Milk the moment on dairying . . . but don’t lose sight of market realities

Tables are being set for what could turn out to be one of the most boisterous annual Dairy Dinners in recent years at the Bath and West showground. Traditionally held in October on the eve of the Dairy show the dinner, sponsored by Lloyds TSB Agriculture and Dairy Crest, has already built a reputation as a major networking and discussion opportunity. Tickets have already sold out.

The Autumn's disease restrictions saw farming events cancelled nation-wide and the rescheduled Dairy Show, now taking place on Wednesday 30 January, preceded by the Dairy Dinner on January 29, will give dairy farmers their first opportunity to meet en-masse for months and talk about the state of play in the industry, now fully motivated by the best upturn in milk prices for nearly a decade.

Guest speaker, Bristol based cheese-maker and farmer John Alvis, has prepared several informative reality checks in what promises to be a hard-hitting speech aimed at dairy companies, Supermarkets, the Office of Fair Trading, the Competition Commission and even dairy farmers themselves.

"I would be more comfortable about the stability of the dairy industry when we see other proteins rise. Only when they increase in price substantially will we have more security in the dairy market, " says Mr Alvis, who farms over 3,500 acres with three dairy herds, a pig business and an award winning organic cheese company at Lye Cross, near Bristol.

He will explain the situation where dairy proteins riding sky high by comparison to meat proteins has had the short-term detrimental effect to make dairy products conspicuously expensive in consumers' eyes, both at home and abroad, while meat protein prices are still lagging behind.

"It has taken years for milk price to adjust and if we look at the diet, particularly of the emerging countries, the opportunity for consumers there to move away from dairy towards meat is there, if they are still cheap in comparison," he says.

For many pundits 2008 is now the much yearned for confidence injection period the whole dairy industry desperately needs and despite the recent tail off in milk prices that were predicted back in October 2007, Mr Alvis says farmer power and better negotiated contracts should be key objectives for farmers to make this into a new beginning for the industry.

"A milk contract, historically, has had nothing to do with a contract between equals, it's like a surrender document, or rather like a farmer saying to a purchaser: "I guarantee to supply you all my milk and you can pay me what price you like for it"," he said. Now, however, with purchasers having to pay more to secure the milk there is the opportunity for farmers to take out some of these ridiculous one sided clauses in the contracts and bringing them back to something more sensible."

He doesn't believe many existing milk contracts would stand up to the eye glass of the European Court of Human Rights, particularly where some contracts have eye watering 23 month notice periods.

"That's a crazy situation, especially without the guarantee of a price. I would say if you are looking for a guarantee of a price, that price should be either the cost of production as determined by an independent body like the Milk Development Council or the Actual Milk Price Equivalent whichever is the higher," he said.

Better negotiation and therefore a sustainable milk price are much needed by many dairy farms who have either, not been motivated or unable to invest in their farms for a decade. Mr Alvis can't wait to see this money arrive on their doorsteps, because many of these cash starved farms are in a desperate need for reinvestment.

"Some farms are not a good advert for the industry if we are truthful about it, the need for them to reinvest is well overdue," he said.

Mr Alvis also calls for dairy companies, both the plc and farmer owned to "seize the moment" and push prices forward. He particularly wants the co-ops who have recently invested in processing to resist chasing market share for the sake of it.

"They need to drive prices in the way that they could drive prices, they will be underselling their producers if they fail to do that. They also need to exploit the opportunities in the market place to the full, rather than worshipping what is seen as this God of 'Market Share'. The easiest way to get market share is to undercut your competitor and the industry definitely doesn't need that now," he insists.

While milk price increases are a result of world commodity prices, now a far bigger force than domestic 'retailer power,' Mr Alvis will remind the audience of the dangers of undiminished supermarket power at home despite endless OFT and Competition Commission enquiries into their practices.

He suggests a solution that first needs both the OFT and Competition Commission to wake up to reality in their search for evidence of the continuing failure by some of the supermarkets to adhere to a Code of Practice to treat suppliers, including farmers, more fairly.

"No suppler would be willing to go on record in any case brought against a supermarket as they would lose their business with that supermarket overnight. Such a thought defies gravity, you are never going to get Turkeys to vote for Christmas".

A far better approach, he suggests, would be to launch an ethically based assessment or review of supermarkets, without the need for individual case submissions and where a positive outcome of any such investigation could be used by the supermarket in their marketing policy. This is an opportunity they couldn't resist, he believes.

"I think the ethics of these large organisations should be called into question and made the subject of an inquiry. Handled positively it should prick their conscience and could encourage better behaviour to suppliers where good ethically based relationships would mean more stable relationships and positive publicity for the supermarket", said Mr Alvis.

While his reality checks will hit hard in some quarters Mr Alvis will remind the dinner that, "the dairying boot firmly is firmly on the foot of the farmer" and the opportunity for farmers to drive change on several fronts has never been better, "let's make the most of it," will be his ultimate message to the audience.