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21 Aug 2018
Muller analysis: Lack of processing capacity to blame for Scotland's 'over-supply'
Muller’s Scottish milk over-supply problem is more severe than that of other dairies or the rest of the country, with a drop in processing capacity the real culprit.
The company justified its intention to terminate the contracts of producers in the north east of Scotland and a cap in payments for farmers who have expanded the most, by saying there has been a 25 per cent surge in output by its 230 Scottish suppliers since 2014.
However, AHDB analysis suggests total Scottish production increased by 4 per cent between 2014/15 and 2018/19 to 1.478 billion litres, with output expected to top 1.500bn litres in this milk year.
Closure
It follows the closure of Muller’s Aberdeen and East Kilbride plants.
According to AHDB, Scottish processing volumes dropped by 2.5 per cent to 1.294bn litres between 2014/15 and 2018/19, meaning the surplus has increased from 96 million litres in 2014/15 to 184 million litres in 2018/19 and is set to hit 214ml in 2019/20.
Those speaking to FG said the mismatch in demand and supply, particularly by Muller, begged the question why the company did not identify the problem earlier when the remedy would have been less damaging for the farmers concerned.
The AHDB figures are not based on records of actual milk production and use but cow numbers and herd sizes.
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UK over-supply
The Scottish over-supply problem is mirrored in the rest of the country.
Defra figures show 15.018bl of milk was produced in the year to September 2019.
That was 2.6 per cent more than in 2014/15. However, total UK processing has grown by just 0.8 per cent to 14.164bnl in the last four years, leaving a 854ml surplus – 45.3 per cent more than in 2014/15.
Other AHDB analysis shows Welsh over supply is particularly acute.
The recent closure of Tomlinsons Dairies means the country’s processing capacity is just 956ml, while its farmers produced 1.971 bnl of milk in 2018/19, a jump of 7 per cent in just two years.
Balancing milk production and processing is a perennial problem, with the market only being in control since 2015.
For more than 80 years before then, production and processing was either controlled by the Milk Marketing Board or, after 1984, by quotas.
Farms face closure if alternative milk buyers not found
Muller’s Aberdeenshire producers, many of who have invested heavily in recent years, must now find alternative buyers or close down their dairying operations.
But Peter Chapman MSP, Shadow Rural Affairs Minister and an Aberdeenshire farmer, said he was worried there was ’no-one else on the horizon to buy their milk’.
He said: "It reminds me of the situation when the broiler producers in the north east were told they only had three crops before their contracts ceased. Most of these broiler houses are still sitting empty.”
Opportunity North East (ONE), an initiative which aims to help the area build a post-North Sea oil future, explored setting up a farmer-owned milk processing in 2016 in the wake of Muller closing its Aberdeen plant.
The project received insufficient support at the time and was shelved but could now be resurrected.
News of the loss of contracts in the north east came as a large scale unit near Dundee went on the market.
Lundie Farming Company, which was set up as recently as 2014 currently runs 650 cows over 1,250 acres using a New Zealand style spring block calving system.
COMMENT: Dairy market analyst Chris Walkland
“I would say that the tightening of capacity in the liquid sector is a good and a positive thing for the industry. The more that demand is aligned with demand the stronger the hand of the liquid processors.
“The problem the industry has is that there is not enough capacity to take the milk from where it is, to where the new markets are – i.e in Africa or the Middle East for powder.
“That is what Scotland lacks, and that is all it lacks. I do not think it is right to say Scotland has a surplus of milk, with the implication that nobody wants the milk, because it is a highly desirable product still, somewhere. It is just not desirable for Muller, in Scotland, right now. But elsewhere in the world the milk is desirable.
“If Scotland wants to grow volumes, and it can do, and wishes to have a thriving farming industry built on dairy cows, and it should do, then it needs a drier. Plain and simple.”
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