Call in milk buyers who fail to implement code, dairy coalition warns

The dairy coalition has called on Defra Farming Minister David Heath to call in milk buyers failing to implement the voluntary code.

Processors were given until March 31, 2013, to comply with the terms of the code by offering fairer and more balanced contracts to farmers.

The code was agreed voluntarily between farming and processing representatives, and has been adopted by Defra as the favoured policy alternative to legislation as proposed by the European Commission.

The Dairy Coalition, the NFU, NFU Cymru, NFU Scotland, TFA, WFU and the RABDF has written to Farming Minister David Heath calling on him to act on its concerns over the companies not yet signed up to the code.

NFU dairy board chairman Mansel Raymond said: “While a number of large milk buyers are implementing the code, there still some who have failed to step up to the mark and make the changes we have demanded. Since our March deadline passed, the coalition has been applying pressure in various ways to get processors to act. This has included calling on retailers to insist that their supply base offers farmers compliant contracts. This, however isn’t enough. We need Defra to ramp up the pressure to ensure the code is the success it can and should be.”

TFA dairy representative Richard Elliot said: “Our members’ patience is growing very thin; if milk buyers can’t be trusted to do the right thing and work with farmers to deliver better contracts then Government needs to step in. This isn’t rocket science, we just want a fair deal.”

RABDF chairman Ian Macalpine said: “Parallel to this call for assistance from Government, the message from the whole coalition to farmers is you have the power to change contracts. With milk supplies short and processors crying out for milk, farmers need to stand firm and demand change.”

DairyCo's Farmer Intentions Survey results for 2013 reflected the challenging year experienced by dairy farmers across the UK, with a significant increase in the number of dairy farmers saying they are uncertain about the future.

Confidence levels dropped, although to a lesser degree than may have been expected.

“The events of last year, particularly the weather, meant confidence levels were lower than in the previous survey,” says AHDB DairyCo senior analyst Patty Clayton.

“In rating their confidence over the next 12 months, 43% of farmers returned a score of four or five [five being extremely confident]. The proportion returning these scores increased marginally to 46% for measuring confidence over the medium term (the next five years).”

Clayton highlights that while the weather was one of the top three factors affecting confidence over the next 12 months, it did not appear as a significant factor affecting confidence over the next 5 years.

The strong sense of uncertainty that emanated from the survey responses this year was reflected in dairy farmers’ production and investment intentions.

“There was a noticeable increase in the proportion of farmers who were undecided on production levels two years from now, up from 5% in 2012 to 13% this year,” says Mrs Clayton. “At the same time we haven’t seen a huge drop in the proportion of dairy farmers intending to increase production.”

The number of GB dairy farmers intending to increase production in the next two years was 32%, down from 36% in 2012.

“An interesting feature of those who are expanding production is that they are more likely to have identified the global and domestic demand for dairy as major determinants of the future prospects for their business.”

Investment intentions also reflected the increased mood of uncertainty, with the proportion of farmers undecided on investment plans for the next five years up to 36% in this year’s survey compared to 12% in 2012.

There was also a marked reduction in the number of farmers intending to invest in their dairy business over next 5 years compared to last year. “However, those who are planning to invest indicated those plans were firm, so that the likelihood of that investment taking place would be high,” said Clayton.

'The retailer mark-up on cheese 'is substantial'; farmers 'need and deserve the market price.'

Farming groups said milk price cuts for those supplying cheese contracts would be wholly unwarranted and avoidable were retailers to pay fairer wholesale prices for their cheddar. That can be achieved by shaving the huge margins they currently make on cheese without pushing consumers to pay more for the product.

“Despite retailer pledges made last year about supporting dairy farmers, the stark reality is that the retailer mark-up on cheese is substantial – significantly ahead of the money they make on fresh milk – and the processor and farmgate share of the value left in the cheese supply chain is not viable and unsustainable" said Nigel Miller, NFU Scotland President.

"Despite the considerable cost burden of producing milk being carried by all dairy farmers, the milk price paid to those supplying cheese contracts is under pressure and, in most cases, is below that of those supplying the liquid milk sector.

Retailer attempts to drive value out of the liquid milk chain were exposed last summer and opposed by both the farming industry and the general public.

"Those same retailers are now resisting rises in wholesale cheese prices, pushing cheese processors to consider changes to their business strategy and denying the dairy farmers supplying them a fair return. That is a high risk approach from supermarkets that could ultimately rob the public of a product that they clearly value should milk processors start to look at alternatives to cheese.

“While there are export markets that must be grown for Scottish and British cheese, the major retailers have the dominant role in sourcing and buying farm assured product for the home market, giving that appropriate shelf space and giving the customer a range of products and prices.

"Our Shelfwatch campaign shows that is happening to a greater or lesser extent in all retailers, although it is disappointing that in some, value and everyday cheddar lines are dominated by non-assured, imported product.

"At the same time, supermarkets have a responsibility to ensure that their buying policy is supportive, balanced and fair – a position that many were keen to reinforce recently on red meat following the horsemeat debacle. While industry is well aware of the current problems in the cheese market, I suspect the general public will be disappointed to hear that, at the moment, the rewards from cheese production are largely filling retailer coffers. Without that balance of margin in the supply chain, both milk producers and processors are under threat.

"This pressure is focused not just on major milk fields such as South West Scotland but is undermining the viability of milk production in more remote cheese-making areas such as Kintyre and Orkney where milk is a vital pillar of the local economy. Given that in Scotland 40 percent of our milk is processed into cheese, it is crucial that the current dysfunctional cheese market is resolved for the sake of consumers, milk processors and milk producers."

NFU dairy board chairman Mansel Raymond said: “I’m not here to speculate; I want to focus on the facts, specifically one important fact.

"There is an insatiable and growing demand for dairy products globally. The GDT/Fonterra auction alone has seen values of dairy commodities rise by almost 40 per cent since early March.

"Nearer to home, European auctions have seen Gouda and Emmenthal values climbing and the UK dairy indicators AMPE and MCVE have reached 32.4 and 33.0ppl respectively for March, up 34 per cent and five per cent on the year. In fact we estimate that recent cream valuations would put AMPE above 35ppl today. So there is only one way in which the price of milk should go - and that is up.

"The backdrop to all this is that farmers are emerging from one of the hardest farming years in decades. Recent industry estimates put feed cost alone up by over 2ppl this winter as a result of higher inclusion rates and costs.

"Our message is a simple one to all those who buy, use and sell the milk that farmers produce. Farmers need and deserve a market price that fairly reflects the growing value of raw milk, that allows them to reinvest and that gives confidence for the future. Any part of the UK market that fails to achieve that risks losing supplies of dairy products to those companies who are taking the future of the British dairy industry seriously; that will be my message to retailers and food service companies in forthcoming meetings."