodity trading is linked to cream, and, while prices interrelate, there are plenty of others I would have expected to see represented who are involved in powder and butter trading.

 

However, to most readers the mere mention of futures contracts leads to thoughts of arable farmers getting their fingers burnt some 20 years ago through speculative trading that went wrong, plus the image of sharp-suited speculators who play havoc with markets that would be a lot less volatile without them. Now I am not here to state whether speculators are good or bad but, like many, I am suspicious of them. However, it is clear that futures markets would not work without them, and the fact is futures markets could be good for those involved in dairying. So, we may not like them, but we need them.

 

At the seminar NYSE drew the similarity between bookmakers and speculators. Bookmakers take bets on the chances of a horse winning. Speculators take bets on what they think commodity prices will be in the future – whether higher or lower, and engage in trading to make a profit.

 

The industry should not be put off by speculators being involved in dairy futures, and we should simply go about our own business, reassured NYSE. But the good news is that experts believe there will be almost zero speculative activity in dairy futures, especially in the infancy of trading, because speculators want to be involved in fast moving, high-volume markets where they can buy and sell quickly like oil, metals, cocoa, and coffee futures. Indeed, NYSE expects most companies who take part in the market to be engaged in the physical aspect of the product - either making it or using it

So, what are futures all about? Well, the official definition of a futures contract is that it is “an agreement to buy or sell a commodity on a fixed date in the future at a price agreed now”. Most of you will have taken out a fixed rate loan, invested money for a defined term, fixed your soya price for a year or signed 12 month electricity supply contract.  All of these are effectively dabbling in the futures markets – only its just via other companies, rather than directly.

 

The market allows buyers and sellers of SMP to effectively lock-in their prices in the future. Sellers will effectively see no price reduction if the price goes down, but nor will they see an increase if the price goes up. The opposite is true for powder buyers. There is an option to deliver the products, but most futures contracts are simply financial transactions and “closed out” before physical delivery becomes due.

 

What's the relevance to dairy farmers then? Well that depends on the degree to which your buyer becomes involved, or not.

I do not believe many dairy farmers will use the futures market themselves. However, if I were going to invest, or had invested, a large amount of capital in a dairy operation, I would want to know how it works and what I could do if I believed there was a risk of prices falling and I wanted to fix my price and inject some certainty into my business. Indeed, I can see a point when a bank will not lend a farmer significant amounts of money unless there is a degree of certainty injected into the business via futures activity.

 

But while physical trading will not be for the majority, I am convinced if there are enough trades then a new information source for the future value of milk will develop, and farmers will undoubtedly want to track and monitor it. Indeed my free weekly dairy industry bulletin will trace executed contracts to ensure dairy farmers know what’s happening in the market.

 

The main question right now is will it be used? Well, that remains to be seen. Buyers aren’t exactly queuing up to engage, else the room would be full of milk buyers.  The presenters believe the dairy futures market will thrive in a Europe which had no Intervention buying safety net post 2015, but I'm not so sure I accept this is correct. I personally doubt the Commission will completely remove the safety net Intervention provides, and will decide to simply lower the bar as to when it is utilized.

 

The SMP futures will be the pilot before other dairy powder and butter contracts are introduced to the portfolio.  I have put forward some ideas which I hope will help farmers and the wider industry traders translate prices from the futures contracts back to the parlour, and from the parlour to the futures computer terminals.

 

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IP July 2010 DF

 

Firstly a big South African hello to you all!  I pen this not far away from the England football camp where I’m hoping to get a place in the starting line-up for the final group game.  I think I’ll try for goalie.

 

But bad as things are here, they could be worse.  I could be back in the UK and have to endure Jim Begg’s oh so smug jibes as to how badly the English are doing.  But at lease we are (were – Ed) here, which is more than can be said for the jocks, although I do have to concede they may be doing their bit at Wimbledon.

 

I’m out in the sticks, my phone barely works, and no-one has my number anyway.  There’s no internet, and I can’t be bothered reading the papers because the footie reports are so bad.  I am, effectively, incommunicado.

 

And yet still a Dairy Crest plug pops up in front of me like some ubiquitous Meerkat telling me that City analysts, Shore Capital, have recently declared Dairy Crest shares as “a good buy at £3.62” and significantly undervalued.

 

The firm’s shares were quick to respond and break the £4 barrier, but perhaps “still fall short of their true value”.

 

The moral of the story is you can fly to the other side of the world and live like a nomad (well a little bit like one anyhow) then rest assured Uncle Arthur will still track you down if there’s a DC plug to be had.  Mind you it’s all he’ll get for the next four years now.

 

Anyway, football and South Africa aside, let’s give a hearty cheerio to Sir Terry.  So long and thanks for all the fish, or whatever the expression is.

 

He certainly made his mark on retailing, and left an indelible impression on the UK dairy scene too.  He has, for anyone who doesn’t know, decided to retire.  Yep, retire.  That’s, er, the part of life which comes after work and before death for most people.

 

But not, it seems, for a lot of farmers.  Rather alarmingly (but perhaps not surprisingly) this year’s DairyCo Farmer Intentions Survey highlighted that 38% of dairy farmers have no private pension provision, and either relied on the state pension of £95.25 per week or, even worse, continued to cadge off the farm.  This latter plan simply makes the older generation a liability to their younger successors.

 

But if you think you or your parents’ pension is a muddle, then you aren’t the only ones.  If any readers bothered to study the latest results from Arla in any detail, they will have noticed its huge DKK1027m (£112m) UK pension deficit.

 

Then there’s Dairy Crest.  Last year they made the move to close their defined benefits scheme, resulting in a one off £16.9m exceptional cost.  They approved additional contributions, including £20m in the current financial year – a move which led analysts to conclude that DC “is on top of any pension problem”.  (Gosh, another plug, there’ll be none for eight years now.)

 

To give you an idea of the magnitude of the numbers, DC’s net pension liability at March 31, 2009, was £46m and at March 31 this year had rocketed up to £102m.

 

In contrast, those savvy number crunchers (or is it the short arm and long pocket syndrome) at Wisemans have effectively a zero pension liability.

 

Then there are the co-ops and the pension muddle left by DFB.  This adds more demands to the likes of First Milk and Milk Link as they take on their share of the pension deficit along with several others within the Milk Trustees Pension Fund (MTPF).

 

For those who don’t know, the fund was an MMB final salary occupational pension scheme set up in 1955 and which executes a rolling three-year Actuarial Valuation, the latest of which came at March 31, 2009, and the outcome of which is unlikely to be known until September this year.

 

Talk of deficits sounds alarming, but remember the money doesn’t have to be found all at one.

 

In fact Milk Link, when questioned about it on the publication of its latest annual report, was remarkably relaxed about the issue.

 

So let’s have all the cards on the table so that we can thrash it out in the pages of Dairy Farmer and get to know the position once and for all.

 

Finally, a few comments concerning the OFT following their head to head with Tesco and their fanatical obsession with events in the UK dairy industry.

 

In its recent report, Shore Capital summed up the situation by commenting that “bizarrely it appears that a political initiative to improve farmers’ return (in 2003) led to a charge and fine on the industry by the OFT, despite no suggestion of profiteering by anyone and a transparent benefit to the dairy producers.”

 

It could only happen here, and my hope is one day someone will stand up and say enough is enough.

 

What puzzles me though is how come Tesco’s two suppliers, Wiseman and Arla, as well as their two biggest retail competitors, ASDA and Sainsburys, were involved in the Dairy Retail Prices Investigation and all, bar one, were fined by the OFT, yet Tesco claimed they knew nothing about the initiative!

 

If I were Sir Terry I would be questioning my dairy purchasing department as to how come they knew nothing about it at a time when farmers were crying out for more money and Tesco was the UK’s biggest liquid milk purchaser.  It beggars belief!

 

Comments: fax on 01335 324584 or

 

PS.  What are you like as a team manager? - Ed

 

IP June 2010 DF

What do you want first - the good news or the co-op news? Well, either way, I'll start with the good first.

This year’s DIN Conference entitled “Coping with the new market volatility”, saw the usual gathering of dairy experts. Most speakers expect world dairy commodity prices to remain strong throughout 2010, especially now cheese production is declining.

The CEO of Arla Foods, Peder Tuborgh, made little mention of his company’s plans for its GB operation, but he did indicate his wish that GB farmers invest in Arla and grow their share of the business alongside their 7,600 Swedish and Danish farmer owners. Sounds like he wants more money then!

David Dobbin, from Northern Ireland’s United Dairy Farmers co-op, raised the critical issue of China, which is currently sitting on more than 200,000 tonnes of home produced powder which is certain to end up on the world’s “grey” market because consumers there do not trust their own powder following the Melamine scandal. They are thus importing their requirements. He believed the short term prospects look good if we assume the Commission will be sensible in offloading intervention stocks.

The Conference’s star performer was, however, Robert Wiseman who blended humour into his message. He began by quoting evidence from DFB Council Chairman Stephen Yates to the DFB enquiry. Robert, was, said Yates, “a ruthless bastard”. Neither was true, he believed. It was just he had been, and still was, 100% focused on the UK liquid milk market, and few people could fail but be impressed with him and his business.

Now on to the co-ops. It’s the time of year when plc and co-op milk processors start to release their 31st March year end results. Dairy Crest and Wiseman have already issued, and profits were up for the pair of them. Milk Link’s are due out on 9th June and I assume all is well, as I've picked up no warning signals.

All eyes will be focused on First Milk’s results, which come later in the year, and will also be on time, according to the co-op. Although Captain Mustoe has not been in command for a full year, the results will indicate whether a deeper crisis is looming, or has been averted. Mustoe, like others, faces significant challenges in this industry, but at least he has his team in place, with a broad range of commercial experience.

But what of an often overlooked much smaller co-operative - South Caernarfon Creameries? What is to be said about them right now? This co-op started in 1938 and is the oldest GB farmer owned dairy co-op, collecting milk from close on 200 members. However the direction, strategy and health of the co-op has recently been called into question, with a number of its more progressive famers resigning.  Whatever is going on, it doesn't look good.

Let's contrast their board to Mustoe's most recent move (without taking anything away from Milk Link’s or the boards of other co-ops.) Mustoe has just invited seven “wise men” (dubbed the magnificent seven) to join, effectively, the management hierarchy of the co-op. By contrast, at SCC an analysis of the current board shows two farmers have sat on the board for 42 years and 36 years respectively, and the two most recent additions of young blood have both resigned. Within the board of directors a staggering 10 out of 11 are farmers and there are non non executive directors whatsoever.  What did I write when Milk Marque was dissolved? “Are we at the end of the dinosaur age?”  I also observed that some co-op board members cling onto their positions like drunken men do with lamp posts.

If SCC was topping the milk price league table and going from strength to strength then this would not matter a jot. But it isn't. It’s third from the bottom. Is the self interest of individual board members affecting the situation? Is the co-op benefitting individual board members, rather than the members?  Co-ops must be both democratic and accountable. Is it being? Or is there too much spin and talk of sticking together and riding out the crisis? Questions not for me, but for the members.

The bottom line is, only the best farmers should be directors.  If a farmer is not of the calibre to be considered for a plc, like Dairy Crest or Wiseman, he or she should not, in my opinion, even be considered for a co-op board.  A farmer whose only experience is in running an average dairy farm technically brings little outside experience to the boardroom. It will certainly be interesting to see the contribution of First Milk's “wise men” - most of whom do have experience outside of the world of dairy - going forward.

Remember what the EFRA Committee report into the collapse of DFB stated: “It's board composition was a weakness and the Committee was not convinced that the preponderance of directors should be farmer directors”. Director’s of plc’s are selected for their particular areas of expertise, which are relevant to the business - such as finance, raising capital, marketing, legal and governance.  If farmer directors are required they must be chosen for their experience in running large successful businesses.  Hopefully SCC will sort out its problems soon and push ahead with a complete shake up of its board. I will happily eat my words if it starts to rocket up the milk price league table.

Finally, a belated comment or two on DairyCo’s Farmer Intentions Survey, which has become the barometer of the mood and plans of UK dairy farmers. This year’s results show a cautiously optimistic mood with “some small shoots of a return in confidence” as 32% of those surveyed intend to increase milk production in the next two years  while those intending to action a succession plan during the next decade was 43% up from a pitiful 24%.

Let’s hope more of the older generation treat the farm like they do their children: having grown up with them sooner or later it’s time to let go. 

For those who are over 50, don’t feel by letting go you lose all contact, but be prepared to hand over some control to the next generation – try doing it gradually in bite size stages.  If you haven’t succeeded in dairy farming by the age of 50, or earlier, you have probably left it too late to do so.  If you have made it, and indeed over achieved, there’s still time to set new goals.

Whichever, don’t hang on to the control of the farm until your final breath!                                 

Comments to or fax 01335 324584

 IP May 2010 DF

 

What Future for Milk? Well, I’m sure you’ve got your own ideas, but a few weeks ago I was invited to a Conference in Brussels, organised by the European Commission, to discuss exactly that. And what a great conference it was too, although I have to report that I have heard someone make an even more ludicrous and outlandish comment about dairying than even the UK’s chief apologiser for the retailers, Kevin Hawkins, could muster! It was made by Xavier Durieu from Eurocommerce, who represent European retailers, who claimed that “retailers pay the market price imposed by their suppliers and pass it on to consumers with a low profit margin of between 3% to 4% on milk!”  Astonishing!

 

The delegate list read like a who’s who of the European dairy industry, but, interestingly, only one UK retailer was represented – ASDA - and just two milk purchasers - First Milk and Fayrefield Foods. A mighty big Potter Brownie point for them then. I wonder if this tells us anything about those who did not attend?

 

As you would expect from an EU Commission organised conference, the opening keynote address came from the new Agriculture Commissioner, Dacian Ciolos.  “Stunned” would perhaps best sum up my reaction when he left the conference immediately after he had given his paper.  After all dairying is the most valuable sector of European agriculture in both turnover and employment terms and he could only spare the delegates 30 minutes!

 

However he did confirm that he is willing to listen to new ideas and will soon stamp his own mark on the EU’s future dairy policy, rather than follow the rather liberal route set by his predecessor. Those new solutions are not ones which call for the retention of quotas “in their current form”, and are also not solutions which require injections of money to create false markets.  But his comments on quotas were interesting nonetheless. Could he be persuaded to retain quotas in a different form, because he clearly recognises that the disappearance of quotas is a major challenge to most European dairy farmers? We shall see.

 

There was lots of talk from his predecessor Fischer Boel of the need for a smooth landing when quotas end, and Ciolos used the analogy of shock absorbers that need to be adapted to the new road conditions the EU dairy industry will be driving on.  Another speaker emphasised to the delegates that the term soft landing should not mean that nothing changes and it is business as usual, because every landing encounters turbulence. Buckle up and be prepared, was the message.

 

I felt Ciolos wants all EU dairy farmers to be competitive; however, the Commission has no intention of removing all support.  He will not simply step in to smooth out normal milk price fluctuations, however, I feel the chances of the intervention safety net being abolished in 2015, or in the medium term, are zero.  The Commission will continue to have an intervention type mechanism, but one which evolves to encourage low cost producers in some countries to produce additional milk. Currently the Commission is sitting on large carry-over of stocks of 196,000 tonnes of SMP plus 25,000 tonnes of butter in intervention, which they will try to off load carefully so as not to put the dampers on milk price increases. Certainly with EU and world commodity prices shooting up almost daily the Commission will do all it can to prevent a repetition of what happened in 2007/2008 when producers across most of the EU’s 27 member states instantly responded to the price rises by rapidly increasing production, which then resulted in the price crash afterwards. The Commission knows careful off-loading of its stock levels will curb significant price increases at farm gate level, will dampen producer’s enthusiasm to chase rising markets by increasing production, and ensure quotas remain under utilised so that their values gradually reduce to zero by 2015. This way they will hope to defend any scrutiny of the Commission’s existing and future dairy policy, and avoid further troublesome mass strikes.

 

One of the Spanish panel speakers at the conference declared that the UK’s old MMB’s “worked extremely well”, and this comment follows from others that have been made in Europe recently. Clearly there are some who look back on our Boards and think they are the answer to a maiden’s prayer. Incidentally, to my utter astonishment within days of the conference I received a promotional card from the British Wool Marketing Board with the message from its Chairman “Don’t let the Wool Board be the next Milk Board because let’s face it, the dairy industry has never recovered from that one.”  Well Mr Wool Board your message is loud and clear, but is one which few in the dairy industry would subscribe to! Such boards have a limited or nil track record in encouraging healthy competition, and from my experience no competition = no future. Fortunately and predictably at the conference Dairy UK’s Jim Begg stepped up and informed the speaker and delegates that the MMB’s had hindered innovation and growth, and to return to them would be a backward step.

 

Ciolos is aware that the ending of quotas and current extreme price volatility is a real problem, and that dairy farmers across Europe are a powerful bunch. I feel there will be more to come from him as he seeks to find new solutions to the problems. I look forward to seeing what his own ideas and solutions are – they are likely to be in the Commission’s quota position report due out at the end of this year.

 

These days a significant number of member states (miraculously including Italy) are (legitimately) under quota, with the UK’s production at a 40-year low (and falling). To put that in context the volume we have lost in the past six years is equal to almost four times the current output of Wisemans Bridgwater factory.

 

The decline is an obvious barometer of previous levels of confidence, but now the general consensus throughout the world seems to be that the current outlook for dairy is more optimistic as dairy is a fast growing, dynamic food sector. (I will look at what farmer’s confidence levels are, as measured by DairyCo’s intentions survey, next month).

 

However confidence only comes when farmers see the money in the milk cheque. And with EU butter prices currently 35% above intervention and SMP 30% above (and both rising) it surely must be time for a distribution back to the farmers, who are naturally desperate to see these increases in commodity prices in their bank accounts - as is happening for members of United Dairy Farmers in Northern Ireland.

 

They certainly receive volatile milk prices, which move up and down very quickly. Sadly on the mainland the experience of many farmers is that when commodity prices drop the time lag in the drop hitting their bank accounts is much shorter than when, as is the case today, prices surge upwards. No doubt we will soon hear a list of reasons and excuses why those milk buyers who cited a drop in commodity values as the reason for price drops cannot or will not pass on the current fruits of rising markets.

 

The general tardiness, plus the EU’s stock level situation, means you shouldn’t expect too much too soon, I say.

 

IP April 2010 DF

 

The EU milk quota system has now passed its 26th birthday. Over the years UK farmers have paid £258.5 m in wholesale superlevy, plus £41.5 m in direct sales levy making a grand total of £300 million, or 2ppl on all of our quota. Wholesale producers have missed paying superlevy in only10 out of those 26 years. Most of them in the last few years.

Despite loud calls for the continuation of quotas beyond the 31 March 2015 from some quarters, my money is still with the commission killing them off once and for all on that date.  Recently a Brussels based group, The European Economic & Social Committee, who claim to represent the public, announced that they fully supported the European Milk Board (EMB) in their call for quotas to continue in a form that they call “flexible volume regulation”. This was in pursuit of fair milk prices, and for the European Milk Market not to be left to the mercy of the free market.  I don’t think this will happen. But I do believe that there will be a future quota system, and this will be controlled and operated by the milk buyers through A and B type milk pricing. And I don’t think this will be tradable. How milk buyers and milk groups organize themselves in the future will differ enormously, I think, for good and not so good reasons.

Back in February I attended the NFU’s Dairy Farmer Representative Summit, and I was particularly interested in two presentations - one from Michael Masters on the workings of Dairy Crest Direct (DCD) and the other from Jonathan Ovens on how Arla Milk Partnership (AFMP) operates.

Both have a membership of around 1400 farmers, and supply a similar volume of milk – around 1.6 billion litres. But how differently are the organizations run, and financed.

DCD are completely financially independent from Dairy Crest with a Board which is elected from its farmer forum on a rotational basis.  They have a bespoke in-house newsletter and those involved in Board meetings and other DCD business receive pre-approved out of pocket expenses and meeting fees.  All in all it costs around £400,000 per annum to run the business.

AFMP Limited is a 50/50 joint venture between Arla farmers and Arla itself, and both parties fund it equally – to the tune of £730,000, and administrative expenses of £684,000.  Directors are remunerated to the tune of £235,000, in addition to which they receive travel and out of pocket expenses.

At the meeting I questioned the cost of running AFMP compared to DCD, following which I learned that around £450,000 of expenses – and which are not detailed in the accounts - cover the cost of “attending shows and exhibitions, an office and secretarial costs in Leeds, PR, printing and communication costs, fees for meeting rooms, catering and travel expenses as well as legal fees to deal with farmer issues, auditing etc”.  These costs were based on the 2009 accounts, but with the partnership having quit the Yorkshire Show, rumoured to have cost well in excess of £100,000, expenses are likely to drop.

Following my question for a detailed breakdown of expenses I was contacted by members of the Wiseman Board who also receive pre-approved out of pocket expenses with no remuneration.  In addition, the Chairman is elected annually and can only serve for a maximum of three years. Anyone who has been on the Board for a six year term has to stand down. How differently all these groups are run – shows being an example.

Wisemans and Dairy Crest pay for any show stands and costs so DCD members do not have their pockets picked. However you have to smile when Arla farmers at shows come up to the stand saying they were going for their free lunch, obviously not realising the show stand is not Arla’ s but AFMP'S  and which the farmers pay for 100% but where Arla personnel attend for free!

Enquiries into Arla brought me back to their November 2007 producer survey, when the new iron lady of Arla, Hanne Sondergaard, decided to seek member views on a wide range of subjects, no doubt realizing that there was a feeling that Arla’s communication with its members left room for improvement.  These results were never made public, though, and were not even shared with the participating producers.  One senior Arla supplier compared the survey to the Zimbabwean elections, where President Mugabe refused to publicise the results.  I understand the exercise is to be repeated in 2010. Certainly partnership members who were recently on the receiving end of a rather brutal notice letter informing them that their ASDA premium would be terminated in just three weeks will be questioning whether communications methods have improved.

Unfortunately for Arla these “problem” issues cloud a lot of good stuff that is going on in the business, or is planned to go on. For example its investment at Stourton and its declaration to build a new dairy outside London. It’s fantastic news, but I have to say that if  Potters was a Bookie we’d be talking a fair few wagers against it ever being built.  After all, they haven’t even got the land yet.

Now, briefly, the NFU Annual Conference, where the NFU’s answer to wonderwoman, Hayley Campbell-Gibbons, gave a very interesting presentation on what farmers think about their dairy contracts.  Only 14% of respondents said they were “satisfied” with their current milk contract.

An analysis of the big three showed that only 7% of Wiseman’s suppliers were dissatisfied with their contract compared to 27% from Dairy Crest and a staggering 36% from Arla.  Whilst the numbers of people involved in the survey could be considered as not representative of the whole membership, particularly when a number were likely to be active members of the NFU and/or regional Board members, it does indicate that there are still contractual issues to be addressed.

As I pen this article, the EFRA committee have released their long awaited report into the collapse of DFB.  As expected it condemns DFB’s wholly inept management.

The report suggests that DEFRA carries out some studies on the co-operative movement, and recommends they champion them to ensure they can compete with older and larger co-operatives within the EU.  Mmm. . . do I sense the ironic possibility that DEFRA will sub-contract some of this work to English Food and Farming Partnerships  -  an organisation in which the inept Philip Moody and Steve Elwood (DFB’s former head banker) are now involved through their company Smith and Williamson.  No way, I say. I will fight this tooth and nail.

Understandably the report questions the remuneration of senior managers and the ability and qualifications of those in senior positions.  The bottom line is that co-operatives should select directors and representatives for the expertise they bring to the business just as any plc would and not select them just because they are shareholders.  The experience of co-operative directors should be no different to that required to be the director of a plc and should not be limited to being a shareholder running a small business or a dairy farm.  Directors should be chosen for their experience in running large commercial businesses.

It is less than a year since the demise of DFB, but some of those involved -  particularly those within DFB’s council and indeed its Board - are already indicating that they wish to be involved with other milk buyers in a senior position.  To me that would be like a drunk driver smashing into a police car and pleading to be let off on the basis that next time he will drive more carefully. 

I’m afraid some of these people are like the drunks who just want the car keys back. They should really have their licence taken off them. In other words, failed DFB executives should, in my opinion, play no role in anything of any importance in the future.

 

IP March  2010 DF

 

The talking point in the industry is unquestionably the submission of plans to build an 8,100 cow dairy unit in Lincolnshire, by a business spear-headed by the deadly duo of Barnes and Willies who took on Peter Walker and Arla in the David and Goliath contracts dispute and won.

 

The news coupled with current and planned processor investment is a welcome positive sign of confidence in the industry and if built will have farmers and others flocking to see how the next generation professionals intend to profitably produce cheap milk having invested towards £50 million.

 

My personal enthusiasm for confirmation of the news was soon dampened by my old friends the grim jealous farmer.  Despite the industries efforts post de-regulation and Milk Marque to ensure these dinosaurs were extinct we have failed miserably.  We still have a handful of thundering dinosaurs who are little people with small minds.

 

These dinosaurs were quick to comment on blogs, in the press and media and without going into detail they are simply jealous that someone wants to milk more cows than them.  Their solution was to tell everyone it’s un-economic, not good for the cows or the industry, will push out all the little guys and generally ensure as many negatives as possible were highlighted.

 

Let me be very blunt, the dairy industry has plenty of outsiders watching it like a hawk, ready to pounce and criticise at the earliest opportunity without farmers turning on themselves.  What is it in the genetic make up of some dairy farmers that triggers this insane jealousy?

 

CIWF were quick to put their point of view on Radio 4’s Farming Today programme, where it’s Peter Stevenson started to spout about industrial farming, the genetic selection of cows for production and that he was “very, very concerned about this development”, and that the unit “does not make economic sense.”  He must be one of the few people who has studied Nocton’s business plan, cash flow and breeding policy.  I think not.

 

Truth is he, like some farmers, just wants to stick the knife in with negatives.  He has no knowledge on which to base his accusations and would command more respect for his organisation if he were to be open-minded and comment from a position of knowledge.

 

I wish Nocton Dairies luck and pray jealous farmers shut their mouths and if it gives them a buzz to secretly pray the unit does not get planning permission.

 

These jibes do, however, highlight a problem Nocton will have to work on, namely its communication, image and general PR.

 

Perhaps issuing a statement confirming it was actually 16 x 500 cow units would have been smarter initial move.  Also to highlight that when built the unit will produce more than just milk, converting effluent into electricity to be sold back to the National Grid as well as fertiliser with the icing on the cake expected to be the generation of carbon credits, which can be sold.  It will certainly be a must visit for any progressive, nosey or jealous dairy farmer.

 

So if you have decided not to show support for fellow farmers who want to milk more cows than you please do not bad mouth them.

 

As we approach 1st April all eyes will turn towards milk price variations, in particular Tesco and how its milk pricing formula pans out.

 

Once again the industry never fails to amaze me with both farmers and commentators throwing down a few caustic comments.  I particularly take issue with one published comment suggesting that Tesco are “feather bedding some of the country’s best milk producers.”  Such comments are unlikely to be well received at Tesco HQ or by the farmers charged with over-seeing the price negotiations.  At least Tesco (and ASDA) have dedicated and segregated milk supplies and particularly Tesco are paying on a clear formula.  Recently in an article in The Grocer it suggested Sainsburys had segregated supply chains but in reality Sainsburys have no such thing and if one were to be brutal you could say they pay simply conscious money in an attempt to keep up with Tesco.  The farmers who receive the Sainsburys money do not necessarily see their milk on Sainsburys’ shelves, as is the case with Morrisons.

