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Ian Potter: Spotlights on supermarket schemes

This month, Ian Potter puts the spotlight on supermarket schemes designed to return a better price to producers and whether these should be applauded, rather than criticised, and questions why Arla’s payment scheme is not offering somewhat more now.

This month, Ian Potter puts the spotlight on supermarket schemes designed to return a better price to producers and whether these should be applauded, rather than criticised, and questions why Arla’s payment scheme is not offering somewhat more now.

 

If you heard an unexplained thud recently it would be my jaw hitting the floor while I read a recent article in The Grocer magazine relating to the Morrisons’ Milk For Farmers initiative. The article quoted AHDB Dairy’s senior analyst Patty Clayton stating the levy board had crunched the numbers and concluded the extra 10ppl paid by shoppers had only amounted to an additional £290 per UK farmer.

 

She then went on to refer to these returns as ‘questionable’. The article did not look at the benefits UK farmers get from income into the business from similar schemes or from brand income from Europe through the likes of Lurpak. On further investigation, The Grocer confirmed it was approached by AHDB and offered an exclusive on the article. The magazine didn’t ask for the story.

 

The article effectively belittled the £3.7 million additional income the scheme had brought to Arla farmers over 12 months. This figure, though, represents 57% of the total annual levy farmers pay to AHDB Dairy! By default, the article also criticised Arla’s branded Farmers Milk, launched at the Great Yorkshire Show in July, which pays an additional 11ppl to farmers and has resulted in an additional annual equivalent of £2.2m going into farmers’ pockets. Combined, the annual equivalent going back to farmers from these two initiatives is a not insignificant £5.9m.

 

AHDB Dairy takes about £6.5m from dairy farmers, a quarter of whom are Arla farmers. AHDB claims it ‘provides independent evidence-based information’ in four key areas, one of which is labelled ‘market intelligence’.

 

Well there wasn’t any intelligence here! It’s a mystery to me why it believed it was a good idea to pen the article because it certainly doesn’t help move the industry forward.

 

That, of course, is unless its remit has secretly changed to become a lobbying organisation under Peter Kendall’s captaincy. What chance does this industry have when its own levy-funded organisation throws hand grenades at an idea which is delivering significant amounts of additional money into farmers’ pockets?

 

Remarkable

 

It is worse than the remarkable events which took place at the launch of the scheme when two Tesco producers – one the chairman of the Muller farmers’ group – went on national television and branded the new product ‘a shambles’ before a single bottle had hit the shelves.

 

Any initiative which gives consumers a choice whether to pay extra money to dairy farmers has to be applauded and not belittled. The industry needs more initiatives like these for the non-aligned.

 

It is hard enough generating additional revenue to come into the supply chain, so I am now looking forward to AHDB’s ‘market intelligence’ department coming up with an intelligent suggestion. I fear, though, I might have to wait a while on this evidence. I continue now with Arla, but in an altogether different vein.

 

Like many Arla owners (and many other farmers whose price isn’t going up because their buyer hides behind currency issues or basket pricing) I am questioning why the farmgate price isn’t increasing at pace. Aside from the forward selling issue and the market lag which is affecting everyone, Arla’s price is, of course, affected by its currency smoothing mechanism.

 

Advantage

 

On analysis of the numbers, it is clear that as milk prices were falling between April 2014 until early 2016, the smoothed price was higher than the monthly price so there was a price advantage.

 

Now, though, it is a different matter. The current farmgate milk price without any currency smoothing – that is on a floating month-by-month rate – would put the November price at a very respectable 27ppl or greater– that is a 4ppl premium above the Arla standard litre price of 23.14ppl.

 

In reality, the Arla mechanism is similar in principle to a fixed rate bank loan or a futures contract, in so far as it smooths out volatility. The mechanism is depressing prices today, but there has been an advantage over the long term. That said, the price is the price and it simply is not good enough.

 

No doubt there will be some interesting dialogue when the firm’s boss is quizzed at January’s Semex conference, together with its market expert from Denmark who will hopefully be giving out some very good news for 2017.

 

The big question for non-Arla farmers is this – why are your farmgate prices dragging their heels when you don’t have a currency smoothing mechanism? Or is it the case Arla sets the UK milk price for the majority, if not all, nonaligned producers? By the time you read this Christmas should be a few days away.

 

If anyone is looking for a £10 stocking filler for someone then the book Cows and Catastrophes, by Cornish dairy farmer Brindley Hosken, is one farmer’s story which many will relate to.

 

It is a good read and available from Old Pond Publishing.

 

Gift

 

Alternatively, if you are married to a Muller supplier then, for the same money, you could always buy your other half a gift voucher for their first month’s suggested membership subscription to the new Muller Board and representative structure, made out to a Mr Sooty of Aberdeen.

 

But please, if you do, send me a video when they unwrap it. Finally, may I wish all my readers a Happy Christmas and a more prosperous New Year, which, let’s face it, wouldn’t be difficult compared to this one.

 

And I appreciate all your feedback, comments and tip-offs. It is, I have to say, telling, sad and shameful many farmers feel they can tell me the things they do but do not feel they could tell their milk buyers for fear of discrimination or reprisals.

 

Keep your comments coming!

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