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Ian Potter: Farmers can't carry on believing it's going to improve

livestockdairyColumnistsDairy FarmerMilk prices+-

None! That’s the number of reasons UK dairy farmers have to be cheery and optimistic for 2016. You may as well have it straight. The outlook for milk prices in 2016 is grim.

 

Until Europe cuts milk output any recovery is a distant dream – unless nature intervenes. It’s a fact that with the EU28 responsible for 25% of the world’s milk production, we are crucial to the global dairy market, and many argue that until we cut production there will be no recovery.

 

Look at the facts. UK milk production is at a 30-year high and rising; EU28 production is at record levels; there’s a strong pound; intervention stocks are rising; global markets are under pressure; international trade/demand is lukewarm; UK herd and dairy replacement numbers in the pipeline are increasing; and oil prices are at an 11-year low (which affects demand for dairy products in oil exporting countries).

 

It’s time to buckle up, cut costs, and refrain from chasing volume. More milk equals less money, and less equals more. Three years ago fresh blood was entering the sector as new units were erected.

 

Dairy farmers displayed high levels of confidence, predominantly driven by high commodity prices and eye watering milk demand and price forecasts. Now it’s Armageddon.

 

One unknown is how long the banks will sit and watch before they take action. This time farmers can’t simply carry on optimistically believing it’s going to improve soon. This will have to be a supply-led recovery, with seismic on farm consolidation.

 

Yes, many farmers will need help to be profitable, which equals becoming internationally competitive (not just on price alone), and reducing cost.

 

Consultants and the like will need to shine a light on the industry and play their part in the typhoon of change. If we don’t change we will simply surrender to the Irish, whose aim is to be the New Zealand of the EU28.

 

As Andersons 2016 Dairy Outlook said: “Only the most efficient farmers can achieve a long and sustainable future at current milk prices.” And as David Dobbin, chairman of Dairy UK, recently stated: “Do we ease back on production or find new markets?” and “we need to get better not bigger.”

 

Read the digital edition of Dairy Farmer magazine here

 

We need thinkers, marketeers and pushers because it’s set to be tough. Recently questions have been asked whether AHDB’s Dairy Board’s plan and vision for our industry is aligned with the interests of its levy paying clients.

 

Many believe it’s time it really listened, rather than continuing to spend on what it thinks farmers need.

 

It has just had a consultation round, so we shall see! Others say AHDB Dairy is too inward looking; too focused on productivity; duplicates areas others already cover; and that it needs to focus globally. AHDB Dairy must not, in my opinion, predominantly focus on production even if doing so swells its coffers.

 

To most farmers it appears to be a closely guarded secret as to how AHDB Dairy selects where the levy money goes to give farmers the biggest return for every £1 invested. Take its spend on exports, for example. There are a number of farmers who want AHDB Dairy to up its game in respect of assisting the industry to sell its range of dairy products to new emerging markets, as well as help many to cut costs in order to compete in this harsh environment.

 

We have to export, as the additional demand for our milk will simply not come from the EU. We have to look outwards not inwards, in particular to China, Asia, India and Africa. Three of our dairy processors recently attended a Beijing trade event – Daioni Milk, Freshways and Woodcocks. One of the meetings involved a young Chinese dairy trade envoy who, on meeting UK processors, stated: “I am surprised to see you here because dairy farmers in the UK are constantly protesting and complaining about low milk prices.

 

Why come here if your industry is not internationally competitive?” Is that really the image we have created, where we are not regarded as internationally competitive? And, on hearing this comment, another said: “What’s the difference between a British dairy farmer and a baby?

 

The baby will eventually stop crying.” Dear, oh dear. Processors who attended the Beijing event said they desperately require specialist dairy expertise to kick open the doors which will drive exports to new markets. And yet AHDB Dairy’s current budget to 2019 is the only one of all the AHDB sectors which has zero investment for exports. Why? How is this justifiable? Now, First Milk. Since Mike Gallacher took the reins I have yet to find where he has put a foot wrong (although, admittedly, I’m not at the receiving end of its milk cheque).

 

First Milk is not quite at the point where it can claim to have turned the tide in terms of retaining existing member patronage and support, but perhaps there are a few very small glimmers of light in this long tunnel. The co-op’s milk price is unquestionably poor and the gap between it and its competitors needs to close. But for some members the fact they still collect (and pay) for all the milk produced is a bonus.

 

Others are less fortunate and are under notice with nowhere to go, and no control over their destiny. Meanwhile, a handful in the industry believe I am an evil spirit and cannot comprehend why I should have an opinion on dairy industry topics. Quite why it has taken them 25 years (the time I have been writing) to draw this conclusion I don’t know.

 

Well I can confirm I will not quietly slip away in 2016 and intend to take the advice of gritty Scotsman Jim Brown, who emailed me recently concerning his thoughts on AHDB Dairy. “I like the way you call a spade a big f***ing shovel! Keep at it,” he said. “As Corporal Jones on Dad’s Army said: They don’t like it up ‘em, Sir.” All the best to you all for 2016.

Dairy Farmer
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