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
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
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
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
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
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
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
Director General of Dairy UK, Jim Begg, put a
blustering pen to paper in response, stating that “normal practice in the
Dairy
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
Finally, I am hoping to visit this year’s NEC
Dairy Event. However, a prior engagement in
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
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
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
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
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
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
In March 2011 the EU average milk price was
29.72ppl, whereas the
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
At the recent AHDB Outlook Conference, Sodexo declared it
served 1 million meals daily in the
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
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
Today the Co-op farms have no cows, having once
held by far the largest dairy quota in
On the 27th April two of our leading
representatives organizations gave oral evidence to the same EFRA inquiry.
Dairy
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
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
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
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
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
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
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
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
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
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
The price war in the supermarkets this autumn shows that the
obsession with the liquid markets will limit the industry in the
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
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
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
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
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
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
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
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
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
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
Let
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
Remember what the EFRA
Committee rep
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
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.
(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