 

The much anticipated DairyCo Company Performance and Strategy report aimed to help you improve and understand your milk buyers business has just been published and yours truly attended the press briefing.  It was billed as DairyCo’s most politically sensitive piece of work with Bidwells attempting to analyse how well or poor seven of our largest dairy processors are performing.

 

At a cost of around only £2.30 per producer it looks like value for money to levy payers and another tool in the Datum tool box.  Whilst I would not suggest all of you trawl through 150 rather dull pages I urge you all too at least study the section relating to your milk buyer and if you are considering changing buyer study the commentary relating to your options.

 

Bidwells claim it will help producers make decisions on where they sell their milk but I am not convinced on this, however, I welcome your comments.

 

It does not cover all of the issues faced by the companies.

 

Without wishing to be too critical there are several obvious areas I feel DairyCo should consider when an updated version of the financials is commissioned later this year.

 

Top of my list is pensions, and the huge challenge it poses to most of the companies.  This is especially the case with regards to First Milk and Milk Link and the additional contributions to The Milk Pension Fund they face following the collapse of DFB.  It is certain the two co-ops face having to plug a multi-million pound hole and they cannot contract out of it.  If only the work to segment the fund a few years ago had been concluded this drain on their members returns could have been reduced.  Hopefully when the report is updated pension details for all will be covered because I feel it is a crucial area farmers need to be aware of.

 

Second, as previously suggested in this column, I believe Bidwells should have made an attempt to standardise the accounts of all 7 and I make no apologies for mentioning this requirement in connection with Milk Link member capital retentions.

 

At the Dairy Co press conference the question was asked if the report had been done 12 months ago would it have painted a rosey or truthful story for DFB.  We will never know, however, anyone seeking any nuggets and bullets from the report to tackle their milk buyer will have to dig deeper than I have because my conclusion from the report is it’s all steady away and a calm sea for all 7 milk buyers and is unlikely to stimulate the acceleration of any merger negotiations.

 

It’s a report which can be built on and hopefully next time will have more meat on the bones.  If anyone has any questions having read the report DairyCo have confirmed they are willing to answer clarification points.  However, please do not ask them to recommend to whom you should sell your milk to.

 

Comments and observations to:  or fax 01335 324584

 

 

 

 

 

 

 

 

 

 

 

IP February 2010 DF

 

How low will DFB’s former executives sink? I mean, the word “Sorry” can be hard to say, but it can go a long way in making up for past misdemeanours. But not once at the recent Parliamentary EFRA enquiry did Moody, Knight or Cooksey apologise to the DFB members whose businesses they hurt so badly, and in some cases ruined. Shameful.

 

At the risk of alienating some readers who feel I have stalked DFB for long enough the  bulk of this article is a review of the latest comedy act from The House of our noble leaders, as I do not want DFB’s Three Muppeteers to get away with what they did.

 

But what a sham of a committee. The words of Denis Healey spring to mind, when he famously uttered one of the most memorable parliamentary jibes of our lifetime: “It was like being savaged by a dead sheep.” The Muppeteers must have felt the same way.

 

Dairy UK’s Director General Jim Begg accurately summed it up when he referred to Committee Chairman Michael Jack as being a forensic interrogator “who was not quite in the Columbo class.”   There was poor preparation, lacklustre questioning, and no grilling or probing of any complexity.

 

Jack allowed Moody to completely dominate what was close to a 2.5 hour session, and let him control the agenda. Former Chairman Rob Knight spoke for less than five minutes and as for Andrew Cooksey, well he was either asleep or a cardboard cut out as he hardly said a word.  Moody even high jacked questions which were not directed to him as he rambled on, proving to me with his testimony that not only is he clearly one of the most incompetent consultants in the industry (other than at making money for himself and his business at the expense of everybody else), but he is one of the most boring ones too.

 

So I agree with Jim Begg: it’s time to call time on the committee. It has got nowhere, will get nowhere, and all it will do is report on co-ops in general, lumping them all together rather than to get stuck in to the meat of DFB’s problem.

 

Some have suggested former members should investigate the possibility of taking civil action against those responsible.  But I doubt this would work because most former DFB members just want to put the sorry episode behind them. They have no appetite for more.

 

By the time you read this article I expect Stephen Yates and possibly Magic Malcolm Smith will have stood before the Committee, and I hope both send 50,000 volts through the room with their truthful and accurate account of what really happened, and that, unlike Moody, they give answers to questions they want to provide answers to and which the members deserve the answers to, and don't just stick to answering the soft questions from the Committee.

 

At least EFRA clocked how lucrative the DFB contract was to Smith and Williamson, and I am not convinced they swallowed Moody’s defence that he had no conflict of interest and that his judgement was not impaired.  If, as the financial specialist on the board, he had voiced any concerns over DFB’s policy he would have risked cutting S & W out of a lucrative contract, which netted them in excess of £3million in five years.  It beggars belief how no one thought about the issue of Moody’s conflict at the time the DFB council voted him onto the board. What were they all thinking and doing? Presumably just what they were told to do.

 

Rob Knight claimed he had not influenced the selection of who joined the board, however, those with any skills, talents or knowledge and who dared to challenge Knight soon realised he held the key to the exit door. Trouble makers were quickly helped through it.

 

As for Knight, his memory was surprisingly vague when questioned over how long he held the joint positions of CEO and Chairman, and couldn't recall is remuneration for both jobs. So DFB had an Executive Chairman who didn’t even have a grasp of his own finances within the business, let alone the company’s. It’s hardly a ringing endorsement of his ability. Similarly neither Moody nor Knight could recall why one or more of the banks suddenly withdrew from funding the acquisition! I bet I know!

 

Moody fled in October 2008 when he realised DFB was in danger of becoming insolvent, which would reflect on his own precious position and reputation (now happily in tatters). He commented “it was not consistent with my position as a professional to stay on the board of a company in danger of going insolvent.” A rat off a stinking ship, springs to mind, and one which he helped to sink.

 

Michael Jack did, however, rattle Moody’s cage when he suggested the DFB board had up to £150m to “blow” on a one off purchase, following which Jack agreed to Moody’s choice of the word “invest” instead of “blow”. Personally I back Jack’s choice of words on this score.

 

Moody even informed the Committee that the sale of ACC was on a sealed bid auction basis. Sorry, but it was a tender, and as all farmers know there is a difference. He then succeeded in convincing Mr Jack that the advice DFB took on board as to what the business was worth, against what a competitor might pay - taking into account synergies - was “commercially sensitive” and he would not disclose such detail. The information is only sensitive to Moody, and the other disastrous DFB execs, as it will reflect on their incompetence. Besides it is pretty common knowledge that Wiseman were only prepared to pay a fraction of DFB’s price for ACC. Readers comtemplating  engaging   Moody and S & W  prior to their appointment should evaluate what both achieved for DFB. The thousands of DFB members who lost money deserve to know more, deserve an apology.

 

Finally, to the forthcoming NFU officeholder elections, which should be the focus of all farmers in England and Wales. There are a few people employing dirty tactics, which is inevitable in politics I guess, but the bottom line is that Kendall is pretty secure, Mead will rattle a few cages while engaging in his favourite sports of NFU-baiting and plugging his own businesses (why not!), and the real action will take place at Deputy and Vice President level.

 

The position of Vice President has 10 candidates which, whilst healthy as part of the election goes, is not reflective of the fact that the NFU certainly does not  have 10 genuine candidates that have future presidential ability. The NFU must elect two people who have the calibre, enthusiasm and depth of knowledge to be future presidents of the organisation.

Only by having strong leaders with vision will the NFU be an organisation that farmers don’t think twice about paying their annual subs to. These elections will have a huge effect on the NFU, so please don’t view them with apathy. It’s not about keeping the old team or the old Council going, it’s about getting a dynamic modern thinking team with no dinosaur ideas and someone who can grab any audience and command respect and understanding from them.

 

Comments and observations to:  or fax 01335 324584

 

 

 

 

 

 

 

 

 

 

 

IP January 2010 DF

 

Recently I was asked to speak at a European conference organised in Paris by Kemin with a truly European audience. It was a far cry from my first presentation for which I was given a pint of pedigree in lieu of my travelling and out of pocket expenses. For this my first speaking engagement in I scaled mountains, crossed streams and time zones to talk to a huge audience of 7 farmers less than 2 miles down the road from my offices at a meeting of Waterhouses NFU in the then Green Man pub at Cauldon Lowe. They were the first farmers to interrogate me and some of them would still make me slightly nervous if I were to face them again.

 

This European conference confirmed my thoughts on how I see the industry going forward. Dairy farming is perhaps as close as one can get to being recession proof during an economic recession. “Herds will get larger and more specialised and now is the time to invest” commented fellow speaker and president of the European Dairy Famrers Jean-Francois Verdenal. I agree with him and perhaps the planned 9,000 milking cow single green field site unit for the East of England might not be so futuristic and completely out of the norm.

 

The bottom line is all at the conference seemed to agree now was the turning point for the World Dairy Industry and the medium to long term outlook was certainly positive.

 

Another conference I recently spoke at was the Anglia Farmers Livestock Conference where of particular interest to me was a fascinating paper delivered by Baroness Gillian Shephered. She stated the harsh reality that each year the world’s population increases at the rate equal to the entire population of the UK and that by 2050 the predictions point towards a world population of 9 billion. She reminded the audience of a statement made by Margaret Beckett at the Oxford Farming Conference which was “The world is awash with food for us to import” – how did we allow her to get away with this was the question asked? She then stated she did not feel until the past couple of years the NFU, as our representative body, had spoken up enough and that what we need is one strong unified voice and that farmers should be farm more aggressive in defending the industry.

 

The baroness then gave us an example of how soon the position can change highlighting that 10 years ago the UK produced a surplus of pork today 30% of our pork requirements are imported. It could easily happen in dairy unless everyone get their ducks in a line. All in all a very thought provoking punchy paper.

 

Jean also believed most dairy farmers across Europe could cut costs and do things differently to increase or hold their margin. There are more savings farmers can make on farm to improve their bottom line profit figure as opposed to backing the idea that mass demonstrations together with publically dumping milk would deliver easy to grab price rises from processors. This is perhaps the point HSBC’s recently departed Head of Agriculture meant to say at last years Dairy Event press conference which due to his poor choice of words came out wrong and landed him in very hot water.

 

One speaker from the Dutch LTO, who carefully analyse prices paid for milk to dairy farmers in all 27 member states (see ), believed the UK dairy industry was playing catch up with the rest of Europe in terms of slowly moving towards market orientated milk pricing. The reason for the delay he claimed was the UK’s reliance on the old MMB’s. What he was really saying was that GB, in particular, has insulated from the milk price volatility experienced by mainland European dairy farmers in 2009 which triggered the widespread protests. I for one am not convinced by this argument believing GB is actually ahead of its mainland European neighbours. In terms of contractural relationships between GB processors and supplying farmers things have never been better but I agree there is room for improvement in some areas.

 

 

 However with recent attitudes and comments from one large and another medium sized liquid processor based in the North of England and Scotland suggesting neither had any obligation to hand over any additional money captured from the recent improvement in cream prices such improved relationships are in some instances clearly fragile. Both processors flagged up the fact they have a long list of farmers wanting to supply them, some of whom have even asked if they could do so at less money than both are paying to current supplying farmers. Press the self destruct button with farmers once again prepared to undercut other farmers. Little wonder some processors see no reason to share any upside. Certainly the days of producers tendering their resignation with a milk purchaser assuming it can be rescinded have gone. Such pressure tactics today leave you with no buyer for your milk.

 

It is a very interesting point to note that whilst at farmgate level milk price volatility has been rampant in 2008 howver little if any retail milk and milk product volatility has been witnessed in the shops. In many instances the milk commodity market volatility has simply provided by a platform for some retailers and processors to snatch some extra money for themselves resorting to the old trick of passing back to farmers what is left over.

 

 

My final speaking engagement of 2009 was at the NFU’s Northern Dairy Conference alongside First Milk’s new Chairman Bill Mustoe, the NFU’s Peter Kendall and John Giles Divisional Director of Promar International Agri Food Division. Johns talk was “10 important things in the global dairy sector you need to be aware of”.

 

Several delegates including one questioner expressed their surprise that John was the only speaker not to talk about farmer milk contracts which was especially surprising given his presentation highlighted his extensive worldwide experience in the dairy sector.

 

For me and others contractural terms and relationships are perhaps the most important area dairy farmers and processors desperately need to work on. It requires an exchange of ideas and best practice between producers and processors from all corners of the world. There can be no doubt that the 3,000 GB dairy farmers currently involved in dedicated supply chain contracts are involved in a world first particularly with reference to the Tesco formulae pricing model. On this score we can educate producers in other countries and perhaps the answer is we simply need to work on this model within GB and extend it to involve other retailers with the Co-op stores and Morrisons instantly springing to mind as key targets followed by similar contractual relationships being set up for cheese.

 

Perhaps we also need to examine contractual terms and relationships for both other agricultural and indeed non agricultural products. Let’s face facts, I cannot think of another product which is sold daily like milk where every litre produced is collected. Newspapers spring to mind but here any unsold papers are returned the next day with nothing to pay.

 

However smart we think we are we must cast our net worldwide and set in place more building blocks for an optimistic, sustainable, profitable future for dairying in which relationships between farmers, processors and retailers continue to improve and an industry in which one day each of these elements trusts the other.

 

Here’s hoping all your dreams for 2010 and the next decade come true, and that farmgate prices start to increase very early in the new year and that a fair share of the rises achieved from market returns feed back to dairy farmers. Like all of you I guess I am a born optimist.

 

Comments and observations to:  or fax 01335 324584

 

 

 

 

 

 

 

 

 

 

 

IP December 2009 DF

Well the Scots attended First Milk’s AGM Conference in Shrewsbury, no doubt about that - by air, land and water! It has to be said that Welsh and English attendance was, at best, satisfactory, but bordering on disappointing. That’s a pity, because if I were a supplying member this would be a “must attend” event.

 

The day was dominated by the news that the co-op had been forced, on the eve of the event, to cut member milk prices by a draining 0.65ppl due to “the cheese market”. That turned the heat up on what was undoubtedly a baptism of fire for new Chairman Bill Mustoe on his debut appearance.

 

Since the event, externally, little appears to have changed at the co-op. However, all employed by First Milk are on red alert for imminent change as Mustoe attempts to implement radical solutions in a bid to turn around its fortunes.  It is likely heads will roll throughout the business as he cuts out any deadwood who are failing to deliver and hit targets. He is on a crash course, and his biggest issue is to immediately plug the haemorrhaging of cash by First Milk’s poorly performing cheese operation. But anything Mustoe can achieve will deliver little, if anything, to First Milk’s bottom line for its current year end results, ending 31st March 2010. We can’t expect miracles this financial year.

 

Although it was First Milk’s agm conference, it was Robert Wiseman who stole the show with a conference appearance almost as rare as the sight of Santa Claus. He was upbeat, humorous whilst also deadly serious, telling delegates of his story spanning 62 years since the family business started in 1947.  Wiseman has been a business which has concentrated on the GB liquid milk market involving 54 acquisitions, and is now processing 4.5 million litres per day through seven dairies, and having recently invested £450 million in new, extremely efficient world class dairies.  Robert’s philosophy is simple - he does not care what price he pays farmers for his raw material, only that he remains competitive.  No one can fault that. He also claims one of the successes has been to regularly employ people “smarter than brother Alan and himself”. Whilst a great deal was made by Robert and First Milk’s current CEO Peter Humphries over the fantastic relationship the two businesses have at the end of the AGM there would be few First Milk members in the room who would not dream of being involved with a business half as successful as Wisemans.

 

Wisemans buy 28% of First Milk’s total milk and if you add in fresh milk purchased by Dairy Crest and Nestle it results in 70% of the co-op’s members’ milk going into the premium fresh market.  Robert declared the formula they use to calculate how much they pay First Milk for the milk, which was Wiseman standard litre price (including the 0.3ppl extra paid for cream improvement) plus transport, admin and a service element to cover the fact First Milk perform all Wisemans balancing.  Dairy Crest is understood to pay on a similar formula but carry out their own balancing.

 

Thus, I conclude that at least 70% of the co-op’s milk is being consistently sold at a good price. This, of course, narrows it down to where Mustoe needs to conduct his examination and subsequent surgery– and this it definitely in the direction of its cheese business. First Milk wouldn’t have sold a sizeable chunk of its family silver in the form of 37% of its stake in Wisemans if things weren’t serious there. And, even if it was ever feasible in the first place, the move effectively kicks any Disneyland dream that some in the co-op might have to manoeuvre to merge or take over the Wiseman business into very, very long grass. Yes, some did fantasise. Some still do. Wake up to reality, I say.

 

Whilst acquisition of the shares was good business, having purchased them for £2.50 and sold them for £4.50, knowing the money will be invested in it is cheese business will be of concern to members. How much more money will it take before it turns around this part of its business? How long will it take? Can it afford to develop two cheese brands, especially when up against Cathedral City, Seriously Strong, the Irish Dairy Board and others. Is its strategy right? Key questions indeed.

 

Perhaps processing of milk is not the panacea some co-op top brass have attempted to convince the members it is? Certainly in the case of First Milk any current benefits derived from its processing are very difficult to see.  One solution could even be to ditch all or part of its cheese processing.

 

My next day out was to English Food and Farming Partnerships 6th Annual Conference called “Routes out of recession”, attended by 299 of the great and the good in our industry, and me. EFFP, remember, was set up in 2004 following the Curry report to create and capture value and achieve greater security of supply through co-operation.

 

Throughout what was an excellent conference with some top speakers my mind kept constantly drifting back to the catastrophic collapse of DFB. This was probably inevitable - given the fact that Smith & Williamson (S & W) were the conference’s main sponsor, because Steve Ellwood (former head of HSBC Agriculture and key banker to DFB) is EFFP’s Chairman and head of food and agriculture at S & W, plus the fact I saw ex DFB chief advisor and former director Philip Moody, and head of S & W, face to face for the first time. I’m not sure how they can show their faces in public really, let alone continue to “advise” on finance and co-operation. Especially given all the DFB member money which was lost and all the people they let down.  Especially since neither had the balls to give oral evidence in front of the EFRA Committee investigation in to the collapse of DFB, whether invited to or not. Shameful stuff.

 

Only 12 months earlier Moody was scheduled to present a paper at EFFP’s 5th conference titled “Addressing the funding gap and financing change”. A few days before the October 2008 conference his fellow DFB board members instructed Moody to go sick on the day and not to attend or give such a paper given the precarious position DFB was in and the role that Moody, S & W and EFFP had played. Only a few days earlier DFB was unable to pay its members £1.8m they were due in half year interest payments resulting in calls for Knight & Moody to be hanged.  Both departed DFB within days.  Low and behold this year’s conference saw Steve Ellwood stand up at the conference and present a paper with precisely the same title. How ironic that Moody, Ellwood, S & W nor EFFP managed to solve the issues within DFB, yet all are now creeping out of hibernation and acting as if DFB was nothing to do with them.  It’s a joke.

 

It wasn’t until NFU President Peter Kendall took to the platform as the 12th person in giving what was called “the farmers response” that the letters DFB were mentioned at the conference.

 

But it wasn’t all a case of “if only”.  There was a  top class paper from Jonathan Warburton (the bread maker) with his family business which started in 1876 and whose philosophy is not to copy what others do and to always source and pay for the best staff – almost identical to Robert Wisemans policy.

 

EFFP’s chief executive Sion Roberts said “2009 has been a momentous year”. It certainly has for all dairy farmers with milk and or investments in DFB. For all the wrong reasons.

 

So, as we draw the final curtain on 2009 I hope you will all look to 2010 and beyond with as much enthusiasm and positive energy as you can. The collapse of DFB was a disaster but nobody died, as they say. Well, apart from said individual’s reputations. As we put 2009 behind us then, I would like to take this opportunity to wish all readers a happy festive season and prosperous New Year, and sincerely hope that those of you receiving a bottom of the table “relegation” milk price will witness a complete reversal in your milk price fortunes next year.

 

IP November 2009 DF

 

An explanation. An apology - if not justice. Asking for them isn’t too out of order for DFB’s Board and management, is it? Well apparently – for most of them - it might be.

 

At the time of writing Lord Grantchester, DFB’s chairman at the end, is, wholly and inexplicably, the only DFB director giving evidence by the EFRA All Party Select Committee looking at DFB’s collapse. As I write he hasn’t gone up before them, so I can’t comment on his performance. But I must say that it’s either shame on the others who aren’t giving evidence, especially those who have been called but have refused to go, or incredibly, suspiciously, they haven’t even been asked!

 

Knight? Moody? Smith? Cooksey? Strickland? Loftus? Yates? Ellwood? None of them are up before the Committee.  Why? Why is it ignoring ALL of the key DFB witnesses who should be called to account? What a joke of an inquiry! For that reason I feel EFRA’s deliberations will be a complete and utter waste of time. But perhaps it’s too early to judge, so we’ll keep monitoring and assessing the inquiry and we’ll deliver our verdict next month when more witnesses will have been heard.

 

First to give evidence was the NFU and two council members of DFB. Dairy boss Gwyn Jones was repeatedly grilled by the committee on one question: “What reasons do you feel resulted in the failure of DFB?” He didn’t know, of course – neither he, nor the NFU, were in the DFB room when key decisions were made. The seemingly poorly briefed and ill-prepared Jones didn’t say that though, and flapped around like a rabbit in headlights giving answers that the EFRA chairman Michael Jack didn’t want to hear. Because of that Jack relentlessly pressed that same question for the best part of 15 minutes. The best Jones could come up with was to point the finger of blame towards “commentators”. Me, in other words! If you can’t target the culprits then shoot the questioner and blame the messenger, seemed to be the order of the day. Perhaps Jack was so aggressive to Gwyn because the NFU lobbied hard for the inquiry and he was expecting some real insights or bombshells from the organisation. But clearly, from what was said during the session, the NFU had no smoking gun. Nothing.

 

And Gwyn didn’t exactly look prepared by his media team either! Cue a potentially fatal catastrophic line of questioning which the equally ill-prepared Jack failed to take advantage of. Had he done so the whole of the NFU’s testimony would have been dead in the water:

 

"Can you recall,” said Jack, “when, even informally, the NFU as an organization first picked up concerns that all was not well at DFB?" To which Gwyn replied: "Well I think the first concern probably was raised at the purchase of ACC.  If you are talking about people being worried was this the right thing to do, was it worth that money.  Certainly there was an awful lot of people in the industry questioning that."

 

Well the NFU certainly didn’t! In a press release dispatched at precisely 9.41 on the 11th August (the day after the ACC acquisition) the NFU “hailed the acquisition as a positive step towards getting farmers closer to their market”. One Gwyn Jones in particular said: "Vertical integration, which comes as a result of this announcement, is a critical element to allowing farmers to achieve a sustainable milk price. This is a move which results in UK dairy farmers getting closer to their marketplace and is welcomed by the NFU." NFU President Tim Bennett added: "I am delighted to learn of DFB's bold move. It is a real sign of theirs and dairy farmer’s commitment to a long term, prosperous milk industry in this country." Fancy that!  This illustrates that neither Jones nor Jack had really done any basic let alone in-depth research into what was said at the time, and, by who, and begs the question as to whether Jack and his committee have done their homework to ask any of the necessary questions. DFB members deserve more, I think.  

 

I was also particularly disappointed to see that a minimal amount of the questioning focussed on the collapse of DFB, with EFRA preferring to naval gaze at extraordinary lengths on the relative health or otherwise of First Milk and Milk Link, of “the co-op model”, the structure of the industry and weaknesses in producer contracts (yawn). At one point the questioning to the two DFB farmer council members proceeded along the lines of “Name me a practical advantage a farmer has ever got out of supplying a co-ops as opposed a plc?” , followed by “Can you explain to me why would you want to go into another co-op?”. By default the negative tone of the questioning effectively put all co-ops in the same box as DFB.

 

As I have previously commented perhaps the big surprise is that DFB did not fold earlier.  Memories are short, but the co-ops did not enter the big boys processing league on level terms with existing processors.  They were thrown out of the proverbial airplane effectively by, er, meddling politicians and parachuted into a fiercely competitive UK, European and global market up against established, aggressive well-funded processors. They had to build a customer base, retain supplying farmers and provide the finance for all these activities. Some say, with hindsight, that keeping out of processing and remaining as brokers would have been a better route for DFB to pursue, but remember at that time the politics and atmosphere in the industry was such that brokers had no future either. A better question is whether DFB should have so relentlessly pursued the pot of gold at the end of the rainbow that Smith and Knight saw as the liquid milk market, and which so hypnotically mesmerised them as far as the ACC deal was concerned.

 

Council members within DFB have some serious pondering to do themselves, mind, because whether they recognise it or not they presided over the collapse.  Back in an interview in this magazine in September 2004, vice chairman David Wilkinson claimed the council sanctioned the acquisition of ACC and had the power to block it.  “They (council) saw the potential returns to them and the support was overwhelming,” he said.

 

But the two farmers who gave evidence confirmed what most members suspected - that the council trusted the directors and relied on DFB’s board recommendations.  Indeed any council member who asked sticky questions or challenged the Board’s recommendations was quickly silenced. The result was that “amateur” farmers believed all they were spoon fed.  It’s a lesson to all that any farmers who wish to be involved at any level beyond the farm gate that they need to be competent and to receive the appropriate training, especially in reading company accounts so they can spot when a business is in trouble.  Only capable farmers should be recruited as directors - it’s not a tea and biscuits jolly which they get paid to attend.

 

In summary then, Jack’s question MUST be put to all of the DFB directors, past and present and key executives involved in the key decisions.  Grantchester shouldn’t carry the whole can. Yes, he was a director from the start and shoulders as much blame as anyone else, but by the time he became chairman it was too late. If Jack wants to maintain the credibility of his committee then he must grill DFB’s former executives in exactly the same way that he grilled Jones. Nothing less will do.

                                                                              

IP October 2009 DF

 

The final Dairy Event at Stoneleigh was certainly a success, and as ever, promoted an image of dairying being a positive, vibrant industry. So well done RABDF. Inevitably there were numerous rumours and concerns over the Event’s move to the NEC next year, particularly concerning increased costs for both exhibitors and attending farmers.  The RABDF have confirmed that exhibitors will not be obliged to utilise the services of the NEC’s contractors and that the deal includes free car parking. So fingers crossed for little, if any, cost increase for all involved in the 2010 Event. Only time will tell whether the move to hold the Event some 10 days earlier will result in a drop off in attendance as some farmers complete harvesting, drilling and third cut silage. Nevertheless it is timely move away from an aging, tired, showground and should be welcomed.

 

I took part in a lively, well attended Dairy Farmer speaker’s soap-box corner, hosted by our esteemed editor Peter Hollinshead. It was especially entertaining when a farmer who was having numerous pops at me grabbed the microphone to ask me a question and ended up speaking into his bottle of beer and attempting to drink from the microphone. Clearly Dairy Co’s free beer had gone down well with him!

