IP Dairy Farmer November 2011

 

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 Dairy Farmer October 2011

 

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 Dairy Farmer September 2011

 

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 Dairy Farmer August 2011

 

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 Dairy Farmer July 2011

 

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 Dairy Farmer June 2011

 

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 Dairy Farmer May 2011

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 Dairy Farmer April 2011

 

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 Dairy Farmer February 2011

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 Dairy Farmer January 2011

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

 

Dairy Farmer December 2010

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

Draft Dairy Farmer November 2010

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

DAIRY FARMER ARTICLE OCTOBER 2010

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

 

DAIRY FARMER ARTICLE – SEPTEMBER 2010

 

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

 

DAIRY FARMER ARTICLE – AUGUST 2010

 

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

 

DAIRY FARMER ARTICLE – JULY 2010

 

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

 

DAIRY FARMER ARTICLE JUNE 2010

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

DAIRY FARMER ARTICLE MAY 2010

 

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.

 

DAIRY FARMER ARTICLE – APRIL 2010

 

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.

 

DAIRY FARMER ARTICLE – MARCH 2010

 

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

 

 

 

 

 

 

 

 

 

 

 

DAIRY FARMER ARTICLE – FEBRUARY 2010

 

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

 

 

 

 

 

 

 

 

 

 

 

DAIRY FARMER ARTICLE – JANUARY 2010

 

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

 

 

 

 

 

 

 

 

 

 

 

DAIRY FARMER ARTICLE - DECEMBER 2009

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.

 

DAIRY FARMER ARTICLE – NOVEMBER 2009

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.

                                                                                                        

DAIRY FARMER ARTICLE – OCTOBER 2009

 

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

 

DAIRY FARMER – SEPTEMBER 2009

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

 

DAIRY FARMER ARTICLE – AUGUST 2009

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       

 

DAIRY FARMER ARTICLE – JULY 2009

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       

 

 

DAIRY FARMER ARTICLE - JUNE 2009

 

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”                

 

DAIRY FARMER ARTICLE-MAY 2009

 

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.

 

 

 

RWD (Eng)

First Milk

DFOB

Milk Link

Arla Foods

Dairy Crest

 

1995-96

 

£ 256,300

£ 243,400

£ 247,800

£ 247,800

£ 257,600

£ 257,000

 

1996-97

 

£ 260,300

£ 244,700

£ 242,200

£ 242,200

£ 257,900

£ 252,000

 

1997-98

 

£ 222,900

£ 209,800

£ 206,800

£ 206,800

£ 215,500

£ 210,100

 

1998-99

 

£ 201,800

£ 191,000

£ 181,900

£ 181,900

£ 195,600

£ 203,200

 

1999-00

 

£ 190,200

£ 178,000

£ 164,100

£ 164,100

£ 184,300

£ 187,700

 

2000-01

 

£ 177,600

£ 173,100

£ 166,600

£ 170,500

£ 171,500

£ 175,400

 

2001-02

 

£ 204,700

£ 195,400

£ 196,100

£ 191,000

£ 203,800

£ 200,500

 

2002-03

 

£ 182,600

£ 167,200

£ 169,300

£ 164,500

£ 183,800

£ 177,400

 

2003-04

 

£ 199,500

£ 182,000

£ 179,800

£ 175,600

£ 194,900

£ 190,400

 

2004-05

 

£ 200,100

£ 173,900

£ 174,100

£ 174,200

£ 195,400

£ 190,200

 

2005-06

 

£ 202,000

£ 175,700

£ 170,900

£ 170,700

£ 194,200

£ 191,500

 

2006-07

 

£ 188,300

£ 166,900

£ 167,000

£ 164,000

£ 182,100

£ 182,600

 

2007-08

 

£ 228,900

£ 212,800

£ 209,400

£ 214,800

£ 224,900

£ 221,700

 

2008-09

 

£ 262,600

£ 248,600

£ 240,000

£ 250,700

£ 260,500

£ 260,200

 

 

 

 

 

 

 

 

 

 

14yr total

 

£ 2,977,800

£ 2,762,500

£ 2,716,000

£ 2,718,800

£ 2,922,000

£ 2,899,900

 

                               

(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                

 

  DAIRY FARMER ARTICLE – APRIL 2009

 

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

 

DAIRY FARMER ARTICLE – MARCH 2009

 

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

 

 

DAIRY FARMER ARTICLE – FEBRUARY 2009

 

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!

 

 

DAIRY FARMER – DECEMBER 2008

 

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

 

 

DAIRY FARMER– NOVEMBER 2008

 

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

 

DAIRY FARMER ARTICLE – OCTOBER 2008