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 (http://www.burnleysavingsandloans.co.uk/).
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.
To comment on this article email me at
ianpotter@ipaquotas.co.uk
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.
To comment email me at ianpotter@ipaquotas.co.uk
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 www.the-mooman.co.uk.
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!
Comments on email to ianpotter@ipaquotas.co.uk
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?
Comments
on email to ianpotter@ipaquotas.co.uk
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!
Comments on email to ianpotter@ipaquotas.co.uk
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 http://pilgrimschoiceusa.com 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 ianpotter@ipaquotas.co.uk 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.
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 www.ipaquotas.co.uk. Click on “Westminster
Discussion -The Future of British Dairy Farming”. 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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ian@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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
ianpotter@ipaquotas.co.uk
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 www.yeovalleyorganic.co.uk 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
ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 s**t 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 www.thisisdairyfarming.com
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 ianpotter@ipaquotas.co.uk
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.
Comments:
fax on 01335 324584 or ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk 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: ianpotter@ipaquotas.co.uk 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: ianpotter@ipaquotas.co.uk 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 www.milkprices.nl), 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: ianpotter@ipaquotas.co.uk 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 www.ipaquotas.co.uk and even lesser
ones like www.dairyco.org.uk. 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: ianpotter@ipaquotas.co.uk 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: ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk 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 ianpotter@ipaquotas.co.uk 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 www.europeanmilkboard.org.
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 ianpotter@ipaquotas.co.uk
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 (www.milkprices.com),
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.
(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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk 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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk 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 (www.ipaquotas.co.uk)
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 ianpotter@ipaquotas.co.uk
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 ianpotter@ipaquotas.co.uk 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 ianpotter@ipaquotas.co.uk 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 www.dairyevent.co.uk 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!
Comments to ianpotter@ipaquotas.co.uk or fax
01335 324584
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.
Comments to ianpotter@ipaquotas.co.uk or fax
01335 324584
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!
Comments to ianpotter@ipaquotas.co.uk or fax
01335 324584
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 h