30 June 2015 | Online since 2003

Optimism in dairy industry despite unfair returns



19 March 2014 01:52:38|Dairy,Finance,News

Optimism in dairy industry despite 'unfair returns'


Dairy farmers are still not getting fair returns from the market – but the expansion of Arla could finally provide transparency, according to agricultural accountants.

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.”

Download




Comments


No comments posted yet. Be the first to post a comment

To post comment without approval login or register

Display name

Please enter your name

Email (optional)
Comment

Please enter your comment

Post Comment

Your comment submitted successfully.Please wait for admin approval.

Some error on your process.Please try one more time.



Jobs


Start Date: 18 June 2015
Job for Telehandler / tractor driver>>> Morpeth

Grain drying and storage company looking for an experienced driver for seasonal work from mid July to the end of Septemb...


Start Date: 24 June 2015
Pig stock person/General Farm Worker Job >>Scotland<<

Stock person needed for 400 sow unit on a 5 week batch system selling 7kg weaners at 4weeks old.also helping out wi...


Start Date: 16 June 2015
Permanent tractor driving, cattle duties and general farm maintenance  position available >>> Lincs

1000 acre mixed farm with 60 suckler cows in south Lincolnshire near Stamford.

you will require an understandin...


Start Date: 27 June 2015
Stockman/Tractor driver looking after 400 head of stock  >>> Winchester <<<

2200 acre family arable and dairy farm with 600 head of stock needs a Stockman/ Tractor Driver.  You will join a friendl...


Start Date: 20 June 2015
Baler/Chaser/Telehandler operators needed for Harvest 2015: job in Norfolk 

Large scale straw contractor requires skilled and experienced operators to join our harvest team. 

We Need:

2x H...





Top stories you may have missed
5 June 2015 | Cattle

A strong pound and increased red meat imports coupled with a plentiful dome...


5 June 2015 | Arable

Depression is affecting Wales' farming industry and there is a need to use ...


5 June 2015 | Arable

With just one week to go before the final judging and announcement of the w...


5 June 2015 | Finance

A rural law expert has highlighted the importance of good succession planni...


5 June 2015 | Farmshops

A south Yorkshire dairy farming family is pulling out all the stops to prom...


4 June 2015 | Finance

Predicting what is going to happen to wheat prices is a challenge, but in s...


4 June 2015 | Agri Safety

A Lancashire based livestock theft prevention scheme is aiming to go nation...


4 June 2015 | News

A female farmer has been recognised by the farming and conservation industr...


4 June 2015 | Finance

The new Conservative government appears to be preparing to implement cuts f...


4 June 2015 | Arable

The Rural Payments Agency (RPA) will have mobile support units at the follo...