The Dairy industry sustainable growth plan, Leading the way, took a big step forward this week, as the Royal Association of British Dairy Farmers (RABDF), Agricultural Industries Confederation (AIC) and Holstein UK joined the effort to drive the initiative forward.
Leading the way has been developed by the NFU, Dairy UK and DairyCo with the support of Defra and incorporates the ‘guiding principles’ of the Dairy2020 initiative.
At a Westminster briefing on Monday 17th March, the six dairy organisations and Defra committed to work to turn the strategy from an aspiration into a reality and extended an invitation to the rest of the industry to climb on board and join in.
Commenting on the growth plan ahead of Monday’s briefing, Farming Minister George Eustice said:
“As the industry recognises, dairy has huge potential for growth, which is why Defra is working with UK Trade and Investment (UKTI) on a specific dairy export strategy. I look forward to working with ‘Leading the Way’ to support the UK’s dairy farmers both here and abroad.”
Rob Newbery, NFU Chief Dairy Adviser commented, “Today, not only are we harnessing the support of Defra and these key dairy industry organisations, but we’re also opening up an invitation to other organisations, business and individuals to get involved, by supporting and populating the growth plan. We’re essentially asking three key questions as part of this engagement process, which will help build the strategy. What are you doing? What will you be doing? and what needs to be done? ..to contribute to growth in line with our aspiration; to eliminate the UK trade deficit.
Peter Dawson, Dairy UK Policy and Sustainability Director went on to say. “The growth plan is currently a framework based on important principles. Now we need to take this forward to strengthen our industry to achieve growth. The industry needs a common sense of purpose to exploit this opportunity.”
Duncan Pullar, AHDB DairyCo Sector Director, who was encouraging others to join the initiative said; “The welcome mat is out and the door is open; all you need to bring is a ‘can do’ attitude and good ideas for the plan. These are exciting times but we can’t afford to be complacent, our competitors are wasting no time in responding to these opportunities, so now is the time for the supply chain to pull together.
Commenting on their decision to take part, RABDF Chairman, Ian Macalpine said; ‘We all fully agree that globally, dairying enjoys strong growth prospects generated by increasing world population, rising wealth and changes in dietary habits. Now is the time to work together and seize these opportunities’.
AIC Feed Executive Chairman, Angela Booth added; ‘Our members who supply and maintain the British dairy industry believe that with the right vision and shared sense of purpose the British dairy industry can capitalise on these opportunities and achieve the target of closing the trade gap by 2025. It an ambitious target, but achievable’.
Holstein UK Trustee Ken Proctor went on to say; ‘‘What’s not to support about ‘Leading the Way’? Uniting the industry behind this target for sustainable growth and giving it the ambition it needs to fulfil its potential is vital. We would all urge other industry organisations to get involved. We’re convinced that the UK is at the vanguard of genetic improvement, so welcome this chance to capitalize on this’.
According to agricultural accountants, dairy farmers are still not getting fair returns from the market – but the expansion of Arla could finally provide transparency.
Pat Tomlinson, director at Old Mill, says that margins in the supply chain are still unaccounted for, despite the long-awaited Dairy Code of Conduct and supermarket Ombudsman. “In January, Defra’s average UK farmgate milk price was 33.84p/litre, which included milk destined for the premium liquid and mature cheese markets,” he says.
“Within that there is a wide range between different processors, with some farmers getting more than 35p and others as little as 31.1p/litre.”
However, DairyCo’s milk for cheese value equivalent (MCVE) shows that a litre of milk going into mild cheddar cheese production should have been worth 38.5p in January, based on reasonably efficient processing, a profit margin to the processor and actual market prices for the end product. Assuming transport costs from the farm to factory of 1.5p/litre, ex-farm prices should have equated to 37p/litre.
Similarly, milk made into butter and milk powder (the actual milk price equivalent) was worth 37.6p/litre in January – equating to 36.1p/litre at the farmgate.
“So on average, 2.7p/litre – or at its worst, 5.9p/litre, is going missing,” says Mr Tomlinson. “All sorts of factors have been blamed for this over the years, predominantly by the milk buyers, as they are the ones who have had that money in their grasp. This smoke and mirrors has been a permanent feature of the UK milk market since deregulation in 1994, with few willing to provide any transparency over that time.”
In reality there are only three potential reasons behind that lost margin, says Mr Tomlinson. “Firstly, processors are selling products at below average market prices – but by definition not all can be doing that and some must be exceeding market average. Secondly, the processors are less efficient than the formulas assume – but farmers should not be taking the penalty for that. The final explanation is that processors are taking more profit than the 3% on sales that the formulas assume.”
Farmers who feel they are not receiving a fair price should pose those three questions to their milk buyers, he added.
“Taking a look at their accounts is also a good place to start.”
But hopefully the era of smoke and mirrors may be reaching an end. “The meteoric rise in influence that Arla has in the UK milk market may start to clear the fog and end the charade of buyers trying to justify prices that do not correlate to the wider market.”
The reason for that is that Arla can answer all three of the above points very openly.
“As a large processor of a wide range of dairy products, with access to customers across a number of countries, they are more likely than any to consistently maximise returns from the marketplace,” said Tomlinson.
“Arla has very well invested processing facilities; whether that’s the new Aylesbury liquid milk factory, the Taw Valley cheese factory or the Westbury butter/powder plant. It should therefore be able to deliver very competitive costs of processing raw milk into finished products.”
Finally - and critically - it is owned by its producers, so all profits, after investment and development, are ultimately due to its farmer suppliers. “Not everyone can or wants to supply Arla – but all dairy farmers should stand to benefit from its presence in the market place,” said Tomlinson.
“I feel there is a real reason for optimism, not least because a new degree of transparency and honesty will have to become a feature of future milk pricing.”
