Farmers have been warned not to be ‘busy fools’ as milk prices fall by sending more milk to make up for dwindling cashflows.
Instead, NFU dairy board chairman Michael Oakes urged producers to speak with their milk buyers to find out how much milk they should be sending.
“We have all been busy fools before. As prices fall, some tend to produce more to maintain their cashflow coming in,” he said.
“It is a bit of hamster’s wheel and we all learned some pretty hard lessons. You could not run fast enough last time.”
Mr Oakes said Arla farmers needed to see they were insulated by the cooperative’s ‘added value’ strategy when the markets started to fall.
“My milk cheque will come in and it will be already quite a bit lower. February’s will be lower still, but my costs have not gone down,” he added.
Arla farmer and NFU Scotland vice president Gary Mitchell, also questioned if the brand strategy was working.
“Arla farmers accepted the lower prices received compared to competitors when the market was on the up because we were led to believe brands will be the saviour on a downward cycle.
“However, with prices having turned, Arla seems to be as very sensitive to the market as any other milk purchaser.
“I still have concerns regarding Arla’s message, which is produce as much milk as you like and we will market it. Yes, but at what price?
“Muller farmers will also be disappointed this week to receive a 1ppl cut but I will commend Muller for showing some restraint in its announcement.”
Dairy analyst Chris Walkland said the price drop was no surprise and most processors were still paying far more than the markets were realising.
“At the end of last year the prognosis was not good, but things are better than they were and better than they were expected to be,” he said.
“There is still cause for concern and butter will need to go up more in order to make up for the awful SMP price for farmers to see better returns.”
He added the amount of milk which was expected across Europe was another problem.
John Allen, Kite Consulting, said European farmers were now having to learn the hard lessons British farmers had.
He advised farmers to make their business budgets and predict cashflows to get the banks on board.
“Expect a weakening and get your plans in place,” he said.
“If you have got a weak business then it is going to test you. If you have got a plan and got break even costs down, then you are not going to be too adversely affected.”
NFU Scotland milk policy manager George Jamieson said there were measures the supply chain needed to do to improve its collaboration, investment and marketing.
“Dairy farmers are being ‘preached’ to by politicians, processors, and its levy body about efficiency, competitiveness and productivity.
“Few dairy farmers are not working on these issues on a daily basis and, indeed, our efficiency on many levels is already better than most.
“However, few are raising questions regarding the processing sector on efficiency, marketing, investment and, crucially, collaboration with their supply base.”
He called for much greater producer input and agreement on managing production and price, within specific supply chain relationships.
“This will require a greater level of power sharing, trust and transparency. We can’t control the global trends, but we can as a supply chain, mitigate the effects and increase our competitiveness, through greater efficiency and a fairer share of risk and reward down the chain.
“NFUS believes dairy has a great future if the supply chain is prepared to radically evolve.”