 

Milk prices for 1st October were the top topic of the day.  Not wishing to miss an audience and an opportunity to get my point across I pointed out that the recent improvement in cream prices has added towards 1ppl to the value of liquid milk and when cream prices fell Wiseman, Arla and Dairy Crest (liquid) were quick to highlight the falls as a reason to reduce ex-farm gate milk prices.  Now prices have risen only Wiseman has passed some of the money onto its direct suppliers in the form of a 0.3ppl rise, so I questioned what the position was with Dairy Crest and Arla (representatives of which both joined me on the panel?)  I gave both two scenarios - (a) they were pocketing the money from the cream increase simply because they could or (b) they were putting it on deposit with the aim of paying farmers a big hit price increase all at one go!

 

Surprise, surprise in true political style the question was side stepped in a ay that would do Jonny Wilkinson proud. But I have to confess I failed to fire a third bullet at my other panel speaker, First Milk Director Mansel Raymond, who, given his forthright defence and promotion of the co-op promoted him to the position of First Milk’s No 1 suicide bomber. No doubt about it – he’ll be first over the top of the trench in support. My question should have been this: First Milk’s biggest customer is Wisemans and they received the 0.3ppl increase so did they pocket it or put to one side safely for their farmers?

 

My message was clear: there is no justification for farm gate price drops for liquid contracted farmers (although this comment does not apply to Tesco farmers who have a formulae price.) Those not on liquid contracts will have their fingers crossed, and as I write it is becoming clear some cheese processors are set on dropping prices and I have sympathy - the pressures they are under from low value imported cheese, mainly from Ireland, is crippling. However, with the world dairy markets at last beginning to show early signs of a rapid improvement their position should soon change.

 

Auction prices from both Fonterra and United Dairy Farmers are rising quickly having previously attracted criticism for accelerating and exacerbating the downward slide in prices as buyers sat back and waited.  As a livestock auctioneer in a previous life I am acutely aware of the instant barometer the auction system provides for commodities across the world, and without auctions we would be in the dark and in many cases at the mercy of a handful of buyers.

 

If the Commission can carefully manage the off-loading of the high tonnage of intervention stocks they have accumulated in recent months, at a healthy profit, next time we talk about milk prices it will not be a “stand on” but upwards by whole pennies again. Hopefully.

 

That said, though, we can’t build an industry on “hopefully”. Co-ops, milk processors and all retailers, large and small, must work towards setting fairer milk prices for all dairy farmers and must follow the leading role set by Tesco with its liquid prices.  They all need to be transparent about when they move prices up and down, need to be consistent, and ultimately have successful profitable dairy farmers who are proud to supply them.  Oh, and as I stated at the milk debate, back-dated milk price cuts are now morally unacceptable and I intend to publish each and everyone I am made aware of in my weekly bulletin’s Hall of shame.  It’s up to you to notify me of them.

 

The Dairy UK Annual Conference held a few nuggets of information worth sharing with you.

 

Professor Quintin McKellar asked one simple, but puzzling question, “How can milk cost less than mineral water?” To my astonishment he stated that Claridges Hotel sell “Mahaol Deep Sea Water” as “aged water” for £40 a litre, and “Iceberg water” from Newfoundland at £30 a litre.  This costs 10,000 times more than tap water, but does the same job. When I was a lad ( not so long ago as some of you perhaps think) the idea of paying for bottled water was a joke. So how has mineral water become the fastest growing sector of the non-alcoholic drinks market?  How have marketers succeeded in branding a basic commodity like water, he asked.

 

Milk is produced in a variety of tastes and textures and is a wholesome natural food. Yet consumer concerns over the purity of what we drink has seen water branded, packed, sourced, marketed and priced to over take milk in spectacular style.  The last time I saw anything as boring as water successfully marketed it was in the 1970’s when Abertay marketed brown paper potato sacks by putting scantily clad girls inside them.  Even if you didn’t grow potatoes the brand awareness was high and the two table mats they produced are still two of my treasured keep sakes.  Perhaps milk simply needs to find new innovative and stimulating ways to be marketed.

 

Bottled water is certainly not in tune with environmental concerns and waste packaging and recycling, especially that sold at Claridges. 

 

Another speaker of particular interest to me was Ian Dudden from The New York Stock Exchange LIFFE market, who are on track to trade SMP, whey and butter futures from early 2010. This will be the topic for a future article but the basics are that the participants are likely to be established companies e.g., Nestle, traders, financiers, banks, brokers and investors with 99% of contracts cancelled out on paper as opposed to taking physical delivery of the products

 

From a farmers point of view, although you will not be directly involved in any trades it is another barometer of what the view is of the markets.

 

Today’s dairy farmers have much more access to up to date information e.g., the globally renown megasite and even lesser ones like .  All of them mean you are better informed than ever and cannot be conned as easily.  All of this information on futures, spot and auction markets is positive and if you take an active interest it should keep your milk buyer on his toes.

 

We are certainly in for volatile milk pricing across the world and mechanisms to smooth out the feast and famine prices is the biggest challenge the industry faces.   The traditional April and October Tesco type price reviews may be a thing of the past for the majority as price reviews take place four to seven times a year to reflect wide price savings.

 

Comments to:  or fax 01335 324584

 

IP September 2009 DF

 

What’s on your mind the most? Yep, I know! It’s your herd’s carbon footprint! Course it is!

Sorry everyone, but I’ve been getting it wrong over the years. I’ve always thought that receiving a sustainable milk price and having confidence in the future to invest for the future was priority number 1.  And apologies again, but I won’t be turning to the issue of carbon again until around 2023, by which time I might be genuinely interested in the subject.

 

As we know, in the past year a huge reduction in ex Farmgate milk prices has occurred on a global scale

due to a surge in production following the price hike in 2007. Only external factors outside of the EU can truly underpin the milk prices here in the UK, but thankfully there are some signs of improvement in world commodity prices.  For example there was a 26% rise in the Fonterra Auction results in the space of four weeks and spot prices are nudging up towards 24ppl as I write!

If this “recovery” can be sustained or improved on it could see an overnight switch into the production of powder by countries like Ireland, who have a small domestic market and are presently sending us daily truckloads of both liquid milk and cheese, which, as we know, are undermining our prices. If we are lucky this resurgence could come in time to halt what I think are already planned price reductions from October 1st.

 

But it won’t be over then, of course. The bottom line is farmers will have to manage frequent wide swings in ex-farmgate price volatility. Stability is not on the horizon, but a roller coaster of boom and bust cycles are here to stay unless mechanisms can be established to iron them out.  Farmers ability to ride out the troughs and bank the peaks will be one key to a sustainable future.

 

By the time you read this article we will be days away from the traditional six monthly 1st October contract price negotiations by everyone’s favourite Tesco. To what degree will their market related and cost tracker inputs affect their price? Will a spike in the market related element be sufficient to nullify a reduction in the cost tracker? We shall see. Every little helps. Then all eyes should be on the likes of Arla, Dairy Crest and other liquid buyers who appear to have dropped under the farmer radar for not passing on any price increase as result of improved bulk cream prices (which Wiseman, commendably did).  Have those buyers pocketed the money themselves, or saved it up for their farmers later?       

              

Now to politics. The NFU are pushing hard for a farming Ombudsman watchdog, which has been recommended by the Competition Commission recently. I wonder what the rest of the Dairy industry thinks, in particular the co-ops? That’s because the ombudsman would be all about ensuring fair play through the supply chain (we hope). But will that extend down to farmers, I wonder? How will he deal with complaints from Co-op farmer members about prices if their co-op is shown to be selling cheap mild cheddar to one of the big retailers? Will the farmers count? Or will “fair play” just apply to how the retailers treat the “middlemen” like the processors or the slaughterers?

 

I have to confess I am less than enthusiastic about the effectiveness of an ombudsman as far as dairy farmers are concerned. For the dairy industry 98% of complaints from milk producers are price related.  Each complaint would create another layer of bureaucracy in our industry which is crying out for less red tape, and   the time it would take an ombudsman to investigate and conclude on a complaint means that events will overtake most complaints before judgement is made.

 

The reality is anyone involved in morally unacceptable bad practices will be found out (usually by me!), or who is commercially naïve and thus undersells will eventually sink to the bottom of the pile as their farmer price falls, they lose milk suppliers, then supplier and customer confidence, and finally contracts.  Sustainability of supply is the best card dairy companies have in their hand.  I am afraid you only have to look at the collapse of DFB as evidence of what eventually happens.  Finally, we all know that as far as liquid milk is concerned the retailers are not the major problem, but the middleground battleground. And we all know what has happened there recently. Sadly any ombudsman would have no remit there.

 

For me the market place will sort out the problems, but, admittedly, as with DFB, it may be very painful.  I question whether we want extra interference which has the potential to slow down the commercial processes which are already leading to consolidation and rationisation of the UK industry. I feel the industry is progressing towards long term structure with less animosity and adversarial trading relationships.  Well I’d like to think that anyway. Let’s see if the Government are persuaded by the arguments to step in.   

 

Now to DFB. Numerous enquires are now in the pipeline with a view to investigating what went wrong at DFB and let’s hope at least one of the reports comes out with a “lessons learnt” summary.  I particularly hope PWC’s efforts to halt a Welsh Assembly enquiry (they have visited the Assembly twice) are unsuccessful. The Welsh put serious money into Bridgend and will want to know where the money went and what went wrong.

 

Whatever evidence comes to light from the various enquiries there is no doubt the root course of DFB’s problems started when Zenith merged with The Milk Group to form DFB who then got involved in processing, and then began to be run not for the farmers but for greedy managers and executives. You don’t need big enquiries to see that. Some big names and organisations are set to be seriously embarrassed over the coming weeks, and I, for one, can’t wait to see justice done. They will end up keeping the money they wheedled their way. But their reputations, and those of their organisations may well be shot to bits, and personally I cannot wait to see this. (And that may include companies who paid DFB farmers a pitiful 14ppl, which, despite the statement made by the NFU’s Gwyn Jones declaring that “any buyer proven to be profiteering and exploiting farmers will be exposed”, and who have still not been exposed.)

 

The collapse of DFB has been a disaster for the farmers involved, but aside from the executives, The Board and some council members and former council chairmen DFB members can still hold their heads up high.  For the rest of the industry it should sharpen up the scrutiny of financial and trading performance, so that the spin put forward by fellow farmers in senior positions who couldn’t even read their own name let alone a set of accounts won’t be simply swallowed.

 

Finally, don’t forget the dairy event – the last one at the RASE. Let’s hope the weather holds and turnout is good. The chickens have come home to roost at the RASE on this. Remember the 2007 event which was cancelled at the last minute due to FMD? The breathtakingly arrogant and incompetent RASE showed zero compassion and still charged the RABDF the full rent, which then contributed to a £133,000 loss to the  organisation which is far from awash with cash and there to help dairy farmers.

At least bad weather will not have a catastrophic effect on the RABDF’s 2010 and beyond events at the NEC that it could do at the archaic NAC showground. Not only is the NEC move a fantastic one for the RABDF and the industry, but a welcome knee in the balls to an organisation which, frankly, deserves it.

 

Remember I can be found both days with my famous blackboard on the Farmers Guardian / Dairy Farmer stand on the corner of 6th street. See you there!

 

Comments to: 

 

IP August 2009 DF

The Scots started it with their Dairy Summit a few weeks ago. Now the Tories have had one too, run by the Batman and Robin of the Tories farming department – the knowledgeable and respected Jim Paice MP, and his immediate Guv’nor and Shadow Environment Secretary, Nick Herbert. The summit looked at barriers to processor and on-farm investment particularly red tape and additional costs of the likes of NVZ regulations, which will lead to National Muck Spreading Day, and the proposed cost and responsibility sharing. “The market place, and (Jim’s pet hate) those businesses, including Government, who source dairy products from abroad, rather than from the UK, also got an airing – no doubt in light of  David Cameron recently declaring his support for clearer food labelling and demand for a complete review of Government purchasing.

 

Delegates I spoke to felt it was a very worthwhile, constructive meeting and thought Paice’s team would be resolute in their efforts to halt the current slide in UK milk production and nervousness within the industry.  His aim is to develop policies and a manifesto which will not only demonstrate their in-depth knowledge of the problems our industry faces, but which will find solutions and make all parts of it feel more important to the country.  Having heard both Paice and Herbert at this year’s NFU Conference, and spoken at the Semex conference with Paice, there is no doubt in my mind they understand this industry more than most, if not all, of their colleagues.

 

So it’s all eyes peeled for developments following the meeting, and let’s hope it achieves more than the recent Scottish summit has done. The only headline to come out of that was “Dairy farmers angry as Tesco, ASDA and Sainsburys snub milk summit.”  Some two months later and we are still waiting for news on the progress and/or some solutions following the meeting (although to be fair, the Scottish Government did give First Milk a wodge of cash to rebuild Campbeltown, but that only directly effects 42 farmers). The fact is it’s the farmers en-mass who are not aligned to Tesco, ASDA, Sainsburys, or Campbeltown for that matter, who need confidence-building stability and solutions, so I suggest the NFUS picked the wrong targets.  Let’s hope the Conservatives do not miss the opportunity.

 

Now DFB – again. My call for an independent investigation last month on what went wrong was met by a positive barrage of approval from DFB members who have lost considerable amounts of money. Not. The half a dozen or so emails that came in support of the idea must mean that 1800 or so farmers don’t want it, and are thus happy with their lot. Frankly, with such a couldn’t care less attitude is it any wonder some senior execs ran off with the booty?

 

 

But there is a twist. DairyCo are currently out to tender with the intention of investing levy payers money on a “tangent” report to the one I am suggesting.  They have put out to tender for a report to cover seven of the UK’s largest milk buyers (three of which are co-ops) to examine their business strategies and performance to enable farmers to “make comparisons and decisions to suit their businesses”.  It will certainly be interesting to see whether the successful author and DairyCo succeed in comparing Milk Link, First Milk and Arla with Wisemans, Dairy Crest, Muller and Meadow, bearing in mind the differences between the businesses and the anomalies of co-ops.

 

The reality is DairyCo, with this report, are embarking on the most politically sensitive piece of work they have ever embarked on, which is, effectively, comparing Milk Link and First Milk with the others.  The results, in my opinion, will have to be communicated accurately, tactfully, and responsibly because total blunt honesty is likely to result in one or more of the famous seven fighting a fierce PR fire, with confusion and potentially panic spreading among its producers. It’s a very delicate area but at least DairyCo can say all seven milk buyers’ Chief Executives have discussed the matter and consented to the work, but quite what they actually tell them is anyone’s guess.

 

There is also no doubt in my mind that industry organisations will be gearing-up to use the findings to push what are seen as the “weaker” milk purchasers into merger negotiations. That, of course, points the finger in Milk Link and First Milk’s direction (again) as they are the last out of the processing blocks and (regardless of their balance sheets or financial performance) it’s easier for the rest of the industry to lecture co-ops on what they should or shouldn’t be doing. It comes with the “farmer owned” territory.

 

But an in depth analysis of co-op accounts to present their financial position in a form that can be easily compared to a plc accounts is a must. That will cut through the spin and bullshit which the likes of DFB managed to get away with.  I sense DairyCo top brass could receive a few high level representations before the outcome of their investigations is made public, and I hope it has some well briefed lawyers ready!

 

It’s just a shame such an exercise wasn’t carried out in the autumn of 2007 and 2008 when I was questioning DFB. Had there been one DFB’s demise may never have happened. But back to the investigation I would like to see into DFB. My perception is ex-DFB members are losing interest in the subject, and in view of the fact only a handful of DFB members have indicated to me they want to uncover the truth, I am liasing with the NFU to put a list of points to put to PWC.  If they decline to address all of our points we will have to reassess the situation.

 

I would like to think ex-DFB suppliers want answers. Like the activities which led to the firm’s demise documented, or the lack of governance of executives who basically did as they wanted and sucked farmers’ money out of the business confirmed. Or whether the DFB board were all sufficiently competent to direct the business?  Or whether PWC and/or HSBC personnel contributed to the demise, and whether anyone will be brought to task?  I feel some justice is needed for DFB farmers and employees, so no investigation and no report would equal no answers and no justice.  No one can change what happened, but perhaps it’s time for exposure of the facts and truth so lessons can be learned. 

 

Meanwhile, life goes on for around 1,750 ex-DFB producers who have elected to stay in the industry, and it’s clear their new milk purchasers are taking either long or short term views of their new friends.

 

When DFB folded its members panicked and were desperate to instantly find a milk buyer who would collect their milk the next day.  But having received their June supplies milk money the initial panic has turned to a longer term focus as many decide their initial choice was more like a one night stand with an ugly sister than a long term partnership with Cinderella. Already resignations are going in, and buyers are having to up their game or risk losing producers.  One buyer openly declared to another they intended to fill their boots and it was a case of make hay whilst the sun shines.  The lowest price we heard was 14ppl paid by Wensleydale Creamery until 18th July, when it was suddenly lifted to 18ppl. Another was 15.8ppl paid for June milk by brokers, Chestnut Dairies of Hull (who also supply local choice milk to tesco!); some are being paid 16ppl by one small liquid dairy, with a number of buyers paying between 18 to 18.5p with others in the early to mid 20p’s and just one at 24.4ppl.

 

However, with June AMPE at 19.1ppl if the milk is genuinely going into the likes of Westbury these prices are perhaps the best that can be achieved. Once again it’s about transparency, and fairness. 

 

Finally, early warning of yours truly’s attendance at this year’s Stoneleigh Dairy Event, where I will not have my usual stand but will be touting my wares on Speakers corner on 6th Street, courtesy of Dairy Farmer and Farmers Guardian . I look forward to supping Hollinshead’s tea, eating the finest assortment of sandwiches and cream cakes through the day (how about it, eh?) and to chewing the cud with you.

 

Comments to or fax 01335 324584       

 

IP July 2009 DF

 

Time to find out how DFB ever got into this position

I’ve been writing this column for 16 years now, and have covered a multitude of issues. But few of them have resulted in the degree of hate mail coming my way as a result of my comments about DFB. Whenever I dared to question its finances or management, my inbox was pelted with angry comments from furious farmers. 

 

“What the k do you know Potter? How dare you question our co-op!”

It reached a head in September 2007 when I questioned the value for money in paying Chairman Rob (Garfield) Knight £409,000 for achieving a loss of £6.2 million and carrying a debt of £100 million. I stated it was “time for Garfield Knight to perform”. I then suggested the £60 million capital contribution paid by members could have already been lost and that the business was in a perilous state and on the brink of disaster.

 

In that article I suggested a value of 16p for every member £1 invested was a realistic value, and subsequently learned that Knight and Co had turned down a 32p in the £ offer from another processor to buy out DFB. Now the value is 0p in the £.

 

Well, if more DFB members had spent more time scrutinising their leaders instead of having a pop at me, then what happened on Wednesday, June 3, might not have transpired.  

 

The demise of DFB has left numerous questions I’d like to see, as a matter of urgency, an independent industry investigation into what went wrong.  This will uncover some truths, which should help future co-operative ventures rather than find similar ideas are simply binned because of what has happened.  Surely it’s in Dairy Co’s and Dairy UK’s interests to fund such an in depth report for the good of the industry and its future?

 

Everyone, in particular those who invested in DFB, need all the facts to analyse who took the decisions, who trousered the money – their money.

 

Neither PWC nor HSBC must be engaged to produce this report.  It must be open and honest and declare all the fees sucked out of the business.

 

There are many queries and I first call into question the conduct and ethics of The Co-op towards the UK dairy industry.  It is the second largest buyer of liquid milk to Tesco, yet has no aligned farmers or dedicated supply premiums.  It trumpets its social responsibility and fair trade for growers and producers but just try convincing a DFB member of those morals.

 

What of PWC’s conduct and role? PWC and others have executed the equivalent of a speedy ethnic cleansing of small and remote dairy farmers as they come to terms with the fact that no one has the social or moral responsibility to collect every dairy farmer’s milk, as they did in the days of the MMB. It is astonishing that immediately PWC were promoted to become the receivers they let all members leave immediately, which  instantly devalued the business by £millions overnight. Has it acted in the best interest of members at all times?

 

Where lies HSBC in all of this? Is its reputation in tatters, or did it do exactly what any bank would have done? We’ll see at the Dairy Event what reception it gets but I’ll bet the topic is not on their programme as one of the HSBC spotlight forums! 

 

What of Disciple Number 1, John Loftus? First he led farmers into the promised land at The Milk Group, then led a campaign to woo more farmers into co-ops and DFB, before becoming Council chairman. He then quietly slinked away like a rat from a sinking ship to join Wiseman well before the good ship DFB finally succumbed to the waves of debt.

 

And what of Disciple Number 2, Stephen Yates. I have read dozens of paragraphs of DFB spin, but a quote from Yates really takes the biscuit for me. In what to me is the dairy industry quote of all time, and one that rivals Cantona’s “seagulls following the trawler” quote, Stephen Yates stated that, in reference to DFB, “The Stone Age didn’t finish because they ran out of stones – it finished because they learned how to make bronze.” Maybe, Mr Yates, but the sharp cave men at the time didn’t then just sit back and watch someone else pinch the bronze, did they?

 

Yates is the man of the moment it seems, joined at the hip to PWC. Loyal to the carcass of DFB, while oh so desperate to join NOM and to supply DFB’s ex-Commercial Director, David Potts, at his exciting new yoghurt factory near Telford.

 

And what of all the DFB men who just blindly believed and trusted their “management”? Well I respect and admire them, and sympathise enormously. They should not feel anyone is sneering at them because all of us know it’s not a case of that. 

 

The collapse has split families, destabilised good businesses and devastated the almost 2000 DFB employees, most of whom did an honest days work.  It’s a fact that any co-op members who succeeded in taking their businesses forward whilst paying capital retentions are exceptional farmers. 

 

And what of the future? Well for the majority they’ll have a new buyer and hopefully a better price that will soon start to claw back some of the lost milk cheque. For the rest of the industry though ….  well the harsh truth is the UK dairy industry is healthier now DFB has gone. That’s a story for another day, another issue, though.

 

To all of those DFB farmers who have milked their last, and to all of DFB’s former employees who no longer have a job may I therefore sign off by wishing you well. You have been badly let down, and what has happened is not your fault. Nobody can change anything now, but people like me can strive to find out the truth, and to expose those who acted in ways that contributed to your downfall.

 

Comments to or fax 01335 324584       

 

 

IP June 2009 DF

 

Ex-DFB man strikes out on yoghurt trail

 

The Dairy Industry Newsletter Annual Conference was another gathering of the movers and shakers involved in the UK and European dairy industry. Well most of them anyway. A quick look down the delegate list revealed that this year’s most notable absentee was from Dairy UK, with not a single representative there. There were strong rumours it had thrown its toys out of the pram over some caustic comment made by Mr Wilson. It’s a good job not everyone has that attitude else Mr Wilson wouldn’t have a conference! Come to think of it. . . I knew there was a good reason for me to not organise one either. On the same basis the only person guaranteed to turn up would be the person booked to do the lunch.

 

The conference presentation that grabbed my attention the most was from David Potts, the MD at NOM’s new £60 million yoghurt factory at Telford. What an apt name he has! Potts, who previously spent two years as Commercial Director with DFB, and prior to that 15 years as Sales Director of rival yoghurt maker Muller, in charge of a factory filling, er, pots.

 

But what an exciting project he is in charge of, and vision that he has - a far cry from the depressing story he would have been telling if he were still with DFB. The UK imports a staggering 3 billion pots of yoghurt a year (equivalent to around 500 million litres of milk) mainly from France and Germany. This means half of our yoghurt consumption is imported, with the market (value £1.1 billion) growing by a whopping 13% per annum.

 

NOM is an Austrian company started 100 years ago, and its new Telford plant can accommodate a doubling of output from its initial processing of around 120 million litres by the end of this year, equivalent to 600,000 pots. If import substitution is successful, then the UK will need another new yogurt factory in a few years time, said Potts.

 

Initially milk will be sourced from DFB. However, NOM’s plan is to get close to a selected group of dedicated farmer suppliers and to “communicate with them openly and honestly” about when prices move. Potts said they are even prepared to discuss the merits of the NFU contract as a base. I wonder whether NOM’s contract will agree to buy every litre at a contracted price or only a pre-determined litreage at a price? The reason I ask is that despite the often justified criticism of our so-called standard contracts I cannot think of another contract where the buyer agrees to take all that a farmer produces. This is the age of sale or return, remember. Email me if you can think of one.

 

But there was one question Potts posed to the cream of the European dairy industry, which not one delegate answered: “Why do processors and retailers put liquid milk on special offer and reduce the price? Consumers do not drink more milk as a result!” No, but they sell more “other” products, say the retailers. But should you pay the price?

 

On a European front Erhard Richarts, who many UK farmers won’t have heard of but is considered the encyclopaedia of market price reporting, highlighted the simple fact that EU milk supplies increased by 1.2 billion litres between 2007 and 2008, at a time when both EU exports and domestic consumption fell. If you want to know why your milk prices have fallen then there you have it in a single sentence. Too much supply, not enough demand. He subscribes to the view that low prices will simply reduce production, by the way. The UK’s scenario certainly proves that.

 

The Commission’s representative Jens Munch was questioned by me over what recognition the Commission gave to the increasingly active and vocal cross EU milk producer’s organisation – The European Milk Board (EMB). He commented that the Commission is prepared to listen to every group which has an opinion, for example on the Commission’s quota policy, following which it will judge the arguments. The EMB wants quotas to stay at the moment – because it sees the effect that uncontrolled rising production has on prices – and has certainly stepped up its campaign to retain the system,. More than 25,000 dairy farmers took to the streets outside Government buildings demanding “flexible supply control for fair milk prices” in what was called “The Milk Action Day”. In the UK only Scotland played a part in the Action Day, with 80 proud producers meeting 30 parliamentarians and a posse of journalists and camera crews. Following this all eyes will now focus on Scotland’s Milk Summit, scheduled for 27th May. Full marks to Dairy Farmers of Scotland for the active roll it has played in highlighting the milk price falls and trying to help find a solution. Milk prices across the EU have plummeted to levels that will eventually kill off a lot of farmers even if some stick in only because they do not feel they are able to do another job. At present the Commission is unwilling to re-open the quota debate; however, it has confirmed that next year it will produce a report to confirm whether recent quota increases have “disturbed” dairy markets.

 

Reference was made by the conference chairman to the revolting peasants (EMB farmers) in Europe, and the demonstrations that are currently going on. Would The Commission take notice?, he asked. To which Mr Munch commented that “the average EU milk price is still above the average seen in 2006?”.  Oh dear, if that is an insight into how the Commission thinks then, to borrow Apollo 13’s James Lovell’s famous phrase: “Houston, we have a problem”. Clearly there are no brains engaged at International Rescue HQ.

 

For more details of EMB look at .  I have to conclude that 25,000 farmers coming together under one European organisation sends me the signal that their own politicians and organisations are failing these grass roots farmers.

 

Finally, may I conclude with some unashamedly self-interest related publicity: I can announce (cue fanfare) that from 1st July (until further notice) all over 48 month cattle collected under The National Fallen Stock Scheme will receive a 35% Government contribution deducted at source. Coupled with the likelihood that there will be a collector and renderer price war in a number of areas these elements will reduce fallen stock collection prices. Throw into the pot the fact the annual membership for NFSCo has been scrapped, and I feel NFSCo can claim to be “doing its bit” to deliver cost effective solutions. But I would say that wouldn’t I?

 

Since the move from the RPA to us we’ve slashed costs dramatically. All I can say is bring on MP’s expenses next! I’d have a field day with them.

