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Potter's View: "If they don’t engage with the review then it could be more a head shave than a back and sides"

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This month, Ian Potter takes a look at Tesco’s plan to review its milk contract and what that may mean for the cost of production element, questions the remit of AHDB Dairy, and asks whether we have a plan in place for another Caffe Nero.

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Last month’s article concentrated on Tesco. And so will this one, following its decision to review its TSDG pool. Back in 2007, Tesco made a pledge (which it endorsed in a March 2010 press release) to recognise the true cost of milk production ‘with additional provisions for making a profit including capital invest-ment and unpaid family labour’.

According to the company, the TSDG was created ‘to address the huge uncertainty faced by dairy farmers caused by contin-uing volatility in the markets, and to ensure farmers are paid above the cost of milk production’. Another subliminal reason was to remove the company from the radar of FFA and its protests, which were rife in 2010 outside its distribution centres. In response to these protests Tesco board director Lucy Neville–Rolfe said:
“Tesco remains committed to ensuring British dairy farmers receive a fair price that is above the cost of production.”

So the big question is this: where does this leave Tesco and the TSDG farmers involved in the ‘comprehensive and thorough’ review of the TSDG? Although Tesco has recently stated ‘we want to pay a fair price’ there is no reference to COP.

For Tesco aligned producers to defend the status quo in my opinion is pointless. There will be change and the farmers involved are likely to take a haircut, given the retail milk price war and the amount Tesco loses on milk. If they don’t engage with the review then it could be more a head shave than a back and sides.

As one of my regular readers and a Tesco man stated ‘a milk buyer – least of all Tesco – cannot afford to pay more than its rivals without gaining value in return’. Tesco farmers, to date, have delivered little, if any, value to Tesco, despite much advice to do so.

Recent press headlines referring to one of the UK’s richest men’s (Duke of Westmin-ster) ‘American style super dairy’ with 1400 cows as being Tesco’s biggest supplier, is not a headline it will have liked, forgotten or ignored. No matter how good the unit, if I asked 100 Tesco shoppers whether they’d like to see premiums go to the Duke or to 10 family farms instead I’m pretty sure I know what most would say.

I remember the criteria used by Dairy Crest when it recruited 25 farmers for its aligned Tesco pool for delivery into the former Amelca plant at Foston. To be eligible for consideration farmers had to produce less than two million litres and be a traditional, professional family unit.

While referring to Tesco, the NFU does appear to swallow everything drastic Dave Lewis, CEO of Tesco, tells them. Only two weeks ago he informed the NFU of its 100%British vegetable sourcing policy after the NFU asked Tesco to demonstrate it was delivering on its 2013 NFU conference promise. Despite Drastic’s assurances the next day I examined carrots to learn Tesco failed in three out of 10 outlets I surveyed. They were selling French ones.

The dairy industry’s lack of funds to properly promote the nutritional benefits of milk is a hot topic among several enthus-iastic producers. One of my weekly bulletin readers felt the industry recently missed an opportunity when the TV and press homed in on the ‘sugary drinks effect on children’s teeth’ issue. She believed the industry should have been involved in the debate and promoting the positives of drinking milk. Perhaps it is time for GB farmers to seek change in how AHDB operates. And that brings me to the New Zealand approach to its levy.

Every six years New Zealand dairy farmers hold a levy referendum when they decide whether the levy continues. If farmers are dissatisfied with the levy board’s past or future spending plans they can vote against its renewal. They can even force an interim vote. I can hear some diehard DairyCo (or AHDB Dairy as it is now called following a whopping £60,000 rebranding exercise) bosses wincing at the thought.

Levy paying dairy farmers have the right to challenge AHDB Dairy on whether its ideas deliver real benefit. Some farmers are more radical, believing the levy should be removed and AHDB Dairy should be self-funding and charge those who choose to utilise their services in the same way as consultants do. The theory is simple: if it is good then farmers will pay them.

Back in early June, the intimidation of Caffe Nero hit the news and while the instant reaction of some of our industry bodies was to condemn the company, I looked through the telescope from the opposite end and took a different approach.(See www.ipaquotas.com/QUOTA NEWS.htm 5th June).

Almost all who read it could see my point of view, with the exception of the vocal husband of a Dairy Farmer columnist. Two of the many people who were fired-up and tweeted should, in my opinion, have paused for thought before they did. One was the NFU dairy board chairman who called for a boycott of the chain. Another came from Amanda Ball, head of marketing and communication at AHDB Dairy. She tweeted: “Made my coffee drinking choices easier. As it happens I prefer Starbucks UK or Costa Coffee. No more Nero.”

To me both of them should have known better and the industry’s reaction reinforced my view that we should have helped and supported Nero because it was not the enemy and TB is not its battle. One person who correctly spotted that the Nero bashers were wrong was NFU deputy president Minette Batters, who actively worked behind the scenes with Nero. But where was the rest of the industry in Nero’s hour of need? Were its processor, or our representative organisations, rallying round? No. Where was the crisis management plan?

There wasn’t one. Is there one now, for the next time one of our customers gets targeted? I damn well hope so, but somehow, alas, I doubt it!

Ian is a specialist milk quota and entitlement broker. Comments please to ianpotter@ipaquotas.co.uk

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