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Ian Potter: 'Just like nappies, representatives all need changing regularly... and sometimes for the same reason!'

This month, Ian Potter argues that if prices do go down they should do so no faster than they went up, puts the spotlight on the responsibilities of farmer board members, and finally examines the need for better volume management.

There are fears that with a good early spring we could be in for another rollercoaster farmgate milk price ride, as milk volumes increase further.

 

There are milk processors, particularly on the liquid side, who gave numerous reasons as to why producer farmgate milk prices lagged behind the 2016 rapid increase in spot, commodity and cream prices. For many farmers, their prices moved at a glacial pace as they struggled to make ends meet.

 

The issue now is whether processors will attempt to reduce the price in reaction to falling cream, commodity and spot prices quicker than they put them up. This is assuming they are not on a contract which tracks prices up.

 

should certainly be ready to challenge their purchaser if they do. If the various co-ops operate as they should, I expect one or more will try their hardest to increase farmgate milk prices in March and April, with the aim of getting and holding prices through the flush at about 28-29ppl.

 

Whether the others take a similar line will be interesting to see. In the case of our biggest co-op, Arla, now is the time to demonstrate its UK model works. Numbers show the currency smoothing mechanism has held back farmgate milk prices by about 2.5ppl, which means this extra money should flow to members during the next 18 months.

 

In fact, given where the Arla milk price is today, it would comfortably be more than 2ppl higher were it not for the currency smoothing mechanism.

 

There has been lots of talk about how to smooth out the tops and bottoms and this model is the one farmers who joined Arla signed up to. Hopefully, further increases from Arla will filter through in March and April, and if they do, this should confirm to members the model does indeed work, and will ensure they are no longer behind the curve.

 

It is unlikely to end up being the top price in a league table, and it is often said and proven only fools chase top prices. Finally, on prices, I wish farmers would focus on the independent facts and not the rubbish pedalled by some spin-doctors as to what their firm’s milk price is.

 

For many years, Dairy Farmer has featured Steven Bradley’s www.milkprices.com and in my weekly bulletin I only refer to his numbers. Unless Steven verifies the numbers to confirm what a purchaser’s milk price is and what their ranking is, I ignore it, and so should farmers who are being courted.

 

Ambition

 

Now Muller. Its ambition is to be the biggest and best milk processor in the UK and the buyer of choice for dairy farmers in its catchment fields.

 

As part of this ambition, its producer communication is now focused on developing the best supply group relationship, having lost ground last year following the acquisition of Dairy Crest’s liquid business.

 

It wants, it says, ‘a mature and trusting relationship’, along the lines of the one the former Dairy Crest producers had with Dairy Crest Direct.

 

 

The cornerstone will be electoral accountability, which is fundamental to dairy farmers as it gives them a say. Muller has listened to feedback from its first series of farmer meetings with its 1900 or so suppliers, and it is now down to those farmers to elect 21 farmers to a forum which will, in turn, then elect seven to represent them on the board.

 

It is no good some big shot farmers thinking this is an opportunity to kick some backsides and get stuck into Muller’s management. It will require farmers who understand the brief and the responsibilities and, for me, ones who are open-minded and can think outside the box and – believe it or not – respect non-disclosure.

 

We have seen too many boards and directors full of farmers who were self-denying in their competence in such positions, some of whom simply wanted to feel important, when, in reality, they were impotent.

 

Muller’s plan to change the directors by rotation over a three-year period is excellent, because, just like nappies, representatives all need changing regularly… and sometimes for the same reason! It is now down to Muller farmers to put the best candidates forward.

 

From now on, there is no point standing on the sidelines throwing bricks if you supply Muller. It is time to put up or shut up. It is a fact post-quotas UK dairy farmers are competing at world market prices and to do so profitably will require a clear plan of action.

 

The same will be true post-Brexit. The UK is the largest cheese importer in the world and 98% of our dairy imports come from the EU. Yes, we can do a huge amount to replace imports of dairy products and become more self sufficient.

 

However, every man and his dog, and led by our close neighbours from Ireland, will be banging on our door to get their product into the UK, especially post-Brexit.

 

Then we are unlikely to have the cushion of intervention, which prevents prices falling lower. Uncontrolled expansion of milk production to the tune of an additional 1.9 billion litres (+14%) in less than three years was a costly disaster for all of you.

 

There was no increase in domestic demand to soak up this extra supply.

 

Recovery

 

As supply plummeted, prices consequently recovered, because the recovery was supply-led not demand-led. I still hear from milk purchasers who struggle with the fact some producers believe it is their divine right to increase and decrease output without giving any early warning to their milk purchaser.

 

But, on the flip side, some milk buyers think it is their automatic right to operate discretionary and even discriminatory pricing. In farmer language, the best analogy I can come up with relates to feed purchasing.

 

If you order 20 tonnes of bulk feed and the driver arrives and blows in 23 tonnes, you will go mad because the bin is overflowing. Then, four months later, you order 20 tonnes and he only delivers 17 tonnes because he is not making any money from the 17 tonnes.

 

This is a 15% variation to what you ordered on both occasions – a similar variation to the average farmer’s additional output in three years.

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