 

 

Comments to or fax 01335 324584”                

 

IP May 2009 DF

 

Has de-regulation been a success for you?

 

Shephard. Redwood. Steven and Dare. Haskins, Davidson, Smith. McMichael- Phillips. Ross. Clarke. Young. Howie. They could be the names of a football team but they aren’t: any ideas?  Well all of them, and more, were the central figures in the dairy industry 15 years ago in the run-up to deregulation. Some names are long forgotten, if not forgiven by some. Only one still plays an active, but behind the scenes role.

 

For posterity and for those without good memories Gillian Shephard headed-up MAFF (gone), John Redwood was the Secretary of State for Wales (gone); Bob Steven and Andrew Dare were the top two at Milk Marque (gone), while Chris Haskins, Neil Davidson and Richard Smith were the most vociferous opponents to Milk Marque in the then Northern Foods camp (gone). Jim McMichael-Phillips was the leader of the Dairy Trade Federation (gone), which later became the Dairy Industry Federation (gone), and then the Dairy Industry Association Ltd (gone). John Ross was head of milk supplies at Nestle (gone from direct UK milk sourcing), while Roger Clarke did the same role at MD Foods (gone) while Colin Young did it at Avonmore (gone.) Scottish readers will have no difficulty in remembering Neil Howie as chairman of Scottish Milk (gone). And we haven’t even started to mention Waterford Dairies, Express Foods and Unigate MD – all, er, gone. 14 organisations mentioned, 14 gone – and there will be a lot more too: I’ve just picked the main flagship ones. Of the 11 individuals, 10 have gone. Only Andrew Dare still plays a part in the industry as a Wiseman non-exec director.

 

How 15 years can change an industry!

 

The party which started then was sure to stop at some time, as was the music. Initially there was euphoria for farmers – when prices went through the roof – followed by disaster as the “screwed processors” got their own back. Since then there have been hard times, very hard times, and, yes, some good times too – but not for long enough.

 

There have been successes and failures; inspired leadership and false Prophets; things to be proud of and things to be ashamed of: notably farmers being led like lambs to the slaughter by their co-op, having been told their investment was “for them” while actually it became investment for the benefit of the executives. Deregulation brought winners, losers, and crooks. But did it bring a better industry?

 

Let’s take a look at the bottom line figures, though. To do that I have studied an analysis by Steven Bradley (), who has spent most of the years since deregulation analysing milk prices and producing league tables. These are a thorn in the side for those who constantly flounder in the bottom quarter, and even more so for those who find themselves in the relegation zone. So, at the risk of upsetting any loyal supporter (or, for DFB, its suicide bombers who would sacrifice themselves for the cause of talking-up the co-op), here are Steven’s figures based on the total returns a producer would have received on a standard 1 million/litre contract for six of our biggest mainland milk purchasers / processors.

 

 

 

RWD (Eng)

First Milk

DFOB

Milk Link

Arla Foods

Dairy Crest

 

1995-96

 

£ 256,300

£ 243,400

£ 247,800

£ 247,800

£ 257,600

£ 257,000

 

1996-97

 

£ 260,300

£ 244,700

£ 242,200

£ 242,200

£ 257,900

£ 252,000

 

1997-98

 

£ 222,900

£ 209,800

£ 206,800

£ 206,800

£ 215,500

£ 210,100

 

1998-99

 

£ 201,800

£ 191,000

£ 181,900

£ 181,900

£ 195,600

£ 203,200

 

1999-00

 

£ 190,200

£ 178,000

£ 164,100

£ 164,100

£ 184,300

£ 187,700

 

2000-01

 

£ 177,600

£ 173,100

£ 166,600

£ 170,500

£ 171,500

£ 175,400

 

2001-02

 

£ 204,700

£ 195,400

£ 196,100

£ 191,000

£ 203,800

£ 200,500

 

2002-03

 

£ 182,600

£ 167,200

£ 169,300

£ 164,500

£ 183,800

£ 177,400

 

2003-04

 

£ 199,500

£ 182,000

£ 179,800

£ 175,600

£ 194,900

£ 190,400

 

2004-05

 

£ 200,100

£ 173,900

£ 174,100

£ 174,200

£ 195,400

£ 190,200

 

2005-06

 

£ 202,000

£ 175,700

£ 170,900

£ 170,700

£ 194,200

£ 191,500

 

2006-07

 

£ 188,300

£ 166,900

£ 167,000

£ 164,000

£ 182,100

£ 182,600

 

2007-08

 

£ 228,900

£ 212,800

£ 209,400

£ 214,800

£ 224,900

£ 221,700

 

2008-09

 

£ 262,600

£ 248,600

£ 240,000

£ 250,700

£ 260,500

£ 260,200

 

 

 

 

 

 

 

 

 

 

14yr total

 

£ 2,977,800

£ 2,762,500

£ 2,716,000

£ 2,718,800

£ 2,922,000

£ 2,899,900

 

                       

(Note: These figures include milk prices on standard litre terms, allow for the “Milk Marque” factor, include paid and promised “dividends” [Milk Link 2009, estimated], and include interest payments and capital retentions. But they do not include the value of accrued capital contributions or the “capital value” a farmer has in a business as a result of the contributions, where relevant. This will obviously differ significantly between the companies involved, varying from DFB’s very questionable values, through Arla’s currently turbulent valuation, to First Milk’s and Milk Link’s hopefully growing valuations.)

 

Steven’s figures do make interesting reading, but whether this tells you which, if any, milk buyers have done, or are doing, the “right job” is also for you to decide and debate.  The table does not tell you who is securing the best returns from the market place; who has a profitable and secure business, or not, and who is the best buyer to be with going forward. Another way to look at the figures, for those wanting to be mischievous, could be that  the direct milk buyers have paid too much for their milk over the years, and that they have done a better job in delivering better milk prices than the NFU and others have given them credit for, compared to the co-ops. That, as we know, has been as a result of political infighting, and the fact that Wiseman, Arla and Dairy Crest were all pretty much established businesses 15 years ago, while all of the three co-ops had to start from scratch.

 

Going forward it will be interesting to see whether the gap between the highest and lowest total milk price returns will widen or narrow. One thing the figures do highlight is that in the year ended 31st March 2009, if you ignore the figures from DFB (which is now 5ppl adrift of the others), the other five milk buyers are paying out within a much tighter band. This is a sign, maybe, that as the good, new businesses mature the gap between the established one closes.

 

And what of the future? My initial deregulation analysis cited nine milk buyers – all now gone. The reality is that in less than five years these six processers will be reduced, perhaps to three or even two. Who knows what will happen. Will the leader of the pack still be Tesco? Will Tesco even be one of the processors?

 

And as we enter year 16 how much further forward are we? Have we a better industry? I know my views, but let me know yours first. I guess “yes . . . and no” will be the summary.

 

Fundamentally it is clear dairy farmers are still price takers, and still voting with their feet about what they think of their position in the industry. This is generating the not unsurprising result that national production continues to head South.

There’s still plenty of work to do to get the industry right, therefore.

 

Comments to or fax 01335 324584                

 

IP April 2009 DF

 

Another milk year arrives! Will we miss the last one? Well I’ll let you answer that. Production in the year to 31st March 2009 will comfortably be below 13 billion litres, at around 12.8 billion and representing around a 3% drop on the previous year. It will be the lowest production since the early 1970’s.

 

I’m in celebratory mode, however! Not over volumes, though, over quotas! Happy Birthday milk quotas! Did anyone clock the fact that they are 25 years old? No, I thought not. During those 25 years UK producers have paid a wholesale super levy of £235 million. You have hit quota in 15 of those years but have missed it in the last five consecutive years, with a headline super levy rate of -31.43ppl! Although scrapping quotas is on the EU’s agenda there are a growing number of people who believe they need to continue, mainly because production has to be capped.

 

The farmer representative body European Milk Board (EMB) is one such organization. It recently stated “The Commission’s approach to liberalise the European milk market is doomed to fail right from the start.” It is demanding a re-think on the phasing out of quotas and suspension of all increases.  The reason is simple – the decision to increase quotas and abolish quotas in 2015 was made during a time of booming dairy commodity prices with the desire for a “soft landing”.  We are now heading for a very hard landing.

 

Dairy UK’s Jim Begg is talking of the ending of milk quotas as “releasing the brake on the European dairy industry”, which will “herald a new era”. He believes that “quotas actually stop the EU dairy industry growing”.  The EMB wants production to be adjusted annually according to real market needs and not political aspirations or economic analysis.  In response to comments from the likes of Mr Begg and the politicians charged with making (or wrecking) the dairy policy, EMB points out that proposals and justifications for scrapping quotas usually come from people who have a vested interest in purchasing milk as cheaply as possible. 25 years on, and the debate still isn’t settled either way, even if a decision over their future has been.

 

What of the prospects for the new milk year, though? Mm. . . not good, I would say.

 

After some initial hiccups and some skepticism (from me and others) it seems that Tesco has certainly come up with a contract and model which is unique throughout the world, and it is certainly encouraging its core contract producers to expand production without limits. By the time you read this we will know the outcome of its latest pricing round, and unless it has gone completely against what the rumour mill is indicating it does appear to be giving its farmers the positive signals on which to base a long term future in dairying. Tesco isn’t perfect, of course, and not all elements are controversy-free (Promar figures, Freshnlo) but the goal now is to persuade Sainsburys, ASDA, Morrisons and others to follow the Tesco model.

 

But beware focusing too much attention on the big four while ignoring the discounters like Aldi, Lidl, Netto and Iceland! They have fallen under the radar and are currently causing chaos in the market by price cutting and putting massive pressure on suppliers. They should go easy in my opinion if they want security of supply: instead of noisy protests and resignations many dairy farmers are leaving quietly, encouraged by the boom in cull cow and beef values. Unhappy, fed-up farmers who lack confidence are slipping away quietly because they have reached tipping point.  The early 2009 cuts were, by and large, viewed as being a big dose of medicine, but if more is dished out in April and May farmers will shun it and allow their dairy businesses to die. UK production will head even further south. It’s time to fix the leak in the roof, but the sun is not shining. Only retailers can put in mechanisms, contracts and prices which will insulate dairy farmers from volatility and instability and, in so doing, protect their supply base. British producers can compete with any European dairy farmer given the right incentive, milk price and contract. The British processing sector (with a bit of culling and rationalization) is also equally equipped to compete.

 

Despite the trumpeting, mainly by UK processors, of how positive the UK dairy industry’s future looks, farmer confidence is low and farmers are not convinced they will receive a sensible reward for their efforts and a payback for any long term investment. Will UK production and its industry shrink to 10 billion litres or less, focused mainly on the fresh market?  It’s certainly a real possibility, but if it does it will be extremely painful for all involved.

 

At last year’s Dairy Event, Arla’s Jonathan Ovens said that it would be Spring 2010 before UK milk production stabilizes. That’s not so far away now, and production is still falling. The seriousness of the 2009 milk price reductions will not become apparent to processors until Winter 2009/2010. How many farmers, for example, will decide not to make silage this summer, and will simply graze out the summer months and send their cows to market at the end? We will only see when September’s or October’s production figures are out.

 

Never mind, though, say some! The farmer’s share of the bottle is the same as it was, or better, so that’s all right then! I don’t think so! Talk of the share of the bottle received by farmers is very misleading in this economic environment, and those promoting the idea should wake up, look to the real world and assess the whole picture. We have to ditch the idea that the UK milk battle is shared out according to some perceived percentages. With 30% of all liquid milk sold in 2008 in the UK having been on promotion, and an indeterminate volume of cheese sold the same way, there is no point in our economists trying to justify this worthless argument. If ASDA and Tesco sell two litres of “Value” milk for 87p what is the point in working out what is the farmer’s share? It still won’t be enough for anyone to make a profit. And this Value milk is a real and growing problem - with both ASDA and Tesco now claiming their Value ranges currently stand at 7% of volume, and growing weekly.

 

Finally, some Single Farm Payment trading news. This market has been very active this year, and still offers tremendous value to buyers. The only trading remaining between now and the 15th May 2009 claim deadline relates to Naked Acres, which are making between £40-£50/acre in England.  There has also been some silly talk of the SFPs ending in 2012.  In my opinion SFPs will continue beyond 2012, and I fail to comprehend DEFRA’s extreme view that it should end.

Frankly there is more chance of all 27 member states seeing the entire CAP re-nationalised or milk quotas seeing their 50th birthday!

 

Comments, as ever,  to or fax 01335 324584

 

IP March 2009 DF

 

My heart was pounding against my Kevlar lined waistcoat as I crawled the final few yards to the door. The smoke bomb had covered my trail, and crouching low, I glanced quickly inside. Silently, slowly, and constantly looking around for snipers or anti Potter booby traps I clawed my way inside. “Welcome to Stourton”, said the nice lady behind the desk.

 

The thought of me entering Arla’s HQ during the reign of David Naish, Tim Smith or Peter “can my name be mentioned without him fulminating?” Walker would have been unthinkable [ful·mi·nate: 1. To issue a thunderous verbal attack or denunciation: 2. To explode or detonate] Which, apparently, he did.  But this month saw me not only allowed in but positively welcomed by Arla’s equivalent of The Cheeky Girls (aka Hanne Sondergaard and Nicola “no longer prickly Nicola” Hedge) to a no holds barred tour of its amazing factory, twinned with a frank and open discussion about Arla and the UK dairy industry with Peter Lauritzen, CEO of Arla in the UK. What a change in attitude from the bad old days! They even let me out.

 

At a UK level the firm’s ambition is clear – to be the No.1 dairy processor, and on what I saw and heard I stand by what I said in last month’s article: Arla will be here for the long term. Current capacity at Stourton is an impressive 450 million litres, and it is certainly a factory set well for the future with an ambitious investment programme in new dairy products and a policy that will “ruthlessly and relentlessly eliminate waste.” Current staffing for Arla in the UK totals 3,200, and with 1,400 supplying farmers this is a clear indication of the number of jobs each dairy farm creates. Arla UK represents around one third of the global Arla branded milk processing, and the firm is involved in more than 100 markets worldwide. It’s global goal is to emphasise  the naturalness of its dairy products and to bring consumers Closer to Nature, and I have no doubt that its management will succeed in doing that. The site, the management, the company’s ethos and determination to succeed are impressive indeed.

 

How anyone can compete with that I do not know. Oh, er, actually I do – by having equally excellent and modern factories (Wiseman) or through a similar diversified brand programme (Dairy Crest). If we  exclude Milk Link and First Milk (as they don’t really do what Arla does) we come to, er, Dairy Farmers of Britain. Sorry, but compared to both Arla and Wiseman, DFB’s liquid plants (let’s exclude cheese here) are just not in the same league.

 

What we have here, to mix my metaphors is the chickens coming home to roost and the foxes in the DFB pen, causing havoc. In my opinion it’s time for DFB to contact a specialist who can come in for a couple of months and cut the best deals he or she can to satisfy the bank and pass the remaining  members into safe hands. Or perhaps that’s what PWC (Price Waterhouse Coopers) are working on.  Maybe by the time this article is published someone – that person - will already have been appointed. But who? Well here are a few names that have crossed my radar in recent days – Neil Davidson, Chris Bird, Barry Nichols, and even magic Malcolm Smith! What are the odds on him I wonder? Whoever it is that person needs to be a very broad-shouldered, hard-headed industry figure, but also someone who the members can trust and believe will lead them to a better, more secure future. 

 

DFB is rumored to be receiving bids for some of its remaining processing plants  for well below book value, so it will be a huge challenge for a business which is no longer farmer owned but back owned to clear the bank debt, let alone repay a little to members for their capital contributions.

 

No doubt DFB people will rubbish this. But remember the claptrap it put out following my October 2007 analysis of their position, when an unknown Alistair Clark of Farmington Business Services Limited, Cheltenham, wrote a letter to this publication with a heading stating that “Potter has got it wrong on interpretation of DFB figures” claiming DFB “farmer members should be very pleased with the growth of their £49million investment” and claiming DFB was worth in excess of £100million”? A hum; ‘nuff said.

Having put the official for sale board up DFB’s bankers now realise the harsh reality of what DFB senior management can achieve and by the time you read this article I pray parts of the co-op have been successfully sold and the money banked. Deals will need to be concluded by mid March in my opinion, as DFB’s engine is coughing on an uphill road and there’s minimal fuel in its tank. 

 

Ok onto other matters, the NFU used its Conference to unveil its latest corporate logo. If you haven’t seen it yet it resembles a rainbow. My first impression was that it reminded me of the 1970’s TV series Rainbow, and I wondered whether Bungle and Zippy were going to make their way onto centre stage in front of it. At a cost of £60,000 to £70,000 I am in the wrong business!  I now understand the logo is supposed to represent “from the earth to the sky” but I am sorry, NFU, as much as I, and others, will jest at the cost and look of the logo (a primary school competition could have produced one at a fraction of the cost) I do feel that once again you have missed the opportunity to completely re-brand the organization.

 

I know some of you may think I am like a stuck record on this  subject - having first raised it in the early 90’s -but the word “union” is old fashioned and conjures up the wrong image. Don’t agree? OK, ask yourself what you think of The Mineworkers Union, or the Transport and General Workers Union. Do they conjure up positive vibes?

 

Finally, thanks to all those who wrote in in support of Dairy Co., after my little value for money quip about it and the 7th Heaven lap dancing club in Glasgow. And yes, I do agree that hosting the next Board meeting  there to allow for direct comparison is a terrific idea. Apparently some of the females within DairyCo were a little disgruntled over last month’s reference, but not I doubt, as much as the wife of the farmer involved when she read the article and cross checked the credit card statement. 

 

The next venture for DairyCo, according to Tim Bennett, is evidently “an ongoing analysis of the performance  of milk processors - both plc and co-op. The chairman has also said that “they would be able to advise producers who to sell their milk to”.  Blimey. Controverial this one! They’ll be about as welcome in some quarters as I would have been at Arla in the bad old days!

 

Comments to or fax 01335 324584

 

 

IP February 2009 DF

 

The new dairy market realities were decisively delivered to farmers early in 2009, as ex-farm gate milk price cuts rained in. First to buckle was the liquid market.

 

Arla’s press release gave no facts and figures – leaving it exposed to NFU flack, which it had no hesitation in dishing out. Wisemans, meanwhile, were up-front with their calculation. This is what they said:

 

As a yard stick, cream equates to 5% of the volume of milk purchased, but the problem for liquid operations is that less than 25% of it is sold to retail customers, the rest is sold in bulk. Between July and September 2007 the cream price averaged £1400/tonne, but by December 2008 it had dropped 43% to £800/tonne. This reduction translates to a 3.2ppl equivalent on every litre of milk. Wisemans implemented their first price drop in 30 months, with its 2.2p cut, passing back 69% of the reduction and absorbing 32% itself.

If no further movements take place until 1st April the 2ppl cut by Arla on the 5th January equates to a whopping 2.9ppl cut on the 1st February on a like for like basis, so while the 2.2ppl Wisemans cut and the 1.75ppl cut  from Dairy Crest on 1st February make the headlines Arla have pocket an additional 26 days worth of cheaper milk. The NFU’s claim that the Wisemans cut is the largest is thus not, strictly accurate.

 

Conscious that I’m now sounding like Wiseman’s PR man I’ll move on, making a mental note that I owe them a kicking sometime.

 

All eyes now turn to Tesco and its 1st April contracted price. As much as I have questioned whether Tesco will stick with the deal I am reliably informed that it is “rock solid and safe”, especially while the Frenchman Alain Guilpain captains Tesco’s dairy ship. However it will be interesting to see how Tesco and Promar maneuver, and I would like to know how many times Tesco top brass have questioned Guilpain on how they ended up with such a vice like grip on the UK dairy industry, and paying a hefty premium compared to other retailers.

 

The new Tesco price is, of course, based on a mathematical calculation derived from a pre-agreed formula with the all-important guarantee that Tesco will not pay a price below the cost of production. On today’s costings (and from those who claim to understand the Tesco formula pricing) it would appear a 1ppl fall in costs is likely unless costs rise again soon -  which they are doing as I pen this article. However, for Tesco (or rather Promar) to find a 1.5ppl price reduction, let alone 2ppl to match the other non-Tesco farmers, will be near on impossible, and, if suggested, will cause a riot. So if, on 1st April, Tesco also faces that 3.2ppl equivalent price drop on cream will it take 1.2ppl off the farm gate price and stomach the other 2ppl? Remember other retailers are already buying their milk cheaper - ASDA only pays 1ppl above the Arla standard price, for example. Will others step up to the plate and increase what they pay? My money is firmly on one or more of the other big gun retailers stepping forward and increasing its premium, but only if we ask for it. Let’s hope all the effort put into creating some stability in 2007 is not thrown away overnight.  Let’s also hope for more contracts to mirror the Tesco model, although in this economic climate it may indeed remain just a hope. If you’re still to be convinced about the pressures in the marketplace here’s a story that will put you right. It relates to a six month bulk milk contract, which recently came up for renewal. The existing English processor was paying a top end price to its farmers and delivering and transporting the milk for 30.5p/litre. At renewal it was expected the final price would be “a shade” lower. But with an offer from a rival at 24.5p it represented a whopping 20% reduction. It should come as no surprise that the winner of the contract was United Dairy Farmers from Northern Ireland (whose farmer price for December was 17ppl). However  note my informants claim this milk will come from one of the mainland co-ops and will not directly be milk shipped over from the Province avoiding the 3ppl transport charge.

 

As I commented at this year’s SEMEX Conference it will be a bumpy 2009, with processors and farmers both feeling the pain. My money is on consolidation with a stream of forced and voluntary mergers, acquistions and rationalization and fingers crossed for no complete failures despite cracks appearing in one or two businesses!  These deals could involve almost any processor, plc or co-op but my money at the moment is on Arla being a significant predator.

 

January marks the start of a new era in milk price volatility and one in which events in China will be crucial. It’s melamine scandal, which killed six babies and made more than 300,000 Chinese ill, has resulted in two of the men involved being sentenced to death. The scandal has severely damaged China’s image, agriculture and food industry, and has seen more than half of its milk powder requirements switch to imported. Chinas 2009 imported powder requirements are predicted to reach 100,000 tonnes, which is twice the exports of the mighty New Zealand to China in 2007.

 

Now I turn to milk quotas, and the future of the European 27’s dairy industry. Most trade associations, particularly here, are convinced quotas must and will end on the 1st April 2015. In April 2008 the Commission increased quotas by 2%, and ten months later the market is “spiraling out of control”. In November a further 6% increase over the next five years were approved by the Commission. This decision was made during a time of booming dairy commodity prices. Today the majority of European dairy farmers do not want additional quota. Now, because of collapsing markets, the Commission has been forced to intervene to inject some stability by re-introducing export refunds - clearly a move in contradiction to its other decisions, and showing the “experts” have lost control and sight of the supply and demand balance.  The truth is the EU cannot compete on the world dairy market and if the Commission took no action it could see a collapse of milk market that has been stable for 25 years. It certainly does not appear we are in for anything like a soft landing.

 

Here in the UK, all of this has had an effect on the quota market. Just when we thought prices of 0.15ppl to 0.2ppl were the norm there is a sudden change. Quota sellers are few and far between and 0.3ppl has become the norm. Why are some buyers suddenly so keen? Well, almost to a man they feel at £3000 for 1 m litres it’s worth a punt, with many believing they could still stay, or that there could be some form of sweetener or compensation when quotas are eventually ended.

 

Finally, to the conference again, and the REALLY big talking point on the second day. Dairy Co’s chairman, Tim Bennett, claimed the industry was “precariously poised” and extolled the benefits of farmers paying their levy, which averages £430 per dairy farmer.

That same evening several farmers decided to go into Glasgow and were “forced” (so we were told) to go into the 7th Heaven Lap Dancing Club. One farmer apparently racked up a bill of  - yes - almost £430, begging the obvious question as to which was the better value for money! Answers to or fax 01335 324584!

 

 

IP December 2008 DF

 

Back in early November 2007 my weekly bulletin led with a story entitled “New High Court Rock Show promoted by Arla”. This confirmed that Arla had commenced legal proceedings for £2million damages from dairy farmers David Barnes and Peter Willes for allegedly breaking its milk contract.

 

The basic facts are as follows: a not very happy David Barnes served notice to leave Arla in March. In June 2007 he learned he had not been selected to be a Tesco supplier, despite other neighbouring farms being offered a Tesco contract. On the 18th June Barnes took action, sold his dairy to Peter Willes, and became the farm’s contractor. Willes – who was never under contract to Arla – immediately sold the milk to Meadow Foods from 20th June, who then sold it back to Arla for close to 35p/litre. Arla was furious; informed its lawyers and issued a press release informing the world that war had been declared.

 

One year later (during which, remember, it dropped all of its major customers and most of the rest of the industry in the biggest OFT pile of poo possible, and saw the inquiry it instigated into the Scottish middle ground market against Wiseman and five other dairies binned by the same organisation) Arla has yet again ended up with egg on its face following a week long High Court hearing.

 

Its case rested on the fact that it believed the new owner of the unit is contractually obliged to continue to deliver milk to Arla, and since it had lost the milk it was entitled to claim for losses. The claim failed, with the judge commenting that “the contract allowed Arla to pay significantly less for milk to suppliers (dairy farmers) subject to the terms of the contract than they would have to pay on the spot market.”

 

But that wasn’t the end. Barnes and Willes not only succeeded in defending the £2million claim but Barnes also succeeded with a counter claim for £53,425 plus interest (total £65,000) based – get this  -  on “under payment for supplies of milk between November 2006 and April 2007”. This claim revolved around bonus payments and deductions on somatic cell counts .  The Court  decided  that the milk tests were not “valid tests"  because the samples taken by Arla were not representative of all the milk collected. This is reason enough for all of you to study this judgement . The consequences of this judgement for milk buyers and farmers will be significant, I think.

 

The whole saga is a real life David and Goliath story, which, if it hadn’t caused so much pain and stress on the parties involved might even be funny. Certainly the ridiculous joint (non) statement issued by both parties was. Hilarious, in fact! For David Barnes to comment that “I would encourage any dairy farmer who is thinking about selling his business to communicate closely with their milk buyer as early as possible” is, frankly, a joke  and i guess is   linked to  some  gagging order. That’s because when Barnes sold his farm he told me he had left two messages for Arla’s then head of milk purchasing Peter Walker to contact him, both of which Walker ignored (as he often did). Barnes then left a third message stating that Arla needn’t bother to collect the following day’s 50,000 litres, nor the rest of the farm’s 18m litre annual total. This message, however, did elicit a response! So, what Barnes really means to say is this: “I would encourage any dairy farmer who is not happy with the way his milk buyer treats him to try to communicate with the buyer and if he is arrogant and disrespectful enough consult your lawyer and make a similar move to the one I made.”

 

I have studied the judgement of Sir Edward Evans-Lombe, and I feel it is such a landmark case that I will shortly post it on my website () under the heading of “Arla v Barnes & Co.” Look out for it.

 

In the judgement,  paragraph  29(13) is worth studying if only for moral reasons. It states that “Ian Cameron of Arla telephoned Peter Willes on the 19th June, and continued to offer premium prices for the volume of milk that I would be producing and tried to persuade me to renege on my agreement with Meadow Foods”. How honourable.

 

The bully boy tactics of Arla, against its farmers, which is referred to by the judge as the largest dairy co-op in Europe AND IS FARMER owned   is astonishing. How did Peter Walker, a retired old has-been, persuade Arla to take this case so far, given it was advised at the outset that its chances of success was around 25%?  Was it bad advice, pig-headedness or simply the arrogance of those involved? Anyway, I estimate that based on costings I had for a case drawn against the RPA a year ago, plus the counter claim, Arla will be faced with a bill of at least £500,000. How that, and the humiliation, must hurt! In the words of one Potter friendly Arla employee from the Leeds office: “You can’t get from one end of the corridor to another for all the toys and dummies which have been thrown out of the pram!”

 

Now First Milk. I, plus some proper journalists, were invited to its AGM Dinner & Conference in Haverfordwest in early November, where 420 or so farmers turned out - the largest gathering of dairy farmers at any dinner. TB was a hot topic, with the admission by Elin Jones that the Welsh Assembly hadn’t helped itself by paying average cattle compensation values as opposed to the tables. A wildlife control programme would be announced in early 2009, she said. Talk of milk prices weren’t far away either. There weren’t any flowers bought for the conference, and there was no flowery talk in the presentations either. There was plenty of openness and honesty, especially from CE Peter Humphries and Chairman Richard Greenhalgh, no matter that the message, with world prices being what they are, was pretty sobering. Humphries set the scene that the co-op would be moving milk out of cheese into liquid, and said that its cheese business would concentrate on its brands. He also said the ingredients market would remain depressed in 2009. But he, and Richard Greenhalgh, were upbeat, declaring that “it was part of First Milk’s strategy to be able to sit round the table with retailers with cheese and liquid to sell”, and that it was well placed to cope with the changes in the industry. At the AGM the ousting of Richard Davies saw the only First Milk English farmer board member gone, leaving three Welsh and three Scottish.

 

Now DFB.  Happily it has carried out some surgery and I am pleased to report Rob Knight claims he did the honourable thing and walked away with significantly less of a payoff than he was contractually entitled to. He has therefore left with some respect. So what happens now?  I hope very soon DFB will do a deal for part or all of the business. But whoever takes it on it has to be the right deal for its business and, for a co-op, its members. 

Finally, Merry Christmas and here’s wishing for a happy, prosperous and turmoil free 2009. Let’s hope there will be a dramatic upturn in world dairy commodity prices and UK milk prices will hold firm.  The last thing we want for Christmas is lower milk prices!

 

Comments to or fax 01335 324584

 

IP November 2008 DF

 

I initially wrote this article before leaving the office to watch England win their World Cup qualifying game in Belarus. Not long after England popped in the goals, so an unprecedented barrage of emails and telephone calls pop into my office from DFB members following its announcement that it had insufficient cash to pay interest on its Members Investment Accounts and Members Capital Accounts. 

 

This is nothing short of a disaster, but also it’s vindication for critics like myself who have frequently questioned aspects of the business and called the Co op to account over the last few years, and who have been lambasted by DFB storm troopers for doing so. For all involved in DFB, though I would have wanted nothing more than to have been proven wrong. Alas, though, clearly I haven’t been.

 

On the 4th September DFB continued to seduce members - especially those thinking of resigning - that soon they would receive their first interest payment on capital invested of 7.5%, and worth an estimated total of £1.8m and a shade under 0.3ppl. The DFB faithful would, for the first time, see some of their hard earned cash returned. Then, on 15 October, came the bombshell in the form of a dreadfully worded notice from chairman Rob Knight saying the interest would not be paid. 

 

Clearly DFB do not have the funds and its bankers have tightened up on it, refusing to advance more funds.  The board were looking down both barrels of a gun.  One barrel said “pay the £1.8m but to do so cut the milk price (at a time when others around them have achieved ex-farm gate price increases)” and the second said “abandon the interest payment and temporarily maintain the standard litre milk price”. 

 

Rob Knight’s spin in announcing that the bad news was connected with the current global economic crisis is just bunkum - typifying the sort of clap-trap he and his team have spoon-fed to members via their weekly Gospel of Good News. More relevant, surely, is the admission that DFB’s management has gambled by paying members additional money before it obtained the necessary amount from customers. Customers who have paid-up, remember, on the basis DFB members need the money.  How do you think they feel knowing that none of the increase has been or will be passed back to dairy farmers?

 

The more commercially savvy DFB Council members have known all along the money was never there, and was offered only to keep DFB on a par with its compatriots e.g. Milk Link who are expected to pay at least £4m (worth 0.4ppl) to members for the second consecutive year, and First Milk having paid £1.85m. 

 

What then, is the way out of the situation? Well member confidence is now desperate, and as with the banks, it is the crisis of confidence which has the potential to do the most damage. Northern Rock’s difficult business position didn’t bring it down, remember, it was the queues of people wanting their money out that did the damage. The same will be true for DFB – its members wanting out.

 

If I was a member these would be the questions I would ask, therefore, and the actions I’d like to see taken.

 

Firstly, clearly, heads have to roll, and DFB needs to get those who have failed them out. The current management team and Board at DFB has failed its members and there is almost a zero chance of farmers seeing a milk price increase, and a temporary maintenance of the current milk price is the best they can hope for.  Knight has to go first, and should end his career as honourably as possible. By that I mean WITHOUT a payoff. Just like the failed former bank bosses he should waive his right, and leave with at least some respect.

 

If there’s no chairman for a while, then, well – things can’t get much worse, surely (hopefully). Maybe more than one head needs to roll, but aside from Knight, these do not need to be as a knee jerk reaction to make members feel better, but as part of a recovery master plan, where someone capable takes the helm of the DFB ship. 

Secondly, after that Knight goes a new Knight needs to arrive: a White Knight to facilitate DFB’s take over. That’s undoubtedly the best outcome for its farmers who have in excess of £73m invested. But a merger with who? It will be a real challenge to broker now.

 

Third, DFB needs to issue an immediate financial update, to show whether this year will be a break even year for DFB, which has been promised by their management. If it is on course, that will take some pressure off and boost confidence. If it isn’t – then, well, we may as well have all of the bad news now, instead of a bit now, and a bit more later.

Fourthly the remaining Board must immediately dish out all the bad news medicine to members in one hit at the same time as it confirms its plan to get out of the mess which must be a bank approved plan.

 

Finally, DFB should fix the hole in its business roof while the sun is shining and there is at least some stability in the UK market. More volatile times are around the corner.  The DFB Board had the opportunity to do it 12 months ago but shied away from it.  It now has to fix the roof pretty quickly, and time is not on its side.  It’s not quite rock bottom for the business but the position is very, very fragile. But DFB must not be allowed to fail because if it does every dairy farmer in the UK will catch a cold.

 

In the interests of balance I feel compelled to comment on First Milk’s results, which were released shortly after I wrote the last article.  There is no argument that, despite the unknown cost of the failed merger with Milk Link, First Milk is starting to deliver reasonable results.  Its member debt is only 33% of its total debt the remainder coming from the banks on which it has to pay commercial rates.  This compares to DFB, which has at least 61% of debt coming from members and former members

 

I could pore through the numbers, but there’s not enough space here. I will highlight one area which had a good thrashing by other commentators, however - the issue of director’s payments, and chief executive Peter Humphrey’s £395k salary, (up from £262k in 2007) and chairman Richard Greenhalgh’s  £108,333 remuneration (£85k in 2007).  My take on this is that if they are the right people to do the job these payments are certainly not excessive. In any case the total paid to the top three personnel at First Milk compare very favourably with DFB’s, and to a certain extent Milk Link’s former chief executive Barry Nicholls, who received pension contributions of £782k.

 

The bottom line is this: do First Milk’s members feel it is achieving its aims?  I think and hope the answer will be yes, but I’ll have to wait to see what the verdict is at next month’s agm conference!

 

Finally, the results of my Dairy UK Conference soapbox straw poll: “Dairy in the Dragon’s Den – would the result be positive?”  Well according to delegates at the Dairy Event conference - who were predominantly processors - almost 2/3rds of the votes said the entrepreneurs would certainly NOT be falling over themselves to invest in the UK dairy industry.  If the conference had been full of farmers that figure could have been 100%. Sadly until the investment case improves UK milk production will continue to decline.

 

Comments to or fax 01335 324584

 

IP October 2008 DF

 

What did you find to talk about at The Dairy Event? You shouldn’t have been short of subjects! To me it was dominated by five key topics, namely (1) Dairy UK’s execution of its independent chairman, The Rt. Hon. David Curry MP, (2) the lack of confidence to invest among farmers, (3) imported milk (4) the unwillingness of Tesco contracted farmers to sign up to the Promar costings scheme, and (5) what a desperate shame it is that quota prices are so low. (Editors note: Are we sure about that?)

 

First, Dairy UK. Four years ago Dairy UK came to being after a difficult birth. Sir Don Curry, the founder chairman, had difficulty in setting up the cross industry trade association, so it’s little wonder he feels his work has been undone by the same industry leaders he tried so hard to bring together. A coup of up to four board directors (two plc and two co-ops) ousted the chairman and installed one of their own - Dairy Crest’s boss Mark Allen. They banked on the fact that David Curry, being an MP of a party which is almost certain to be in power within 18 months, would leave quietly without a fuss. Instead, though, he was outraged to receive a visit on holiday in Bordeaux from the axe-wielding Allen, and to be dispatched to the Dairy UK scrap heap without receiving a simple answer to a simple question: “Why?”. There is still no satisfactory public answer, just the suggestion that “he was too pro dairy farmers”. Curry subsequently committed his thoughts on paper to the board of Dairy UK, leaving no doubt as to his annoyance.

 

Several people in addition to David Curry were unhappy with the move and how it was made, including Sir Don Curry, The NFU of England and Wales and other respected MP’s like Jim Paice, MP, plus several others. The current strapline from Dairy UK is “Proud of Dairy”. The way David Curry was handled means we can’t currently be “Proud of Dairy UK”, alas.

 

The NFU duly took its well publicised decision to withdraw participation from Dairy UK and its Farmer Forum, which selects two members to sit on the board of Dairy UK. That was Gwyn Jones and a bloke called Roger Evans, who, like me, also fancies himself as a bit of a writer apparently.

 

Who replaces Gwyn, and how much representation farmers get remains to be seen. Clearly, the big processors have a vice-like grip on the Dairy UK board, and some claim that is the case with the Farmer Forum too. If you take out the NFUs, by and large the others involved in the Forum have other hats to wear - paid by those same processors. The anti FF view is that “their appetite to tackle difficult issues on behalf of farmers is limited”. Translated, that means they don’t put their arses on the line for farmers. If this is the case (I don’t know - perhaps Roger would like to comment?) and farmer influence within Dairy UK is not worth the paper it is written on let’s not pretend differently! So perhaps that is how life will be in the future: DairyCo supplying farmers with economic and technical knowledge, the various NFU’s representing farmers and tackling tough issues on their behalf, and Dairy UK representing processors.

 

Mark Allen declared that “the departure of the NFU changes nothing for Dairy UK and it is business as usual.” That may be how he sees it, and how Dairy UK likes to portray it, but the farmer perception is that this was handled badly and that the appointment of a processor means Dairy UK is once again an organisation representing processors. Taking-on this role certainly carries risks for Dairy Crest, because if Mark Allen is seen to be anti-farmer and pro-processor he risks a revolt by Dairy Crest’s farmers. And it can hardly afford to lose more direct suppliers.

 

Now confidence and milk supplies. Well, we don’t need to say much about confidence and milk supplies, save to say there isn’t much of the former, and hence not much of the latter.

 

Making-up the shortfall are imports from Northern Ireland, but the milk is Non-Farm Assured. Shock horror! What will the effect of not having one or two of the right ticks in the right boxes mean? Is the milk bright pink as a result?

 

Currently 40 tanker loads a day equivalent to (1million litres) is coming in.  Other milk is coming in from Belgium and France, but the advantage of the Irish milk is it can be sold as “British” (even though Ireland isn’t in Britain). It should not carry the red tractor logo or claim to be NDFAS, milk though. But it’s cheap, costing between 30.5p to 32.5p delivered to factory, and giving an ex-farm gate price in Northern Ireland and Belgium of around 22ppl.  News that just about every man and his buyer, including Wisemans, First Milk and Lactalis (but not Dairy Crest) were importing the milk certainly surprised several producers at the Dairy Event. Let’s hope and pray no importer pushes their luck and brings the industry into disrepute. Oh and please don’t be fooled by the milk buyer who says “we would never import foreign milk” because at least one has approached a milk broker requesting they sell them their farm assured milk, suggesting they make a turn by replacing it with cheaper foreign milk.  Where there’s a will (and profit) there’s a way.

 

Finally, a few lines following my invitation to the official opening of Wisemans’ Bridgwater plant.  It was, quite simply, mind-boggling. On the brink of science fiction, even. It cost £80 million and requires a further £20 million (plus the small matter of an additional 250 million litres/milk) to hit full potential. No retailer can fail to be impressed, and it’s little wonder Wiseman has won new liquid contracts because comparing the plant to some of its competitor’s ones is like comparing Chelsea to Burton Albion FC.  The Burton faithful turn up each time they have a cup match hoping for an upset. Occasionally they get one, but deep down they know they’re so uncompetitive in comparison that 99 times out of 100 they will be beaten before they’ve kicked the ball.

 

Following my weekly newsletter jottings on my Wiseman visit the nice PR chaps and chapesses from Arla contacted me, inviting me to visit their “new Arla” factory and HQ at Leeds. With any luck the “new regime” will let me out as well. The old one wouldn’t have done.

 

Finally I was invited to do a 5 minute soapbox at the Dairy UK Conference, where delegates were asked to vote on my topic “Dairying in the Dragon’s Den – would the result be positive?” Did delegates think that four of the UK’s most successful entrepreneurs would fall over themselves to invest in the UK dairy industry, I asked. Well, what would you say? Email me, and I’ll tell you the results next month!

 

Comments to or fax 01335 324584

 

 

IP September 2008 DF

 

From hero to zero, and below, in less than 18 months. That’s where Tesco finds itself right now having slashed milk prices by 31% in a bid to recapture lost sales. Its move to cut prices from £1.44 for two litres of its branded milk to 99p for two litres of the Fresh’n’Lo brand caused a price cutting disease epidemic to sweep the UK in less than three days.

 

Most of you reading this article will hate Tesco with a passion. But you have to ask whether it has caused a problem, or is attempting to fix a problem. I think it’s the latter, unfortunately. The fact is discount chains like Iceland, Aldi and others have been taking customers from Tesco at an alarming rate because of the credit crunch, attracted by on lines like “value milk”. The Fresh’n’Lo deal is undoubtedly a clever move by Tesco, because it can claim it is not discounting its own label semi skimmed.  However, don’t buy into the idea Fresh ‘n Lo is not in this case a Tesco brand when, in England and Wales, it is only sold in Tesco stores!

 

What has happened is not entirely unpredictable, though. At the same time as the credit crunch we have an aggressive Wisemans’ with a new factory to fill, and a brand of milk - namely localchoice - which Tesco seems to favour, and which Wiseman does not want to see grow at all. Tesco could do what it did because of our industry’s liquid milk overcapacity, and the fierce competition between milk buyers to pinch business.

 

Understandably farmers are concerned, and there are already people questioning Tesco’s commitment to its “sustainable” dairy group. But what are the unintended consequences of the move? After all if Tesco sneezes we all catch a cold. Or, as one eminent philosopher commented: “Whether the elephants make love or go to war, everything below gets trampled under foot.” And Tesco is the biggest elephant on the plain.

 

Clearly Tesco balancing suppliers and core contract producers (both Wiseman and Arla) and Dairy Farmers of Britain localchoice suppliers are on the front line.

 

Tesco can easily continue to pay a premium price for its “sustainable suppliers” but if it continues to place two litres of Fresh’n’Lo at 99p beside two litres of Tesco branded milk at £1.44 it is obvious which one will sell.  This could not only reduce volumes of the Tesco balancers contracts to zero, but could even result in Tesco putting a quota on how much milk its core suppliers receive full payment for. For those supplying Tesco via Wiseman, the balancers and perhaps core producers will simply see their milk diverted into Fresh’n’Lo, thus subsidising the promotion indirectly.  And to think consumers will select localchoice in favour of 99p milk is simply naive. On this basis that brand is dead, especially as the new deal promotion will run until 1st August 2009.

 

First Milk is also in a tricky position.  Does it sell milk to Wisemans to help fulfil Fresh’n’Lo demand, thus helping to undercut core suppliers? It insists there will be no discounted deals, and claims to be pushing for a 3ppl across the board increase similar to the one achieved with ASDA on cheese. Two things are certain - First Milk won’t risk wrecking the excellent work it has done with ASDA, and that store will not settle for paying a 3p premium if it feels the money is being used to subsidise cheap milk for Tesco.

 

There seems little doubt fringe competitors in the middle ground like Medina and Freshways will struggle to match Tesco and others. With 51% of the UK’s milk production currently going into liquid milk the 45p offer projected through for a year across all liquid milk has removed up to £1.54 billion out of the chain. Of which Tesco, account for  £225 million. Perhaps it is a little sensational to annualise the two litres for 99p across all liquid milk but it does serve to empahise how big the numbers are to our industry

 

So, for the Tesco balancers, it is decision time. You have jumped through all the Tesco hoops i.e. you cannot export your calves (if it were possible), you carry out locomotion scoring on your herd, subscribe to the Promar costings (if you are daft enough to do so) and attend the compulsory two day annual Tesco Milkenburg Rally for annual brain-washing, which is a cost to your business for questionable benefit.  Perhaps the time is right to explore other options, with no hurdles.

 

If Wisemans, Dairy Crest, Arla and the co-ops were smart they would immediately take the lead and declare ex-farm gate milk price increases before Tesco sits down with its sustainable dairy group. If they could do.

 

Certainly if Tesco is genuine about working closely with producers and does not expect them to contribute to the price war it should be transparent and openly declare the Promar cost of production figures, and work to generate a price increase for farmers. Kite is clearly stating farmer costs have gone up another 3ppl on last year, so come on Tesco / Promar, what is your assessment? Promar is in a mighty difficult position, I think. Last year Kite and Promar were neck-a neck on cost rises. If the two firms are markedly out now then farmers will think Promar is being lent on by Tesco to minimise cost price rises. The pressure is definitely on for Promar to come out with 3ppl as well, and for Tesco to pay-up accordingly.

 

I can’t help feeling that the smattering of trust the likes of Tesco have scrambled together with dairy farmers in the past 18 months is on the wane, and this autumn could signal the first cracks in retailer dedicated pools, particularly Tesco’s. Confidence is fragile, trust is in an even worse position, and any bad news or lack of action to raise ex-farm gate milk prices will cause more to exit quickly.  Processors and retailers have been warned.

 

Now DFOB, who will love Tesco’s move as it leaves me with minimal space to comment on its year end results, which are another year of record losses of some £7.5 million. On top of that there is the loss of 136 million litres.  Turnover was almost static at £562 million despite a 47% (8ppl) increase in the price it has paid farmers for its milk, and this should comfortably have added £60 million to turnover. In the old adage of turnover is vanity, profit is sanity, DFOB has failed to achieve either.

 

During the year total debt rose by 15% from £103.7million to £119.8million, and the interest payments to the bank and the members equate to the losses. DFOB’s Chairman commented that the Co-Op has added value via processing, yet it is DFOB’s brokerage which has made the money - turning in £2.49 million profit.

 

It’s difficult to envisage how the same team who have delivered two consecutive years of losses can deliver a break even year followed by substantial profits. The management say they definitely will this year. I hope they succeed, for next year they will truly be judged.

 

Finally, the Dairy Farmer webinar. The Editor would put me on the naughty step if I failed to mention its success. Excellent, it was. Here are a couple of observations from me:

 

Out of 500 people who registered for the event, as opposed to the 325 of them who viewed it, I couldn’t help notice that not one retailer or middle ground chain had bothered to register, and more importantly no-one from DFOB or from Milk Link. Compare this to Arla, Dairy Crest, Wiseman and Dairy UK all of whom were represented at senior management level.

 

Tesco added spice with its last minute price cutting fireworks, and Promar’s reaction was also interesting. Several web viewers picked up on Promar’s Derek Gardner’s comments defending Tesco’s move because they are the UK dairy industry’s biggest customer.  Me too. But, Mr Gardner, dairy farmers are also concerned at the leverage Tesco hold over Promar, now they are your biggest customer. As I said, a difficult position to be in.

 

Finally, I hope Dairy Event visitors will call in for a chat at my stand on 6th Street.  If you log onto the site you will see our stand features on the home page with a farmer wiping tears from his eyes having left my stand at the 2006 event having spoken to my head of sales, Joanne. She’d probably told him what his quota was worth!

 

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IP August 2008 DF

 

It can be a strain topping the industry’s popularity charts, as I have done for the last two decades. (Surely “propping-up”, not “topping”? Ed.) Occasionally, though, my outspoken comments on milk prices and production do land me in volcanically hot water with processors, retailers and other key players at times. The ones I have this month certainly will.

 

By the time you read this article England, for the first time in history, will have fewer than 10,000 dairy farmers and by the end of 2009 this looks set to be down to around 9,000.

 

Currently processors and retailers seem “mildly concerned” over future milk production, but at current prices they have convinced themselves that in late autumn/early winter farmers will push hard for milk. I couldn’t disagree more! I don’t think milk production will do anything more than continue to drop like a stone unless farmers become confident that reasonable, profitable milk prices will be paid in the long term. And that isn’t on the horizon! Even if a sufficiently high price movement comes along now, the earliest production would start to increase in earnest is probably late 2009, and I am not convinced even that will happen. TB will take out more than 200 million litres year on year, for starters.

 

Some buyers are trying everything to convince farmers otherwise, however, and that it’s economic to produce more now. Dairy Farmers of Britain is offering members what it calls a “generous seasonality bonus that lifts our 25.5ppl standard price to between 33ppl and 37.5ppl for all the extra litres produced from this September to December”. The news comes with tips from Tesco’s best pals at Promar that “most members should be able to profit from feeding extra concentrates this autumn”. Really? While such headlines may light-up the eyes of desperate farmers, what they need is the standard litre price lifting, not extra sweets and short term winter warmers. I only hope for DFB the encouragement for farmers to produce extra milk is in December proves to be financially sound, and not financial suicide, and that the buyers don’t misinterpret the price and think all farmers are getting over 33ppl fopr all of their milk. Interestingly, I think First Milk has rejected such a bonus policy because of the risks that it will undermine its efforts to get across the board price rises.

 

Remember, milk volume increases will do little to increase prices. If volumes go up the retailers will think that the current price is more than satisfactory! Won’t they? The less milk you produce the more you should receive per litre. So don’t follow the lead of the Dutch, Germans, French and Italians and think a higher milk price means you should hit the accelerator and produce more milk. Only when the milk price gets above 30p, or perhaps even above 32p, will I change my mind on that. And please don’t hold me to the milk price – it’s not an absolute figure I’m talking about. The price should go up or down according to the milk price:feed price ratio, of course.

 

The retailers only have themselves to blame, really. This analogy sums up the position and viewpoint from the farm gate: If, from the age of seven, you were bullied by someone who continued to bully you through primary school and secondary school, you would fear that person for ever. You leave school at 18, go to the pub and, lo and behold, meet him there. Now, though, he wants to be your best mate, but not once does he reflect or apologise for what he did to you over the last decade.  Would you trust him and believe he had changed his ways?  I don’t think so. But that’s the relationship between most dairy farmers and processors, retailers and even some co-ops.

 

On top of that mistrust is the fact that most dairy farmers are more alert to the real market value of milk than ever before, and are prepared to jump ship if their buyer doesn’t come up with the goods. They know that there are liquid milk purchasers who are banking on imported cheese bringing down their price, to re-instate their liquid premium, rather than them being prepared to put-up their price to do so. But the fact is cheese processors like Milk Link and Lactalis are paying their producers the going rate. Consequently liquid suppliers, including Tesco, are quitting to supply cheese processors, or smaller suppliers like Medina and Freshways.  Others farmers have simply had a gut-full of accepting what they are given, and are simply seeing their time out in the sector, or are making the most of good cull and stock prices to go now.

 

Processors and retailers had better stop worrying about this winters’ production and write it off because the damage is done, They should focus on what can be achieved to stabilise production in 2009, and act sooner rather than later.

 

Now TB. Firstly I’d like to comment on Hilary Benn’s decision on badgers. As I see it TB is set to become more rampant across the countryside, and more badgers are bound to become infected, and suffer slow, lingering and painful deaths as a result of the disease. Now, of course, it isn’t a criminal offence to put a suffering animal out of its misery, or else every farmer in the country would have been locked up by now over myxomatosis. From a PR point of view the badger huggers can’t argue about culling a sick badger either. Most farmers with badgers on their land have also become pretty adept at spotting badgers which are infected and suffering, of course. So, as I see it there will be more TB, more sick badgers, and more badgers put out of their misery. And Benn’s decision was actually welcomed by The Badger Trust and those who like badgers. Incredible!

 

Although pages have been written on the NFU’s decision to withdraw from negotiations with Government over cost and responsibility sharing I have to throw my Two pennies worth in. Whichever member of staff within DEFRA conjured-up the phrase “cost and responsibility sharing” should be knighted. That person has succeeded in fooling all of you – the correct phrase is “cost and responsibility transfer”. That’s because all of the costs for animal disease and fallen stock disposal will be shifted to us, the farmers. If a politician, Hilary Benn can duck out of taking a tough line on the reservoir of TB in wildlife then I agree with the NFU that it’s time the politics was completely taken out of our animal health policy. In making his decision Hilary Benn has thrown all the goodwill built up over several years out of the window. How things progress from here is anyone’s guess, however. 

 

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IP July 2008 DF

 

Supermarkets – don’t we just love them! Just as everyone thought Morrisons showed more care for creepy crawlies and other environmental niceties than it did for UK dairy farmers came the news it will be paying an extra 1ppl for milk. Eureka! Having held out a year longer than the other retailers, Morrisons has finally joined ASDA, Sainsbury’s and Tesco in paying a premium for liquid milk from Dairy Crest and Arla.  However, I estimate it has pocketed an estimated £4m from its procrastination!

 

The Morrisons deal is simple and means it pays an additional £3.7m to Dairy Crest and Arla, to be shared out among their non-dedicated ASDA, Tesco and Sainsbury’s producers. This dilutes the 1ppl to 0.3ppl for each litre, payable from June 1. On the plus side it eliminates the huge cost incurred in setting up and managing a dedicated supply group.  But what benefit does the payment deliver to Morrisons?  I’m not sure, and I’m a bit worried about “side effects” too.

 

That’s because I think it benefits, and subsidises, smaller retail milk buyers. After all, when Arla and Dairy Crest go to negotiate a much needed milk price increase with these smaller retailers, and they justify their increase, these retailers are likely to tell them to knock off 0.3ppl which the producers have received via the Morrisons deal. I’ve been told one is going to use that ploy anyway!

 

Alternatively, Dairy Crest and Arla could decide to use part of the Morrisons money to subsidise discounts and deals, particularly in the aggressive middle ground. Customers of Dairy Crest and Arla must be sitting back laughing at the deal. It does take 0.3ppl worth of pressure off them from paying an increased price.

 

Perhaps of more concern is that Morrisons could pull the plug on the 1ppl at any time without being held to account or having its supplies affected. That’s perhaps the most serious issue, and one which farmers involved with Tesco, ASDA or Sainsbury’s do not face.

 

Now Tesco. In January, it proudly bragged that as a result of a “ground-breaking” calf scheme the 930 farmers supplying it would no longer export calves and “instead they will be used to supply British beef and veal to shoppers”.  Tesco suppliers thought it was just the ticket.

 

But the grand plan has all gone pear-shaped, for a number of reasons -  not least because it seems to have been ill-conceived to begin with; was introduced in a rush; and for reasons that do not stand up to scrutiny. It also didn’t really have the full blessing of farmers.

 

Tesco claimed that welfare standards for calves in Holland did not match British standards, which is why it banned exports. But from inside the Tesco camp I am reliably informed that the retailer did not visit any European veal units to compare standards during 2007, and the statement was made purely on hearsay and perception. Frankly I find it unbelievable that Tesco has been allowed to get away with such a statement un-challenged when it sells so much Dutch and Danish bacon. Are we to believe that the Dutch have different welfare standards for veal calves to those of pigs?  I think not. If Dutch welfare standards aren’t good enough for our calves, then their pigs shouldn’t be good enough for us either!

 

Tesco says it has made it easier for its producers’ calves to enter the food chain. But this is not borne out by the evidence. It has merely replaced the export of around 45,000 bull calves with, in many cases, a bullet or a one way trip to the hunt kennels. Neither of these are what the farmers signed up to. Tesco is a million miles away from its claim it will use all dairy bull calves to supply British beef and veal to shoppers.

 

The scheme is not “increasing farm incomes” and neither is is “a commercial alternative to exporting” as claimed by Tesco. It didn’t take long for the penny to drop that farmers were receiving £25 for calves worth £55 for export, for example. Some people question Tesco’s real reason for introducing the ban as well.  Was it to “do the right thing” and to be seen to be responding to consumer pressure on exports, or was it because retaining more calves in the UK would exert downward pressure on UK beef and lamb prices, as fewer animals are exported.

 

Clearly the move has not been universally popular, and a number of farmers have already found ways around its export ban. Some say Tesco is in breach of contract. Doubtful. But contracts are coming into the equation - one myth circulating is that Tesco has cancelled a producer’s contract in Wiltshire because it had evidence he had exported calves.  That’s not true, but such stories do serve as a warning.

 

Practically, the scheme has also faced difficulties. Collections lapsed, calves passed the 42-day TB testing limit, and numerous farmers had to reach for the gun and shoot healthy six week old calves. 

 

Nor is there any guaranteed price for the calves or to the finisher for the beef. In true Tesco style it has no risk or exposure, but succeeded in bagging the PR brownie points.  One farmer put pen to paper to me and summed up the thoughts of many on the Tesco contract: “We feel we have been cheated by Tesco, which is still advertising the wonders of the scheme”.

 

Tesco’s requirement that its contracted farmers also do costings, via Promar, is also controversial.  The bottom line is that if you don’t join Promar costings you’ll be given some nasty-tasting medicine to take – most likely in the form of a lower price. Clearly Tesco’s long term aim is for its group to buy fuel, finance, feed and other inputs at ever lower prices, and for those to be taken account of in the cost tracker. Thankfully it won’t need to approach me for bulk quota savings!

 

Now costs. They’ve continued to go up since the First Milk/Promar cost of production report earlier in the year. The idea of the report was to help ratchet-up milk prices, but for First Milk’s co-op members it now has to be accompanied by a milk price increase. Farmers are more than concerned that it is the only one of the three co-ops not to raise producer prices this spring – so far.  More cost of production increases, with no producer price increase, will cause even more conflict. Hopefully by the time this article is out its price will have gone up.

 

Finally, the show season is in full swing. I’ll be going to the two Dairy Events and The Royal Welsh Show, which really is in a league of its own, but I’ll also be paying a private visit to The Black Isle Show, the National Sheep Dog Trials near Ashbourne and The Royal Show as well. Will The Royal have bounced back from a dreadful year last year?  It has to, or else this year will be the last!

 

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IP June 2008 DF

 

We’re supposed to be a golden age of dairying.  Well, if we are, then it’s a fool’s golden age! Farmers, processors, even Tesco are all reported to be jittery about dairying’s prospects. 

 

This year’s DairyCo survey into farmer intentions exposed one particular thing - nerves. Dropping the ex-farm gate milk price is not an option or producers will quit. OK, so the survey has been criticised for focussing too much on the negatives by asking questions such as “what would you do if your milk price fell by 2p, 4p and 8p?  Be that as it may, the mood is not for price rises, but for cuts.  So well done to DairyCo, I say.

 

Processors, too, aren’t exactly in clover. It’s more nerves. The white knights of the industry, Wisemans, issued a profits warning  and has seen a third wiped off its share price (£124 million) in less than four months! Now a profits warning could be expected to precede a price drop to claw back much needed extra readies, but on this occasion Wisemans accompanied the warning with a price increase of 0.5ppl.  On hearing that other companies claimed that in only paying that Wiseman had capped the May price, at a time when they (the others) were seeking greater increases. Oh yeah? Why didn’t they go first then!

 

First Milk will, I suspect (hope) have received significantly more than the 0.5ppl paid to Wisemans direct suppliers, with the intention that First Milk’s farmers also receive 0.5ppl.  All eyes are now focussed on First Milk. Their much-lauded Promar report built up member expectations - now it’s time to deliver.

 

But is the increase enough to keep famers happy, especially for Wisemans, which now needs to ramp-up processing at the new Bridgwater plant? That is not proving easy. They are “worried but not quite panicking”, I’ve been told.  Like other major plc’s they have resignations in from farmers, who are being wooed by cheese buyers like Lactalis, and other liquid firms like Freshways. Others claim they are unhappy at Wisemans request to sign a new contract, especially the leaving terms, which makes it harder for farmers to jump ship.

 

That brings me on to another ship – HMS DFB. They are busy trying to improve communications by issuing a weekly bulletin to members, with gems of “useful information” about the firm. Clearly, though, it’s only the good news that is deemed worthy.

 

Left out entirely recently was their interim results to 30 September 2007 - they were quietly posted on their website without fanfare or reference at all in the weekly Gospel Of Good News. That says something, doesn’t it? The posting predictably lacks detail, and if members study the text carefully they, like me, could be shaking their heads at certain points.  The bit which made me smile most was the chairman’s comment that “they have paid members an additional 8p since June 2007 (whilst commenting on the results to 30 September 2007) when almost 3p of this 8p was paid after this date, and as late as December 2007!

 

The figures show a decline in turnover, a fall in operating profit from £3.6m to £1.5m (excluding exceptionals), and a worsening balance sheet position as members bridge the funding gap. Real net debt now exceeds £100m and members are owed £52.3m. Blimey. There are lots of questions to ask, and I hope members will do so. One farmer cheekily compared them to Derby County last season: the faithful fans turned out each game knowing that the performance from the players and management could never be enough to survive the drop. I’m afraid their situation is a far cry from Milk Link’s, for example, whose members have just received another £4m in returned profits. Well done to them!

 

At least the future of Westbury appears secure. Five years ago when Magic Malcolm Smith was negotiating a deal with the bankers I believed there was mileage in UK Dairy Farmers PLC owning the plant.  One idea I floated was to persuade the NFU Mutual and others to operate a sort of “ethical investment” allowing farmers to buy a share in the plant. That fell on deaf ears, didn’t it!  At least First Milk and Milk Link are keeping it going, and I wish them every success. We know there’s milk coming in from abroad for it, but I really don’t care providing they make a margin on it.

 

And so to Arla. Well we wouldn’t want to miss them out!

 

I have spent some time studying the much trumpeted joint venture between Arla’s UK, Danish & Swedish farmers, and on first sight it all sounds great.  However when farmers started to talk about having a 50% share of the UK operation, and the Board being able to “influence prices” I started to really sit up.

 

The reality is that at the time of the share buyout AFMP farmers held about a 5.29% share of Arla UK, worth £23m. This was converted to loan notes to be repaid in 2011.

 

The farmers share has now dropped to 3.5%, being half of the 7% joint venture deal. Farmers will receive a welcome repayment of around £8m, leaving around £15m of producers money invested in Arla UK, and which will increase to over £16m as Arla’s direct supply base increases and new suppliers join and pay their 1ppl.  Compared to some other farmer investments I accept that this money appears to be safe, and secures the right for the AFMP to supply a minimum 90% of Arla’s UK milk requirements. But remember the Arla UK operation  accounts for a sizeable third of Arla ambas worldwide output! The farmer’s share of its UK business has declined, and a 3.5% or 7% stake is, I would say, unlikely to give much weight to influencing future milk prices. The plan to repay the loan note (now £15m) has also obviously vanished. So it looks like being an investment with no dividend, which pays no interest and is not tradeable. (Unlike Milk Link’s scheme and the one First Milk is proposing.) Only time will tell whether the Arla model is the right one. For now, at least, most farmers seem happy that the deal means they get some money back.

 

Finally quotas. There are still plenty of people taking quota but without doubt a key influencer in the volumes exchanged is coming from a plentiful supply of farmers who wish to crystalise capital losses. Several are making what is termed a “negligible value claim” with HMRC by simply making a claim supported by a letter from ourselves confirming the market value on a selected date.  The advantage of most of these schemes is the ability to carry the loss forward for future years, to set against future capital gains.  The only surprise is that the dairy farmers who are taking advantage of these options all appear to be clients of only a handful of switched-on accountancy firms. The rest must be asleep – ask us if you want more information.

 

Comments to or fax 01335 324584

 

IP May 2008 DF

 

If you want to know what the dairy industry’s leaders think about the sector, or want to get to grips with the gossip  then a visit to the annual Dairy Industry Newsletter Conference is one of the best places to go. The biggest dairy names from around the world are there, and I’m allowed in too. The speakers and delegates aren’t usually backwards in coming forwards to air their views, and they do stimulate new thoughts and ideas. Bouquets go to United Dairy Farmers, Milk Link, First Milk, Dairy Crest, Medina, Wisemans, Meadow Foods, Long Clawson and all the other dairy companies who turned up. And an open question to DFOB and Arla, who didn’t, as to why they don’t feel the need to get a global perspective on dairy. Having said that  I noticed that in DFB’s latest weekly members bulletin of spin they claimed” we heard from speakers at last weeks Dairy Industry Conference…” They certainly didn’t and that’s was a lie. DFB weren't there. How can they be believed on other matters when they get found out on things as minor and as innocent as this?

 

If they had been there they would have enjoyed a real eye-opener of a presentation on the potential for dairy products in pig diets, from Jim Sullivan, from the USA. To save you counting there are around 1 billion pigs spread across the globe, of which more than half are found in China. More pigmeat than poultry meat is consumed globally in fact. Of key interest to dairy is the early weaning of the piglets. It’s good for the pigs; good for the pig farmers and good for dairy too, as to be effective lactose based ingredients are essential. There are currently no options to substitute whey powder in the three week weaner rations, and they eat about 1 kilo of dairy products each. 1 billion pigs . . . 1 kilo each: nice!

 

Fonterra’s Philip Turner (once the face of the business face in Europe, and now in The Far East) focused on Japan and China. He stated, staggeringly, that Japan has run out of butter. He also stated that China’s consumption of dairy products is expected to double in the next 10 years.

 

Where is all this extra milk going to come from, I ask! Well, not from the UK, it would seem. All of the UK’s main industry leaders commented on the fragile state of the sector.

 

The news of a 2% increase in the UK’s milk quota from 1st April did little to dampen producers’ enthusiasm for acquiring additional quota. While the lease market is dead (with the exception of direct sellers/producer retailers leasing in for less than 0.1ppl), the sale market has been more active than we expected,  with good demand for a typical 4% butterfat selling comfortably for 0.8ppl with extremely limited supplies coming forward.  So scarce is quota to sell we have had to re-commence advertising in the Farmers Guardian, in a concerted effort to root out more.

 

Clearly at 0.8ppl a number of larger operators have decided that seven years until 2015 is a very long time to predict what will happen to UK milk production or any cross border quota trading plans, and at this price it’s a cheap insurance.

 

There can only be negative results for UK dairy farmers from the recent quota increase.  Other countries, for example, Holland, Denmark, Southern Ireland, France, Italy and Germany have set about filling the additional quota and the farmers in those countries I have recently exchanged emails seem to be pushing production in advance of falling ex-farm gate prices.  They have almost surrendered their milk price before they have commenced battle.

 

In Richard Wright’s March column, he commented that “the bottom line remains that revenues will fall and the gamble is that farmers will be able to offset this by producing more milk.” And that seems to be happening. The EU increased production by 2% in the first quarter of this year so there is no doubt a significant percentage of the extra quota will be filled this year, and when international prices have weakened. Indeed, across the globe producers are responding to higher ex-farm gate milk prices with increased production. Not in the UK, though.

 

For example  the Australian Brian Norwood confirmed that the country’s sheep numbers, at 87 million, were the lowest since 1925 and that, irrespective of the challenges from successive droughts, by 2013 Australian milk production will break all records to hit 11.6 billion litres. This is an anticipated increase of 28% additional milk in five years.  The Australian construction industry cannot keep pace with the demand for feed pads and new rotary parlours.

 

Meanwhile here, milk production is still on a long term decline (6% since 2003) and I cannot see how this decline will be reversed.  Few dairy farmers I talk to have the confidence to push on, invest in new facilities and push for more milk. In fact, as First Milk stated, we are now producing less milk than we have in the past 34 years!  Only two factors can reverse this - one is confidence, the other is price stability. 

 

Milk prices throughout the EU are under pressure and even my robust and often militant friends from Italy are under pressure to accept a price reduction, with the April spot milk trading for 28 Euro cents (22.5ppl) less delivery to the dairy.  This, like the current 23ppl milk price delivered into Westbury, reflects the current value of butter and SMP, being the residual products of surplus milk supplies.  But, as I have said to those who would listen, if the price to farmers weakens now many farmers will make this their last summer of milking?  As the president of the Italian milk co-op and much feared farmer lobby group COSPLAT said to me “Ian it will be the bigger farmers who stop milking the cows because they will not suffer a lower milk price with increasing costs when there are many profitable alternatives they can use their land for”.  I am not convinced this message has hit home with UK processors, co-ops and retailers.  As United Dairy Farmers CE commented, cows have to be milked every day, twice a day but grain is harvested once a year. 

 

But what will the incentive price that will keep dairy farmers milking be? Glanbia’s John Moloney stated that the milk price paid to farmers in Ireland and the EU had to fall and he believed a realistic ex-farm gate milk priced was 30 Euro cents (24ppl).  Dairy Crest’s, Mr Large (Mark Allen), as opposed to its Mr Little (Arthur) took to the platform as the UK’s largest milk buyer and declared his 1,600 farmers provided jobs for a whopping 8,500 employees. On milk prices, he suggested “the Kite figure that farmers required was 26p, and not the 29.6p Promar indicated in the First Milk costings”. Whoa! Hold it right there Mr Allen! One of Kite’s consultants immediately jumped to his feet (fearing a kicking from me, the bearded agitator, who’s pen had started to scroll!) to declare that the 26p figures referred to ignored the 3ppl Kite had stated as necessary for investment and profit, making a total figure of 29ppl.  Kite and Promar are talking the same language, therefore, but it would seem Mark Allen had interpreted the figures differently and had forgotten the essential 3ppl bit! Oh, and if it’s 26p, why are they currently pay only 25.5ppl?

 

The Dairy Crest price is hardly glamorous, and it’s little wonder that the list of producers waiting to join Dairy Crest two years ago when milk prices were 17ppl has been replaced by a list of farmers waiting to leave.  The tables have turned. It is clear that a few UK dairy farmers are more aggressive than before, and have been beaten up in the playground by the bullies once too often. Why does it take mass resignations (Dairy Crest - 225 m litres, Arla - 115 m litres, DFB – unknown but certainly it has lost more than half of its milk in less than six years) to shake-up these milk buyers? The question for Dairy Crest, Arla, Wiseman and the co-ops and others is how they can be profitable if they have to replace lost litres to fulfil contracts? 

 

So as you read this article ask yourself what type of dairy farmer are you. Do you make things happen, watch things happen or wonder what happened?  Those who are making things happen are more numerous today than ever before Are you making it happen? Or just watching, and freeloading?

 

 

Comments to or fax 01335 324584

 

 

IP APRIL 2008 DF

 

WHY IT’S EASY TO TELL WHEN WE’VE GOT DFB PERSON ON THE PHONE

DAIRY FARMER ARTICLE – APRIL 2008

 

In recent months DFB’s Rob Knight has received unwarranted attention (not least from me) for netting a cool salary of £409,000, despite the fact the co-op is delivering some questionable returns to its members. It appeared to be the best chairman’s salary in the UK milk processors’ super league, but he’s just been gazumped big time – a subject I will turn to later! Knight’s package is particularly interesting considering he rarely, if ever, attends member meetings.  But I’m told it’s not as interesting as the remuneration for Phil Moody (DFB Director) and his company. One to look at in future, perhaps!

 

Now I see Mr Knight has hit out at Wiseman’s super dairies and plugged the role of smaller, more regional ones, as per those owned, of course, by DFB. I would have liked to have discussed the article with him (with anyone from DFB actually), but, alas, I am to DFB what Osama Bin Laden is to President Bush. Only less popular. (And yes, I do know that DFB members have been told not to trade with me! In fact we know when it’s a DFB man on the phone because the conversation usually starts in the same way a gay MP hires a rent boy: “Don’t tell anyone I’m talking to you, will you?”)

 

I didn’t get the article first hand, of course, because I’m not sent any information from DFB. Other milk purchasers did comment, however, along the lines “Do DFB members really believe this stuff?” Well who knows, but from the release and subsequent press reports it would seem the majority of the press did, publishing it without asking one basic question: if the DFB model of regional processing is so fantastic how come it is paying some of the lowest prices in the milk price league table? Let’s get real. It’s the ultra modern super dairies owned by the likes of Wiseman which are delivering what retailers require, and are returning prices to farmers which are at the top of the league tables. But I’m ready to eat my words, and I may have to if Tesco’s localchoice milk takes off to the extent that Andrew Cooksey implied it could last year.

 

DFB’s local choice was trumpeted by Sir Terry Leahy’s substitute at the NFU conference. Lucy Neville-Rolfe highlighted the 28.5p paid to DFB Local Choice members as “the highest price paid for liquid milk by a UK supermarket”. Technically she is correct but so far it’s for a tiny percentage of producer’s milk and localchoice is costing DFB an arm and a leg.  So it may make Tesco feel good to trumpet the price but farmer suppliers and their co-op can’t call it a financial success just yet. I hope it will be though!

 

As I write all the focus is on April 1 milk prices and to date no one has declared their hand. Tesco has the high ground despite the First Milk/Promar report claiming farmers require at least 29.64p in order to make a profit and re-invest. I have no doubt Tesco and Sainsburys will increase prices from April 1, which they hope will be sufficient to secure their milk fields and avoid further farmer haemorrhaging.  The report from First Milk was well timed, arriving in the middle of April price negotiations, and credit to it. But I can’t help thinking First Milk has set its members an expectation of 29.64p or better. That means asking the likes of Wiseman for well over 30ppl. Ouch! I hope it succeeds, though, and would love to be a fly on the wall in the negotiations when it insists on the new price.

 

There is no doubt that Arla is under pressure from Partnership members, especially the non-Tesco and ASDA suppliers who feel they are the poor relations. Morrisons have to shoulder some of the blame for the discontent because it continues to source milk cheaper than other retailers and to date has all the advantages but none of the cost. My message to Morrisons is simple: you’re in the gun sights of angry farmers and there aren’t many targets for them to switch to!

 

Stepping forward to up the pace on all of this again are the Bravehearts of south-west Scotland, who are not to be messed with. A group supplying Arla/ASDA are threatening to resign as I write, presumably intent on going to the rapidly expanding and ever-welcoming Lactalis. At least one milk purchaser referred to one of the group as a “milk tart” because he was on his seventh contract in 14 years. Perhaps a more accurate description would be the “Scottish milk mafia”. They aren’t the only dissatisfied Arla men, though. Is it all going wrong for Arla, I ask, who were once described as the Manchester United of UK dairy processing and who now flounder mid table at best in the milkprices.com table (excluding Tesco and ASDA suppliers).

 

Clearly it is making stacks of money though. If it wasn’t then how else would it have found the cash to pay off former chief executive Tim Smith a whopping £3.53m? This rubs salt into the farmer’s pricing wounds and must be the envy of others in similar positions in the industry. The payment to Smith is as big as the OFT fines for price fixing, which Arla negotiated an amnesty on in return for dropping everyone else in the proverbial.

 

There is not the space here to analyse Arla Foods Limited annual accounts, but in addition to the fat cat payment disclosure another phrase which crossed my radar was “During the period the business experienced significant cost inflation, particularly in the cost of raw milk, as a result of turbulence in the world commodity markets. These cost increases were fully recovered from customers, such that turnover and profitability development was positive on a like for like basis”. Does this translate to mean Arla recovered more money from their customers than their costs increased? Unlikely. I, and other farmers, think the more likely explanation is that it withheld producers’ money which it received from their customers in lieu of cost increases. Which does not go down well with its farmers.

 

The NFU’s conference was a huge success. Two points which particularly caught my attention, related to David Cameron. He said that “it is an absolute national disgrace that we do not have a public procurement policy for food”.  He is spot on correct - you wouldn’t see the French army eating British beef, and with only 5% of the lamb consumed by British Forces coming from British sources it’s time the government backed British. The second was the fact that no specific mention of milk price (other than volatility) was made by any producers or NFU staff in the breakout sessions. Is this complacency? I do hope not!

 

Comments to , or (for DFOB members) , or fax 01335 324584

 

IP March 2008 DF

 

As we approach April Fools Day my focus is on a seamless transition of the National Fallen Stock Company’s administration from the RPA to IPA. The move is proceeding according to plan unlike the proposed merger of Milk Link and First Milk, which isn’t.

 

The original deal in October was to be economic merger of equals, but by January was closer to becoming a First Milk takeover. No question. In October heads of agreement were signed and the push came from First Milk to announce the merger ahead of its financial results, but by the turn of the year there had been a seismic shift away from the agreed October terms to the point that the two co-ops were poles apart.  The letters to the respective members speak for themselves - Milk Link’s confirms that a merger on the basis proposed would not be in the members’ best financial interests and highlights the fact that Milk Link’s financial performance is strong. This, to me, means Milk Link will be more profitable on its own than married to First Milk.

 

First Milk’s letter talks of its great disappointment and cites the difference in the valuation of its Wiseman shares. Yes, First Milk is right to be disappointed because had the deal gone through it would have most likely have been top dog, with a waggier tail than it has got now. The cited Wiseman share issue was not a key issue I don’t think (Milk Link had agreed to a valuation at current prices), and it was not the deal breaker.

 

The chest-thumping hollerings of the NFU and NFU Scotland (have they ever tried to merge and how much money did they pay into the co-ops during the hard times that gives them a right to complain?) are trying to convince everyone that the failed merger has put the industry further behind our EU and world competitors. Cobblers. Sadly, too many people in the UK dairy industry seem fixated and obsessed with consolidation and size. I’m not. To me it’s not size that matters, it’s what you are capable of achieving with what you have that counts.  I have no doubt that both First Milk and Milk Link, having aborted the merger, have both moved to Plan B, or C, with speed.  However there is a real danger that the two businesses are more likely to go head to head when selling cheese in the future than they did before the merger talks. The thought of a cheese war will be music to the ears of the retailers, but the victims will be the farmer members.

 

So, what’s next?

 

With Milk Link I expect numerous girls (pretty or otherwise) to be wooing Barry Nichols and all looking for marriage. But who? Everyone forgets about United Dairy Farmers in Northern Ireland; and Lactalis with its domination of the global cheese industry could be another option, although it does like its brands, rather than own-label. I’d also like odds on Dairy Crest flogging its factories to Milk Link or someone else in the future, while retaining its brands. There’s no reason why Milk Link couldn’t contract manufacture Cathedral City for DC to market. And there’s no reason why we shouldn’t put Fonterra from New Zealand on the list. My message is simple: anything can happen and we shouldn’t just restrict the matchmaking to other GB based businesses.

 

As for First Milk, when it states: “We have also been progressing with other plans, and these will be given top priority”, I believe it probably means a takeover before too long. It’s far simpler than a merger! One could be announced during the coming months, ahead of its next financial results, in fact. There is one rampant bridesmaid on the dance floor following the failed marriage, and it’s DFOB. I am sure it would be keen to do a deal with someone, and would probably be more than happy for Peter Humphries to take control – something that would not be an automatic option by United Dairy Farmers, with their able, but possibly impossible to hang on to in the long term, chief executive David Dobbin.

 

Unlike the NFUs, therefore, I am not crying over spilt merger milk. Sooner or later two co-ops becoming one will eventually be four becoming two. 

 

Now my focus turns to spring milk prices, and in particular, the re-establishment of the so-called liquid premium.

 

Almost a year ago, Tesco and Sainsburys’ announced they wanted to pay their supplying farmers a premium price in return for jumping through certain hoops.  The top dog is considered to be Tesco, although I concede that the deal offered to Sainsburys’ suppliers is marginally more attractive at the present time particularly for Wiseman farmers.

 

Tesco wheeled out its Frenchman, Alain Guilpain (Dairy Category Manager), who certainly had courage and confidence and was willing to address all 1,000 Tesco dairy farmers, (if they could be bothered to turn up to his various meetings). He constantly told the farmers that Tesco would never pay less for milk than the cost of production.  It was, in my opinion, a bold but welcome statement. And Tesco’s appointment of Promar to examine costings means it should have access to accurate up-to-date figures.

 

Tesco has also declared its April costings will not only be based on October 2007 to March 2008 figures, but also on a projected forecast to October 2008. Likely result? I think Tesco will analyse its three agreed components - cost of production, commodity prices and supply profile – and conclude prices need to increase. When Tesco sneezes the other retailers catch a cold, so, if Tesco up the liquid price I am convinced Sainsburys will have to fall into line. ASDA pays a premium over the Arla standard price, so that isn’t necessarily dependent.

 

Whether the price does go up depends a great degree on Promar’s figures, and also whether Tesco’s claim last summer that it wanted to help its dairy farmers was genuine or just good PR.

 

But what about Morrisons who’s current home page states “special offers to melt your heart”?

 

It’s a pity it is the only major retailer still dithering over making a special offer to Arla and Dairy Crest to pay a premium. Rumours were that Morrisons was due to make an announcement by 1st February, but alas, nothing as yet.  So why has Morrisons been allowed to buy milk cheaper than its three main competitors, but still selling its milk at 4 pints for £1.34? Presumably because farmers, Dairy Crest, Arla and the farming organisations are allowing them to!

 

Oh, and a word of warning in case a Morrisons premium is announced at the same time as Tesco and Sainsburys increase the price they pay. This will be a case of Morrisons dressing up a “catch up” price as a premium to farmers!

 

Comments to or fax 01335 324584

 

 

IP February 2008 DF

 

The so-called “merger” between First Milk and Milk Link was given the green light by the Competition Commission, so hurdle number 1 was cleared without so much as a fall at the first fence.

While everyone in the industry agrees that significant consolidation is required in our fragmented industry, the directors of both co-ops have to carefully study the facts and the numbers and decide whether they can recommend members vote yes to the merger.  I do not believe a yes vote is automatic and, putting personal agendas to one side, the decision is one of the biggest the directors will have to make, carrying huge responsibility and accountability.  Yes, we all agree to dairy company mergers in principle, but in reaching their decisions they cannot ignore the detail and have to decide what will be in the best long term interest of their members.  The fixation and obsession for greater consolidation and market share must never dominate the necessity for profit, or what is right for each individual business.

 

Milk Link is proudly trumpeting its business as being strong and profitable. Meanwhile, First Milk’s first year results are not so sensational.  That said, though, neither were Milk Link’s in the early days of its processing career.

 

Directors – not all but some - on both sides of the fence recognize that if the merged business was seen to be dominated by the Milk Link team its proven “track record” would potentially be more acceptable to Milk Link members, and will receive the tick of approval more readily.

But the picture being painted in some quarters is that it could be the reverse - with First Milk appearing to be the dominant party. In fact the word on some rumour filled street suggests no new name is proposed for the merged business, which would be called First Milk. Cobblers. I’ve been told what the new name will be: Milk’izUs, with the cheese business called, er Cheez’izUs. Nice.

 

The split is clearly an interesting one, though – Milk Link is more profitable and established in processing, but First Milk has more members and milk.

 

It will be interesting to learn how the shares in any merged business will be divided up, which is certainly not straight forward and will be occupying the minds of several lawyers and highly paid accountants.  From their most recent accounts Milk Link has a debt of £129.7m with First Milk standing a £97.6m, so if the two merge the total debt will be an eye watering £227.3m.

 

It will also be interesting to see what the directors recommend having sifted through the spin and the numbers and ensure what looks good on paper is reality.  The merger may be positive for the UK dairy industry but in making any recommendation directors have to be 100% convinced that any merger/takeover is in the best interests of members.

But hopefully the right decision will be made for both parties. And if that’s for the merger to go ahead then great.

 

As quota prices drop ever closer to 1ppl numerous quota holders who stopped milking before 1st April 2007 are taking the view that at this price they may as well take another card and twist, rather than sell. Some are opting to place their quota in Trust with an active producer in the hope of higher prices during the next seven years before they expire on 31st March 2015.

 

A number of these Trust arrangements are simply with family or friends, whereby the quota is transferred to the active milk producer before 31st March to avoid confiscation.  Others farmers, with above average quantities, are opting for a proper trust agreement with a third party milk producer, which clearly specifies what is happening and hopefully caters for all eventualities.  In previous years the so-called caretaker of the non-producers quota has been typically allowed to utilise 15% to 20% of the quota each year as a thank you for his efforts, but with leasing almost non-existent these deals are near impossible for us to put together now.  That only leaves one alternative - the caretaker has ownership of part of the quota transferred to him at the end of the period with use of the same 15% to 20% during the period he is safe-guarding it.

 

One of the keys as to whether these arrangements will prove to be a wise move is to the degree that additional quota is increased on 1st April 2008 and beyond.

 

As every man and his cow in all 27 EU member states know, the Commission is now looking at the quota dashboard. It’s not just looking at the current rate of quota increases, but also down the road to 31st March 2015, when it is determined a vote to extend the current quota system will not be pushed through.

 

In true European style the decision to increase quotas by 2% from 1st April 2008 is not as clear cut as perhaps it looked a month ago, with the Godfather of the EU, Germany, along with Austria and Finland swinging to a “no increase” vote for April. Others are studying the facts, in particular, a report due out in February analysing the likely commodity price movements between 2008 – 2015 if increases are implemented.  The reality is that if just one more minnow of a member state switches sides and decides to join the German club it would create a blocking minority, wrecking any chances of an increase.

 

Those in favour are predominantly the Mediterranean countries, led by the Italians, Spanish and Greeks but in general the enthusiasm for an immediate increase has been rapidly tempered due mainly to crashing powder prices.

 

It is highly unlikely a decision will be reached before March, with the matter due to be debated within the Special Committee on Agriculture at the end of February. If it gives the thumbs up it is unlikely to be put to the Agriculture Council to vote, but if they cannot reach a decision it will be put to the Council in early March.  It’s a tight timetable and I wouldn’t like to bet on whether Mariann Fischer Boel will persuade everyone to follow in her direction so quickly.

 

If there is a 2% increase then the Italian challenge against the rejection of cross border quota transfers from the UK is unlikely to take place.  If the allocation is less than 2% then they will be seeking to launch their case.

 

While quota trading has reduced to little more than a handful of deals each day Single Farm Payment Entitlement trading is gradually winding up.  In this, the third year of trading, buyers are certainly better educated and keener to buy, even though several know they have missed out by not buying in previous years. In January 2006 and 2007 we were awash with Entitlements where as this year supply is tighter and we are pretty much operating hand to mouth. But the bottom line is the investment still looks a great deal for buyers.

 

Finally, a word on the NFU of England and Wales centenary celebrations, in particular, its conference, which I expect to be a tremendous celebration of a 100 years of agriculture.  I hope the conference will allow delegates to share a century of history and memories, and I look forward to discussing the future with the next generation of industry leaders who have the responsibility of guiding the organisation, and the industry through the next 100 years. Also celebrating the centenary are The Rugby League, Vimto, Henry Ford’s First Model T Car, Baden-Powell and the scout movement and football clubs like Milan, Feyenoord and Rochdale, by the way!  It’s also a 100 years since the demise of Butch Cassidy and The Sundance Kid.

 

Whether you are an NFU member/supporter or not, this is an historical year and I cannot imagine the next 100 years will see the incredible changes in agriculture and technology that the last 100 have.

 

Comments to or fax 01335 324584

 

IP January 2008 DF

 

“I have a dream”. So goes the lyric of the chart topping ABBA song of the 70’s, which, for most hot blooded males focused on the dream of having a night out with the band’s long legged Swedish blonde bombshell.

 

For dairy farmers in Cumbria they had a dream too - to be part of a European state-of-the-art cheese factory. Their leader was the entrepreneurial Dutchman Ronald Akkerman, who promised he would make that dream come true. But, just like my teenage dream that Agnetha (the blonde), or even Suzie Quattro, would jump into my mini pickup for a night out at Pocklington YFC dance came to nothing, so, I am afraid, has theirs. The dream has gone.

 

The Dutchman has sold his milk field to Meadow Foods and effectively cut and run before his milk selling skills were put to the test. Faced, as he was, with the unenviable task of having to sell 270m litres from 1st April, in a very volatile and downward turning commodity market, he upped sticks and left. Only two weeks earlier the Farmers Guardian, like others, featured the launch of the £70m West Lakes Dairy Park stating this “marked the end of all the speculation.”

 

During 2007 everything was handed to Ronald on a plate and all his 2007 New Year wishes came true and more besides.  First Milk took a beating and dug its own grave with the Cumbrian farmers with some ill judged words, and hard lessons were learnt. Akkerman was in the right place at the right time and scooped 143 farmers and 180m litres from day one with minimal recruitment expense.  Meanwhile commodities doubled in price and his phone was red hot. He was the cool boy in the playground to be seen with. First Milk gave up, as did DFB, while Charlie Payne, Meadow Foods, Lactalis and The Cheese Company recruited some of the disenchanted former Dairy Crest Directs. Akkerman’s first milk collections and payments went incredibly well (despite attempts to sabotage it) and he hit the headlines by paying an average 27.67ppl for October milk.  But before he took in his first deliveries, commodity markets had quickly started to head south as fast as they raced north, and Akkerman was in for the mother of all kickings from the older, more streetwise, kids in the playground. Meadow were already buying around 35% of Akkerman’s milk and sensed the time to make a predatory move, but they were not alone. Others, like The Cheese Company, kept in close contact with developments, having purchased a similar quantity of the 180m litres as Meadow.

 

So what next? Well for sure Ronald will not set foot in Cumbria again in his lifetime because if he does he will need a small army of very beefy bodyguards. In fact, he is probably confined to the UK dairy industry’s history books for good. So long Ronald.

 

As for his supplying farmers, they can stay with Meadow or give 12 months notice and leave.  The truth is if they had wanted to sign with Meadow when they left Dairy Crest they would have started supplying from 1st October. What alternatives do they have? Welcome to another beauty parade of potential milk buyers all attempting to selectively pick the juicier more accessible Cumbria producers away from Meadow. The front-runners are sure to be Charlie Payne, Lactalis, Arla, The Cheese Company and a more diplomatic First Milk.

 

In fairness to Meadow they were at the head of the upward price movement headlines throughout 2007 with consecutive monthly milk price increases due to their sharp sales team and exposure to rising commodity markets.  The question the Cumbria farmers are struggling to answer is whether Meadow will be equally quick to lead producer prices down, or will their sales team be resilient and smart?  Another is whether Meadow is here for the long haul, or simply attempting to build a milk field with a view to a sale to, in all probability, a co-op?

 

The reality is that this could apply to any milk purchaser, and none of the directs can plan against such an occurrence. As I write it has emerged that the target was to release the news of the Meadow deal on the 9th January, which would have meant any of Akkerman’s 213 producers would not have been able to leave until 1st April 2009.  Due to the fact that I broke the story on 21st December on my website it allowed some farmers to protect their position by giving 12 months notice to end three months earlier on 31st December 2008.

 

Meadow are already making moves to dilute the involvement of the West Lakes producer group but on this occasion the farmers will have to hang together because if they don’t they risk losing benefits like weekly payments as well as the 0.5ppl early signing loyalty bonus due to start in July 2008. 

 

Turning to milk pricing it appears the world dairy commodity price bubble has burst. Although cheese markets are strong it would seem further immediate price rises are unlikely and the liquid premium over commodity milk values will be re-established by the significant drop in commodity prices, as opposed to any increases in liquid contract prices.

 

In the UK, with pending NVZ legislation, instead of ramping up production to take advantage of higher milk prices, numerous farmers have cut back cow numbers, concluding that this is an opportunity to milk less cows and have less work for the same income. Milk output shouldn’t go through the roof then.

 

The EU Commission’s report into the outlook for the dairy market to 2014 has cast the mould for an immediate 2% increase in the milk quota of 27 states and Mariann Fischer Boel has proposed this increase to take effect from 1st April 2008.  The Commissioner, in justifying the 2% increase, stated “we have seen a sharp rise in milk prices over the past year.”  The Irish support the quota increase as “a step in the right direction while markets are strong”.

 

The NFU of England and Wales, the Polish, Italians and Dutch have all supported the increase.  I believe it is premature to base a quota increase on just one year of milk price increases, and at a time when those same prices are showing signs of weakening.  Therefore I back the view of Dairy UK and The Farmers Union of Wales in opposing the increase from April 2008 and if introduced I feel it will contribute to a very hard landing for milk prices.  The Commission has dramatically reduced dairy intervention support, and the result is that there is nothing to prevent European commodity prices collapsing. 

 

So any immediate additional increase in quotas is almost certain to fuel volatility in milk prices - but perhaps this is the very reason they are proposing such a huge increase. Either way it isn’t good news for farmers, so let’s hope the final decision will not be a disaster for a slowly recovering UK dairy industry.

 

Comments to or fax 01335 324584

 

IP December 2007 DF

 

Another year ends! And what a year! Will it be remembered as the best in dairying? Possibly.

 

For me it will be remembered for the Women’s Institute; Tesco’s move, the astronomical rise in prices and the OFT investigation.  It’s the latter I particularly want to take a look at now.

 

This is quickly turning into a damage limitation exercise for the accused businesses, which all face fines. But the battle will be to ensure the fines levied match the crime.  For example, to suggest ASDA should be fined the maximum 10% of turnover for an offence limited to dairy trading is not proportional.

 

But trying to get any information on the investigation is mighty difficult, either as a potential information supplier or under the Freedom of Information Act.  It seems that the OFT is only interested in listening to people who can assist in the prosecution case. It isn’t interested in contributions to the case for the defence.

 

The initial report is allegedly riddled with the initials “NFU” and “FFA” and the likely outcome looks grim.  One farmer has been informed by his milk purchaser that any fine levied will certainly be passed back down the line to the supplying producers. His view was that the dairies and retailers had been caught with their hands in consumers’ pockets and were now proposing to put their hands into farmers’ pockets to pay for a criminal act the farmers had no part in.

 

I know exactly what would happen if this scenario was played out in Italy! The farmers would tell the dairies to stick their fine and stick their milk too! Let me know if you get asked.

 

On wider dairy matters, the EU has leaked its thoughts on the EU dairy market and its vision for quotas. Its proposal is to increase quotas by 2%, which some believe could be from April 2008. That will be added to the already scheduled 0.5% increase and according to the Commission’s calculations will reduce the farmgate milk price by 5% (1.3p).

 

The rationale is that, by increasing quotas across all member states, the increased demand for milk and milk products will be met.  The main beneficiaries would be Italy, who is currently invoiced for 80% of the total EU super levy. It will be of no benefit to the UK, given our under quota position. We would actually lose out.

Most analysts are stressing to the Commission that they must examine the effects of any 2% increase and not simply take a snapshot of today’s world dairy prices as being the basis for a decision.

 

Dairy UK will argue against further quota increases due to the fact our farmers can already expand and that any increase would only reduce prices.  On the opposite side of the fence comes the more radical NFU view, which will support immediate quota increases, together with further reductions in super levy on the basis that by delaying you are only putting off the inevitable.  

 

As for me, well, this move (according to business consultants) is likely to inject “some material non-positive trends into the business and potentially disturb the requisite balance sheet equilibrium”. Which, I think, means I’ll be knackered? Darn it. I was planning to put prices up 14,000% in January. Unless cross border balancing is introduced or my Italian friends finally pull the trigger to challenge, at European Court level, the rejection of transfers between the UK and Italy, the writing could be on the wall for future double figure quota values!

 

This hasn’t been lost on people and our office has again been inundated with people concerned for the future of IPA and Ian Potter. Thanks Mr Jones, of Western Super Mare, for your letter, and, yes, we have redirected it to the correct Mr Potter.

 

As it happens we have successfully diversified into numerous other projects during the past two years as we know you really wouldn’t want to lose us, would you?

 

And now (cue fanfare by The Ian Potter Associates Buglers) I’m pleased to announce a new venture from April 1. No, I’m not the new England manager (overqualified), but rather I have become the (sort of) landlord for The National Fallen Stock Company. It will be running its administrative services from our offices, using our IT systems and skills of some of our staff to deal with the farmers and collectors. Moving to our premises from the RPA has saved NFSCo a small fortune.

 

This means we are back to recruiting! We see this as a massive opportunity for IPA and we aim to replace the faceless service previously provided by the RPA with the personal, jollier than the Jolly Green Giant service (ish), offered by IPA.

 

Finally, back to DFOB - a subject I was trying to avoid. However, my editor has received a communiqué from a Mr Alistair Clark. He’s “an independent corporate finance dairy specialist” (never heard of him in 20 years), who took issue with my comments in my October article concerning my view of DFOB’s financial position. I said it was perilous, he says it’s great. Excited readers should turn to the letters section (p 18).

 

Actually he has been requested by DFOB to take issue with my comments, which I think is a spectacular communications own goal. Having cleared out its communication department (scapegoats!) the latest DFOB brainwave was to ask Mr Clark to write his letter and to include his comments in an article in its newsletter. Presumably this was in the belief that the “independency” of Mr Clark could win over the members when most of the Board / chairman / CEO proclamations fail to do.

 

Turning to his comments, he claims that DOFB has a net book value of £42m to which members should be quick to point out this is bolstered by £48m of their funds. He claims that given the market capitalization of the likes of Wiseman and Dairy Crest, DFOB’s valuation is £100m.  The market capitalization is calculated from a multiple of the profits, less any debt. Applying such multiples to DFOB’s accounts to arrive at a valuation of more than £100m implies we are all stupid. If DFOB was making strong sustainable profits, generating cash, paying dividends and reducing overall debt then this might be credible. But I cannot see from the accounts where DFOB is achieving any of these. Anyone with a rudimentary knowledge of company accounts knows that in DFOB’s case the value of the nett assets is accurate and valid.  

 

Anyway, Merry Christmas to you and your families and from all involved at IPA here’s wishing you a prosperous and successful 2008.

 

IP November 2007 DF

 

My main business over the past 20 years has been to scratch a meagre living from brokering milk quota. It has been a struggle, I admit, and I’m eternally grateful for the sympathy that has been extended to me over the years. So thanks mum.

I have to say, though, that in the current unprecedented world of booming dairy product prices it seems bazaar to penalise producers for over producing milk by slapping a super levy on them. Last year seven member states faced super levy fines of more than £150m, although that was down from almost £250m the previous year. I say faced because the bulk of the money has been billed for . . .  but not necessarily paid!  Step forward my Italian friends, who were 6% over quota and have a bill for almost £120m - or 80% of the total wholesale levy!

 

Up until recently the collection of these £millions has helped balance the dairy balance sheet, but now that export refunds and intervention have been suspended and/or abolished this further weakens any case for claiming the money. Or so the Italians think, who are keeping a tighter grip on their money than a Yorkshire man on holiday in Scotland!

So where do we go from here?  It is still the case that milk quota will remain in the EU until 31st March 2015 – in short for another seven years.

 

Given the determination of Marianne Fischer Boel to disband the system, coupled with the possibility that the current world bonanza in dairy prices continuing, the odds must be marginally in favour of abolition in March 2015.

 

However, the Danes are proposing a gradual increase in quotas across all 27 member states between 2009 to 2015 at 1% per annum according to market conditions.

Dairy UK has made a representation to the Commission pointing out that such a quota increase at this stage would be premature and is unjustified on the basis of the last six months’ price increases.  No one in the UK could argue against this point because if all member states can produce more milk it will not benefit the UK. Indeed it would be detrimental to European milk prices and potentially destabilize the market.

 

Clearly the Italians want to produce significantly more milk.  Some of their processors are regularly having to buy milk from other EU countries. It’s a situation the farmers are keen to exploit - recently one of the Italian co-ops diverted one load of milk a day from each of its twelve milk purchasers to a powder plant in France. By taking 340,000 litres a day off the market the spot price rocketed to 40p/litre.  However, this move was not designed to increase the price but to persuade, in true Italian style, each of the buyers to contribute towards the legal challenge to allow cross border trading of milk quotas.

 

I was sitting in a meeting discussing the challenge and various quota transfers when the call from the processors, in response, came through. Now the only word of Italian I know is parmesan, but it is surprising how quickly you learn to understand what an angry Italian farmer may be saying. Especially when the 12 milk purchasers had reacted to the milk diversion to France by refusing to pay for August’s milk until each load was reinstated!

 

Well, I have never seen so many mobiles in use at the same time! And as if that wasn’t enough the French called to say the powder plant had bust!  It was a bit like the opening to The Italian Job with Michael Caine saying:  “If you don’t pay you will be making a grave error”.

The co-op’s negotiating stance was simple: the processors would receive no milk until the buyers paid up and agreed a deal over the quota challenge. In return, no more milk would go to France. Incidentally on completion of the deal the powder plant was quickly working again!

 I naively asked what would happen if farmers delivered milk to the buyers against the co-op’s stance, being tempted by the premium prices.  The answer: “No one disagrees with our policy. We make the rules the farmers follow.”

 

I also visited the 6th Bi annual Bra Cheese Show while I was there, run by the Slow Food Association and held in the pretty medieval Italian town of Bra. This is the biggest international cheese festival in the world and there were literarily hundreds of cheese stands and stalls set up along the streets. Some 150,000 visitors over the four days wandered the streets tasting and buying cheese.  One innovative dairy farmer had invested in four milk dispensing machines at the show, and had sold out of milk at 70p/litre!  England was pretty well represented by small suppliers, all grouped together flying the flag.  There was Cornish Blue, Stilton, Red Leicester (made in Leicestershire), Lincolnshire Poacher and Cotswold Brie. All sold out of stock early on day three, with Neales Yard and Quickes heading for a sell out on the same day. Some 85 full rounds of Stilton were sold. All of these smaller farmhouse type cheese producers paid their own way without any support from organizations like Food from Britain who refused any funds. The next show is in 2009 and I will certainly be visiting.

 

My article last month suggested that three co-ops would soon go into two! That has since proved to be accurate, following the announcement of advanced merger talks between First Milk and Milk Link.  I, and a number of Dairy Farmers of Britain members, had expected to find DFOB as the invited bride. Alas not. As one member dryly put it: “We’re the fat bridesmaid who no one wants to dance with!”

 

I actually don’t believe DFOB directors will allow the co-op to be the fat bridesmaid for much longer. I believe that three co-ops becoming two will change to six dairy businesses (including the plc’s) becoming four in the near future. I think a successfully merged Milk Link and First Milk will also eventually take a greater stake in Wiseman’s.

As I have stated before I can see the co-ops owning the majority of the UK’s processing in the future, and more directs being led by the nose to join them - whether they do so willingly or kicking and screaming. We shall see!

As ever, comments please to

                        

    

 

IP October 2007 DF

 

Last month’s reference to the comparison of chairman’s salaries certainly caused a stir among a number of dairy farmers! To my surprise there were several staunch DFOB co-op supporters, who seemed to be trying hard to convince me that all was very rosy and healthy in the DFOB camp. Do these people automatically gain entry to the “The flat earth society”, and the “Elvis is alive and well and living in Rotherham” fraternity, I wonder? By the way, I’m allowed to say things like that (apparently) because Rob Knight “is thick skinned enough not to worry about what a quota broker or Tim Gibson, one of his council members has to say about him or his business”. Whatever I say I’ll be proved wrong. So that’s good then!

 

With that in mind I decided to examine DFOB’s published accounts a little more, and to publish my view of how I see the position and prospects of the only co-op not brokering milk.

 

Firstly the chairman’s statement, which makes interesting reading especially where it implies that “during 06/07 the co-op repaid more of its debt accrued in the purchase of ACC”. Granted the external debt to the banks has reduced, but overall debt level is up £6m to £100m. So what DFOB has done is swap bank debt for members debt.

The £100m of debt is split roughly £60m from members contributions and £40m the bank but with the way in which the company has now structured its debt, the bank has first call on both the fixed assets and the trade debtors balances, which in short means that the bank takes its £40m from the assets, leaving the rest for all of the other creditors.

 

Then the chairman claims that the board “made a strategic move to protect members returns”.   But hold on: DFOB has paid its farmers the lowest price of the main processors, and the members have not yet seen any value from their investment in the co-op, unlike other co-ops. As I see it the co-op would be bankrupt if it sold up today.  Having said that, though, it is not alone on this score.

 

Looking at the balance sheet in detail there are intangible assets of £34.3m, which is goodwill associated with the various acquisitions over the last few years (ACC, Lincoln Co-op and Golden Vale) and which could only be realised if the business is sold.

If you deduct this from the net asset balance on the balance sheet of £42m then all that you are left with is £7.7m to set against the £49m of funds provided by members. This means if you cannot realise the value of the goodwill, as would be the case in a forced sale, but could realise the full value for all of the other assets (which given the banks would not lend the full value on the fixed asset categories may be a long shot) then the best return members would receive on their member accounts would be around 16p in the £ for its members. It is worth noting that even if you realise the full value of the intangible assets this would, at best, only result in a member payout of 87p in the £.

 

So, should DFOB stick or twist?  Should it recover some money for members in case someone shuts the door, or try to market its way out of the problem?  It is high stakes time for the chairman and I hope his decision is not clouded by his juicy £409,000 pay packet.

 

Judgement day will soon be with us, and members need to be kicking-off a debate and steering the business to make sure they are not putting more member contributions into a black hole, while suffering one of the lowest milk prices in the UK. This year will be another year of rationalisation of assets for DFOB. If a merger is inevitable members should make sure they don’t pay for the rationalisation prior to it!

 

Some of the questions put to me by DFOB’s members include the following: Will we ever see our money again? Who is actually harvesting the benefits of members’ investment? Is our co-op for the benefit of the farmers or the executives? (i.e Who is milking who here?) Another prominent DFOB supplier summed it up thus: Record losses, lower turnover, increased debt and falling milk volumes. This, incidentally, is down a staggering 400m litres or 20% in just one year.

 

The bottom line is that any co-op’s success depends on its ability to consistently achieve a competitive milk price to the supplying members. It’s for the members to judge if that is happening.

 

So, what do I think will happen?  I think there will definitely be a merger / takeover / bail out - call it what you like - with Rob Knight and others exiting with a weighty six figure pay off. Nice work if you can get it.

 

Another milk purchaser under the microscope is Dutchman Ronald Akkerman, and his West Lakes Dairy Park Limited. He’s a threat to DFOB as he will soon be paying a very good price, and he remains committed to building a state of the art cheese factory in Cumbria. Until he says otherwise I believe he will build.

 

Now milk prices. In a recent article I was referred to as a dairy analyst. After my recent campaign to drive up prices one of the processors said that I was not an analyst but certainly an anal something at the present time. I can’t imagine what he meant! With most producers receiving between 25-27p/litre in October I think extracting additional money from the market may prove difficult.  I know for a fact at least one of the big processors has told a retailer that 25-27p will be sufficient, and that the price will protect them from mass resignations.  Also, one co-op has been talking about a profitable milk price for members, which frankly is irrelevant.  These are the wrong signals. As the famous saying goes: “They think it’s all over.”

 

Well, it’s not over unless you roll over and let it be over. I want to see fierce but healthy competition for your milk to keep the milk purchasers on their toes. At least two co-ops are saying that they need security of supplies to negotiate good prices, and for that they have to move to 12-month notice periods, but I disagree.  If the price paid to producers is competitive they should not be concerned over supply security. Wisemans are on three months notice period and while it may have given them some temporary problems recently they know that they have to continue to pay one of the best milk prices to maintain supplies.

 

As I pen this article I have just returned from a trip to Italy with two dairy farmers and we managed to fit in a trip to the BRA Cheese Show. More on that next month.

 

Whilst meeting our Italian big guns to discuss the milk quota situation and their cross border challenge their mobiles rang – tempers were instantly raised in true Italian style and war, against someone, was instantly declared. Here’s why:

 

The quota situation in Italy is very serious (for those who wish to comply!). A large group of Italian farmers are having 340,000 litre/day contract processed by a powder plant in central France, leaving twelve existing Italian milk purchasers short of one load of milk each day (28,000 litres) and not very happy. The deal was simple -  if you help us to fight the European court on the cross border trading of milk quota you can have your milk immediately reinstated. Spot milk prices shot to 57euro cents litre (40p). While I was in the meeting the call came  through that all 12 buyers were withholding all of August’s milk money! Up went the balloon, and the buyers were told in no uncertain terms that they would receive not one litre of milk ever again unless payment was made to the farmers immediately.

 

This is where you see a stark difference between Italian and UK farmers. The Italians confirmed members of their organization would never break rank or complain about not receiving their milk money despite the best efforts of 12 milk buyers to break the organisation. “It’s not a problem, we make the rules and they will never have one litre of Italian milk ever again. This is war,” said my contact. Such co-operation/unity in the UK would never happen: we all know lots or producers would sneak off to do their own thing don’t we!

 

Please e-mail your comments and observations to or fax 01335 324584

 

IP September 2007 DF

 

As I write the Bravehearts of mainland GB are still the Scotts, as they decide it’s time to take charge of the marketing of their milk and to be fully exposed to the market. In are going their resignations, potentially jeopardising the supply of some major buyers. The dairy farmers’ good boys – Wisemans – who have paid one of the top prices for years have been stunned to be in the frontline of the firing squad, with discontented farmers threatening to resign, and doing so, if real money isn’t put on the table. As I write news has broken of 19 farmers resigning with 65m litres.

 

For the past decade, as milk prices have slowly declined, every milk purchaser, plus the likes of Jim Begg and Kevin Hawkins have stood up and told farmers: “This is simply the market working”.  We have had Competition Commission Enquires and the OFT poking their nose into the actions of retailers, and each time little or anything has happened because, frankly, little or anything needed to happen: the milk would keep coming regardless of what any retailer or processor did or didn’t do. Or so they thought.

 

Well now the tables have turned, the market is working in dairy farmers’ favour and if processors and retailers can’t live with the price people will leave and they won’t get the milk. To be fair to Wiseman it accepts this but it must be difficult for them to understand why in 13 weeks they have become the target having delivered one of the best prices to farmers for the previous 13 years.

 

Dairy farmers have been fobbed off with excuse after excuse over why they have received little for their milk for the past 10 years.  Now it’s time for Hawkins and the retailers to listen to you!  At last! They were warned what would happen to production if prices continued to be low, and now it will be like turning the titanic around in dry dock.  Many farmers are not prepared to be ripped off any longer by getting a price that isn’t fair or justifiable.

 

I applaud the farmers who have tried to negotiate a market related price with their milk purchaser and, on failing, have submitted their resignation. They have, without doubt, led the charge, and the promised 25ppl for October 1st would not be on the cards without them.  The great news is price rises of 0.1 to 0.5ppl are history.  Now only whole penny rises and several of them count!

 

As Napoleon said: “We are a nation of shopkeepers” and they have been the ones making the money.  Now it’s the day of the dairy farmer, and for those who are business like they will be the ones making the money. Or they should be.

 

For the co-ops it’s a case of cometh the hour cometh the man. . . .or not. A well run co-op with processing and a sharp sales team has the chance to push through the pack and no longer be the poor relation to the plc’s. Two of the co-ops – Milk Link and First Milk -have more exposure to the commodity markets than other buyers, and these markets are set fair for the foreseeable future. This is not predicted to be a short-term boom as suggested by a DFOB representative recently, with analysts across the world confidently predicting average prices over the next decade will be 40 to 50% up on the past decade.

 

 

Retailers and processors, whether they like it or not, will have to live with dairy farmers who have significantly more negotiating power than they had six months ago. Bring it on!

 

Last month I referred the potential wriggling Arla could do to avoid paying its guaranteed Arla AMPE rolling 12 month average, plus 0.5ppl.  Two farmers enquired as to whether a failure to pay a contracted price would be a breach of contract and permit a farmer to terminate immediately without giving full notice or suffering a penalty.  The answer is that any failure to pay a contracted price is the most material of breaching, and this should give the right to immediate termination. I’m not a lawyer, though.

 

I also talked about the farmers who have suggested I return to my auctioneering days and start a milk auction. They look at the very successful auction conducted on a monthly basis in Northern Ireland, and which returned a staggering 34.66ppl average in August, and naturally want one here.  But it wouldn’t be easy, and besides, who would buy from me!

 

And now to DFOB’s results. Oh dear. A £6.2m loss, on top of a loss last year. The business is “still in transition”, apparently. I’m sure every DFOB member will want to know when that transition period ends, and when the management are going to start to deliver.

 

Below is a table of chairman’s salaries and their respective profits for the year, together with the litres of milk handled by their businesses.

 

 

Chairman                       Company           Chairman           Profit/Loss       Litres        Profit(loss)

                                                            Renumeration                         Processed    per litre

 

Rob Knight                     DFOB                £409,000           (6.2m)               1.5bm      (-0.4ppl)

Ronnie Bell                     Milk Link            £210,000              £15m                  1.7bm     0.9ppl

Richard Greenhalgh         First Milk            £100,000        To be announced  

Simon Oliver                  Dairy Crest        £120,000           £80.5m               2.2bm     3.66ppl

Alan Wiseman                Wisemans          £225,000           £30.5m               1.5bm     2.4ppl

 

DFOB’s Rob Knight – dubbed Garfield Knight by one member (I’ll leave you to work out why!) - was paid more than all the seven Milk Link directors and chairman put together. It’s also three and a bit times what Dairy Crest’s Simon Oliver was paid (£120,000) and it made £80.5m profit!

 

DFOB’s losses coupled with current resignations certainly make for a challenging year. Can it cut costs to match declining volumes? It’ll have to – and I know where some members would like to start! Because less milk = less product to sell.

 

And then there’s the question as to the degree that DFOB can capitalize on the booming dairy market. It’s not big in commodities like the others, but big in middle ground (the toughest market) and doorstep (in decline). Will it be able to pay a top price, or will it still be the worst payer in the UK? Can it reduce its current £100m debt? Time for Garfield Knight to perform, me thinks!

 

The mystery to me is how DFOB members have been able to accept one of the lowest milk prices in the UK and still have £58.8m deducted from their milk cheques (which I do hope they will not loose).  For me it’s time two companies became one and some cost  removed. But perhaps in another year it will have turned itself around. DFOB has stated its target is to deliver 25p to members by Christmas. That’s still three months off the pace and the worry must be that this will be the story throughout. We shall see!

 

Please e-mail your comments and observations to or fax 01335 324584.  Alternatively chew the fat with me at either The Dairy Event at Stoneleigh or The Dairy Show at Shepton Mallet.

 

IP August 2007 DF

Harry Potter (actually Ian) and the case of the invisible milk price rises

 

It’s impossible to open any paper or magazine these days with out a Potter staring back at you. The world just can’t get enough of us. It’s magic!

Some people don’t believe in magic, of course. But I do! When it comes to milk price rises on the back of soaring commodity markets the fake magic that is “now you see it now you don’t” is just so transparent. Only real, proper magic could make these justifiable rises as invisible, as undetectable, and as elusive as they currently are. “Now you don’t see them, and nor will you either!” Brilliant!

 

The money being passed back to dairy farmers currently falls way short of fairness in light of the significantly improved market conditions. The current situation has made me and most dairy farmers livid, and it’s actually more painful and temper-enraging than a price cut.  We all knew there would be a price lag between the sudden and somewhat unexpected price hike in April and it filtering through in any meaningful quantity to monthly milk cheques, but at the time of writing not enough has filtered back. There is some progress . . . but if it hasn’t arrived in a significant way by the time this is published then I feel there will be an industry riot. Processors and retailers must think dairy farmers are doormats the way they are being ripped off.

 

As the pleasant month of August ends and we head for the gloomy nights of September farmers will not lie down and watch M&S suppliers receive 25p while they receive 19p or less. Some are keen to get out of their existing contract as soon as possible, and are taking legal advice as to how to immediately quit supplying their purchaser without having lawyers knocking on the door claiming breach of contract. I’m afraid we will also see a return of the  days of the “black milk” as a result of the huge gap between the spot price and the ex farm price.  It’s tempting to magic milk away in the dead of night when you compare spot milk at 30ppl/litre plus and ex-farm gate at 20p or less. 

 

I have also been approached by numerous producers who are already at boiling point and wish to go quota holding and sell their milk on a short-term spot type contract.  Most have asked whether I would broker the milk. I’ve said no at the moment because I’ve never sold a litre of milk in my life, and those who haven’t always think it is easier than it is. It’s also very political. But I haven’t ruled out involving my staff in administration work, as that is all in place with culls and calves. I don’t think there would be a problem in negotiating prices or drawing up the contract because the NFU is putting benchmarks in place and formulae pricing, as per the M&S price, is definitely the way forward. Selling the milk now would be a doddle . . .  it’s what happens after the boom that could be the hard bit.

 

Perhaps all our expectations are too high, and I’m guilty of fuelling them.  The chairman of Dairy UK certainly thinks you are already receiving the money.  He commented recently that: “The difficulties in milk pricing have now eased and strong commodity price trends are now being reflected in farm gate prices.  This gives farmers the opportunity to invest more in their businesses.”  From where I am sitting we are a good way off this happy-clappy world.

 

My eyes are fixed on the October 1st price increases. Why? Because  the industry works on 6 month contracts from April1st to September 30th.There will be new contracts at new prices and 21 and 22p delivered should rise to 28 to 30ppl.These negotiations will sort the sharp sellers from the sales prevention teams and I expect rises of 1ppl to 3ppl coming at one go. Perhaps the smart processors will opt for monthly priced contracts and not six monthly.

 

Wherever you look, dairy prices are on the up.  Cheese, lactose, casein, WMP, SMP etc - but are processors negotiating proper increases, or able to negotiate on the back of them? If there was a wriggling competition between a pond full of eels and the retailers I know who I’d bet upon to win. 

 

One of the current wizard wheezes is to talk about “paying price rises on cost of production increases”. If you sign up for these then make sure they are good! Retailers who are looking at cost plus contracts are doing so because it suits them. But it may not suit you!

 

Another wheeze could come into play with AMPE linked contracts, as used by the likes of the Arla Foods Milk Partnership. Following a 0.3ppl price rise producers are putting their contract under the microscope.  The 1st July increase takes Arla’s standard litre price to 20.1ppl, which, they reckon, is 0.4ppl below what it should be under its new guaranteed Arla AMPE rolling 12-month average plus 0.5ppl contract. At least they are getting over 20ppl, though.

 

Some partnership members think Peter Walker’s delayed retirement is to allow him to take the flack for wriggling out of the guarantee, and think that Arla are gearing up for this very soon. I say it’s too soon to judge. Being 0.4ppl off the pace is far less than a lot of companies at the moment, but all eyes will be on the August price to see if suspicions are groundless or well founded.  In the new era of Arla with the Danes at the helm I hoped there would be a clean break from the opaque milk pricing policies of the past.  Certainly the lack of transparency and a proper audit trail has cost Arla credibility; and the farmers constantly think they will be stitched up.

 

Now to Tesco. The past two months articles have prompted a reaction from a number of readers.

 

The latest revelation is, unfortunately, more bad news on local choice milk. Currently milk from a farm in Essex goes to Lincoln to be processed to be sold in Norfolk. Hardly very local local choice milk.

The same issue drew poor headlines on Midlands Today after the Royal Show, and I hear a TV documentary on the subject is in the making. Clearly the scheme needs to be more refined to avoid further bad press. However that could have an upside - in the event of a documentary on Tesco’s milk buying antics being made you can bet your life Tesco will be straight in there with a sizeable price booster for its dedicated farmers. 

 

Numerous readers are clearly not happy with the terms of the Tesco contract, with the limit on expansion, 6-monthly price review based on cost of production and no extra money for any butterfat over 3.85%, and deductions if below being the most controversial aspects. One reader was so unhappy with the NFU’s trumpeting of the Tesco 22p announcement that he claims he has spoken to Sir Terry about the facts down on the farm, and has cancelled his NFU membership. Let’s face it the £25m Tesco claims it has injected into the UK dairy industry is loose change to it and it was paid largely for PR reasons to stave off the WI and the Competition Commission enquiry and to be seen by the government to take positive action to assist the UK’S ailing dairy farmers

 

The credibility barometer is now pointing to its price review. So far the emphasis in the Tesco contract points to a review for those cost price reasons I mentioned above. To be credible Tesco should ensure it reviews more on commodity prices and less on cost of production. I have been assured it will do, so we will see.

 

Please e-mail your thoughts and comments to           or fax   01335 324584

 

IP July 2007 DF

 

As you all know I did not trumpet the Tesco “deal” when announced. I have now had chance to study Tesco’s requirements and personally I would not be too keen to sign! 

 

I would not wish to incur the expense of an annual inspection by a “locomotion scoring professional”, have to locomotion score the herd every other month, be forced to do monthly milk recording, share my data with Tesco, be capped on production and butterfat or have to adopt any ideas which evolve from Tesco’s 12 champion farms.  I am also still waiting for Tesco to explain why  they will not allow any of its suppliers to export calves, so depriving them of further income. And if you fall outside the 300,000 SCC band, they will not take your milk. Who will?

 

And why the 5% cap on expansion? How can Tesco limit a producer’s expansion, potentially making him less competitive, when Tesco itself has steamrolled through the UK to grab a 33% share of retail sales, killing-off hundreds of corner shops and milk men who got in its way? It all seems hypocritical.

 

As I write few producers are rushing to sign Tesco contacts! No one wants to sign and find in a few months time they have signed away a significant wedge of the milk price uplift. Farmers are taking time to be convinced that it will be a good long-term hedge against lower milk prices.  The jury is also out as to whether Tesco will succeed in finding all the milk it requires in the Wiseman and Arla milk fields.  Producers that Tesco would like to sign can expect a friendly visit from their processor in an attempt to persuade them to sign. Meanwhile Tesco is certainly milking the PR for all it is worth.

 

My final comment on the subject is to take note of what David Dobbin from Northern Ireland said recently: the price there would be higher than Tesco will be paying in the Autumn. That’s because milk prices across the world are escalating. Rocketing demand for dairy products from 2.5 billion people in China and India are a key factor, and one buyer from India even contacted me asking if I knew where he could find 400 tonnes of WMP and an additional 400 tons of SMP to go to Bangladesh. Westbury was the simple answer!

 

Across the UK, Europe and the rest of the world those who need milk as an ingredient for their products are on red alert, with many having already pressed the panic button. Companies like Kelloggs, Nestle and Ryvita are privately speculating that by November there could be no SMP or whey powder to be had at any price with what was a booming market fast turning into a world crisis.  Forward contracts are almost non-existent as prices rise daily. All analysts are bullish over future milk price expectations and several are predicting that the next decade will produce average prices 40% higher than over the past 10 years. US dairy farmers are already receiving 50% more ex-farm than they were in June 2006 and the price in American shops is up 18% with experts predicting shop milk prices could rise by a further 34%.  Headlines in the US have changed from their famous “Got Milk” promotion to “Got Money”. 

 

Don’t get too excited just yet, though! Here in the UK we’ve still got ludicrous deals being done, particularly in the middle ground market, and we’ve got retailers cutting the milk price to consumers! I am afraid processors across the UK do not appear to be passing anything like a fair share of the benefits to farmers at the moment. Perhaps those are major reasons why. Or maybe the processors are pocketing significant margins. Hopefully it is the “lag factor”, which mysteriously is short when it’s time for prices to fall, and long when they are on the rise. Most, if not all, farmers are long overdue an increased share and with spot milk trading at almost 29p in early June it’s time, Messrs Processors, to divi up.

 

The big questions, of course, are will high milk prices stimulate more production, and will the boom last?

 

We have had ex-farmgate average milk prices below 20p for 9 years, and the national herd cannot be increased overnight. However, increasing dairy cow numbers is a world problem.  It will take time to ramp up production and, should the need arise, it will take time to dampen it down.  The retailers and processors now have a huge challenge to persuade farmers that they should increase production in the absence of good milk prices. If prices are good they’ll respond. If the talk is good – and with some retailers at the moment the talk is very, very good (but that’s all it is!) - they will understandably be cautious of being shafted again.

 

My recent trip following the footballing fortunes of St George’s boys took me to Estonia and three dairy farms. Estonia lies on the edge of the Baltic Sea just below Finland and has a population of a mere 1.3m. It joined the EU in 2004 and half of the area is covered in woodland. Temperatures get down to –30 degrees in winter - water pipes need to buried 2m underground.

 

Current milk prices are 17.5ppl but are heading very quickly for 19ppl.The units are mostly ex Russian state farms with cows tied by the neck with  200 units of 100 cows + producing 80% of the country’s milk, and the largest herd having 2,000 cows. Two of the farms I visited were new state of the art units built on Greenfield sites. You can be very proud of them indeed: you, and every other taxpayer, helped build them as they were erected using funds from the EU. The sheds were very impressive and would rank alongside anything seen in the US. All in all it was a real eyeopener, and little wonder several Brits have invested in dairy units in the country and taken advantage of the attractive EU grants. By the time you read this article I will be back from a trip to the European Dairy Farmers Congress in

Slovakia which boasts the largest average herds in the EU 27.

 

Finally I am sure you will all be pleased to know I have actually found an operation more incompetent than the RPA.  It was on my visit to Wembley Stadium to witness the mighty Rams (Derby County) return to the Premiership.  It was Wembley catering, where I returned four meat pies that were uncooked and cold. After 45 minutes I told the catering manager where he could stick his temperature probe. A £750m stadium with no microwave serving - and selling Scotch beef to boot! No disrespect to the Scots, but could you imagine Hampden Park proudly serving English beef?

 

Please e-mail your thoughts and comments to          or fax    01335 324584

 

IP June 2007 DF

 

Great news! Tesco’s “Local Choice” is now available in 650 stores at £1.23 for 4 pints. And now there’s even better news! Ian Potter Associates has today launched “Local Choice Quota”! If you’re looking to cut down on quota miles with your transactions then this is the quota for you! And all for just 65p more per litre than normal quota! (For lease, naturally.) How good is that! I’m afraid, though, that not all of you will have the privilege of paying me this price. Unfortunately, I’m going to have to limit it to the first 12,981 farmers in England and Wales, before rolling it out to Scotland. Phone NOW to secure your deal!

 

You may, by now, have detected a twinge of sarcasm towards “Local Choice” milk. The announcement was trumpeted by the NFU and has been great PR, but there are many reservations as to whether it does what it says on the tin. I sincerely hope that my, and others, reservations will be proven wrong, but on my analysis it simply does not stand up to scrutiny or fulfill Tesco’s desire to sell locally produced milk that has minimal impact on the environment.

 

As it stands Dairy Farmers of Britain is sourcing and packing 13 regional milks in England for Tesco, and is supposedly paying Dairy Farmers of Britain members 23ppl. Juggling the “balancing milk” means there is huge scope for either DFOB or Tesco to “protect money” and members can only hope DFOB will pocket the extra and pool the winnings. The proof of the pudding will be how much of a farmer’s overall milk production will be destined for “Local Choice”, which will determine how much (overall) of the 23ppl he gets. I will sit and wait for the first Tesco farmer who can confirm to me he is receiving 22/23 ppl for all of his milk.

 

On an environmental front as well the scheme doesn’t stack up. Milk from Milk Link farms in Cornwall, for instance, according to DFOB is collected and processed in Cardiff, before being driven back again (350 miles), and milk from Yorkshire is being processed in Staffordshire.  Note: I am reliably informed that Devon and Cornwall milk is being processed by Wiseman and that Tesco segregation is a complete sham. Anyone who thinks this is reducing food miles is sadly mistaken.

 

Certainly I remain to be convinced.

 

One of the more eyebrow raising conditions Tesco is insisting on with DFOB, Arla and Wiseman milk, is the prohibition on the export of calves.

 

Clearly various lobby groups including CIWF believe the sea crossing is a major stress factor, so presumably if we were joined to mainland Europe this would not be an issue.  I cannot find another country out of the other 26 in the EU which has groups so violently opposed to calf exports. Clearly the 35 mile crossing between Dunkirk and Dover is a major problem. But why have those same lobby groups not campaigned for a ban on the loads of cattle and sheep which travel 185 miles from Lerwick in the Shetland Isles to Aberdeen, across some of the choppiest waters around our shoreline? Perhaps that trade “helps the regional islands of Scotland”, and so is classed as good. It’s back to Bambi and Mary had a little lamb principles. (More on exports in another article.)

 

This brings me onto the subject of humane disposal of unwanted calves, and my venture into the selling of captive bolt guns. These guns work off a 9mm blank which gives it more than enough power to cope with the biggest bull or horse. My application to put it through the ultimate test, though – trying to get it through the head of a dairy industry dinosaur - has so far been turned down.  My promotion of the guns (no license required) prompted a number of other interesting ideas as to its uses.  One submission said DFOB members would buy it in droves - to use on other DFOB farmers who did not have a Tesco contract, but I think ultimately demand will be from those who have a Tesco contract! 

 

And so to quota. First a quick warning to those who have sold all their quota between 1st April 2007 and the new annual notifications, due to arrive sometime this month.  Don’t forget to add an additional 0.5%!

 

June is the month the RPA will examine who has not made any deliveries in the 06/07 milk year and still held their quota at 31st March 2007. They’re set to have all their quota confiscated.  If you are one of those unfortunates, remember there are solutions available to re-instate lost quota. And do not assume, at 3ppl or less, it’s not worth the effort. It is! And you’ll make me happy too! We do need quota.

 

Now back to that extremely precise 12,981 number referred to in my introduction. May saw the number of dairy farmers in England and Wales drop below 13,000 to 12,981. At this rate of exodus the numbers in England will fall below 10,000, from their current 10,667 by the end of the year. Including Scotland and Northern Ireland I estimate there to be fewer than 18,000 dairy farmers in the UK.

 

I decided to do some further projections. In the past 12 months 935 farmers left the industry in England and Wales. If that continued the last dairy farmer would hang up the clusters in February 2022. It won’t happen like that of course, but if the rate of decline  (6.7%) continues,  we would only have 4,571 left by 2022. Can the likes of Tesco stem the exodus?

 

Finally TB. Back in August 2006 I took DEFRA to task over its TB compensation policy over pedigree animals in an issue which could affect a number of farmers. It has taken DEFRA and the State Veterinary Service nine months to confirm my interpretation of the rules was correct. What a saga it has been!

 

DEFRA’s claim was that “in order to be paid TB compensation for an animal which had a pedigree certificate you must also have paid for it to be registered with the breed society”.  If you “only hold the pedigree certificate and have not fully registered with them prior to the test” you are paid at commercial rates.

 

I challenged its interpretation, and persisted in requiring a response. It has now confirmed that “if you hold a pedigree certificate for an animal it is irrelevant whether you have kept the registration up to date, and paid fees etc. It is still a pedigree”.  There is no doubt DEFRA will have paid a number of farmers out based on its earlier interpretation.

 

So any affected farmers should really be challenging the value they have received.

 

Comments to: or Fax 01335 324584

 

IP April 2007 DF

 

And so another quota year comes to and end, and a new one begins. It has been a hard winter, hasn’t it?  what with lousy silage, rising costs and a laughable share of the end price.

 

I expect 1 April will trigger the start of a long, quiet period for me. After all, why would vendors rush to secure 1.5ppl or less for quota?  It can’t drop much more, and the odds are stacked firmly on the side of an upward movement in price during the year.

 

Low demand doesn’t mean farmers aren’t still ringing in. They are. Their news isn’t good. It is coming through loud and clear that the exodus of dairy farmers after 1 April is likely to accelerate, with most confirming they do not intend to face another tough winter like the one past. They’ll enjoy their summer months milking and probably quit in the autumn unless there’s a price turnabout. That way they can still hold onto their entire quota and maintain it clean during 2008/2009, when the outcome of the Italian cross border challenge will be known.

 

If the recent increases in milk price is an attempt to arrest the decline in production then it is too little too late. Not that there haven’t been many years of warnings. But have the right people been listening? No, if the comments at the NFU Conference by Justin King, boss of Sainsbury’s, are to go by. He clearly seemed to think that all that is happening is a “big restructuring” and that, broadly speaking, due to the quota system, we are producing the same amount of milk each year. Perhaps he should look at the monthly production figures and take the calls we are receiving.

 

There’s no doubt price is by far the major issue of the day, and affecting profitability far, far more than quotas. So what is Dairy UK talking about these days? Yep! Quota.

 

It has just done a survey of 50 industry leaders, of which I was one, with the results bringing the headline: “Industry wants an end to milk quotas”. The survey showed 71% favoured the abolition of quotas, with almost half stating they would like to see the abolition date sooner than 2015. This led me to question how much thought had gone into their responses, and how good their knowledge of the existing rules actually is. I was stunned to learn the average delegate favoured a date for abolition of between 2008-2010. Another commented that it was a waste of time farmers trading milk quota. (Clearly he wasn’t an accountant!). The survey also concluded that the second most negative aspect of quotas was their restriction to growth.  That is certainly not the case in the UK: it’s the lousy milk price which is restricting growth, NOT the quota regime. 

 

In his summing up, the Chairman of Dairy UK spelt out how he viewed the position from the farm gate: “Life for dairy farmers is tough and is unlikely to get easier.”  The Rabobank dairy specialist confirmed that liberalization of the dairy market would equate to more price volatility and expected the end of quotas to result in re-location of milk production in the new EU10. The survey also concluded that most expect the milk price to be lower than it is today after quota abolition.  Well, sorry, but if that’s why the processors are voting for quota abolition they will be disappointed, because UK farmers will not tolerate more uneconomical returns than those of 2006!

 

Frankly, all of these quota discussions are a waste of time. The fact is if quotas were to be abolished before 31st March 2015 producers could legitimately claim compensation from the Commission for the investments they have made on the basis of the stated minimum life of quotas. The Commission is not prepared to leave itself open for that! 

 

I firmly agreed with Rudolph Schmidt, of the German Farmers Union DBV, who told the conference that the focus should not be on the future of quotas but on how to increase dairy farmer’s incomes. That was his top priority. It certainly didn’t go unnoticed that the DEFRA presentation made no mention of any requirement to maintain or improve incomes. Quotas are a very soft political subject that will rattle no cages, while looking as if Dairy UK is getting to grips with an issue. No amount of talk will change anything until 2015 at least. Dairy UK should have diverted the same resources into a questionnaire and conference on more immediate “life saving” issues.

 

I am also at a loss to understand why the industry has come out so strongly against quotas before Professor David Colman and his team has reported to DEFRA what their economic impact on the regime’s removal will have on all 27 member states!

 

Take just one country: The Republic of Ireland. This is one country Mr Colman will be checking out, in particular the effect it could have on UK production and price. A brief look at the current trade in raw milk does make you stop and think:

 

During the past 23 years, The Republic has never been able to expand production and although quota trading is permitted now it is still very restricted and does not encourage significant expansion.  It currently imports 555 million litres of milk each year from the North.  Catherine Lascurettes of the Irish Farmers Association agrees there is potentially latent production capacity in The Republic to ensure all of this imported milk could be produced domestically once quotas are abolished. However this is subject to investment in environmental issues such as nitrates directive, cross compliance, crucially it depends on the level of price farmers will receive for their milk.

 

The initial view in The Republic is that the Commission will need to allocate a budget for market support in the dairy sector for many more years to come. Continuing with quotas in the absence of an adequate dairy market support budget will leave dairy farmers with the worst of both worlds: restricted in production and lower milk prices. They have however commissioned on economic analysis by Teagasc and Fapri to find out the economic impact on Irish farmers from now to 2015, and beyond if quotas were to go. So while Dairy UK, the Government and the NFU seem to have already decided quotas must go, at least the Irish Farmers Association will reserve its position until it has “a stronger feel” for the economic effects on its dairy farmers.

 

On speaking to key Northern Ireland farmers they are concerned that once the quota shackles are lifted in the South, demand for their milk will “drop like a stone”. Exports account 30% of the North’s output. So where would this milk find a home? Would it head off on the Larne to Stranraer ferry? Probably.

 

I therefore hope our UK organisations will reconsider their “Get rid of quotas and support in 2015” regardless campaign until they are convinced those involved in the dairy industry have a prosperous future.

 

Finally, I must share with you what I thought was an early April fool. A farmer called the office claiming he had it off good authority (via his First Milk insider) that the industrial part of the Channel Tunnel was equipped with a pipe to pump liquid milk from France to a processing plant to be built near Dover. That’s right up with the “New Zealanders sending a jumbo jet full of milk into Heathrow every day” one!

 

Next month I’ll cover my trip looking at milk production in Israel and the sobering NFU conference. Apologies to Gwyn and Tom for not doing so this month. As ever, comments to or fax (01335) 324584.

 

Ian Potter Marketing Services Limited (t/a Ian Potter Associates)

Registration No:   7219456          Registered in England

 

 

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