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Potter's View: "Let’s hope 2015 brings a price boost because the remainder of 2014 is starting to look dark and grim"

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Back in February 1999, a dairy farmer gave a paper at the RABDF conference stating ‘leadership in the British dairy industry has, with few exceptions, been poor’.

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Back in February 1999, a dairy farmer gave a paper at the RABDF conference stating ‘leadership in the British dairy industry has, with few exceptions, been poor’.

 

One exception has been the brilliant David Dobbin, chief executive of United Dairy Farmers in Northern Ireland. At this year’s Dairy Industry Newsletter Conference he made his own telling remark: “Our industry is great at producing strategy documents, but few of the authors have the leadership to deliver.”

 

The latest document is the UK dairy industry’s ‘Leading the Way’, which was unveiled in Westminster recently. We also have ‘Compete to Grow’ – a vision and strategy for the British dairy industry, which was billed as the culmination of ‘ground-breaking consultation on the future of the sector’; ‘The Dairy Survival Plan’; several Dairy UK White Papers; and ‘The Dairy 2020’ offering, to mention just a few recent ones.

 

We seem to have an addiction for someone in the industry to produce a strategy document, and for all involved to pat themselves on the back. But Dobbin questioned what, if anything, ever gets done – and I agree with him.

 

Having a plan or a strategy is fine but putting the words into action is something entirely different and demands real commitment. It needs personalities who make things happen, not ones who are seeking short-term PR brownie points. “We used to build cars and ships, now we launch Dairy Strategies,” he said.

 

He then talked about our perceived gold standards and the belief some farmers and their representatives have that we produce to higher standards than Johnny Foreigner, and that British is best. But what, exactly, do foreign consumers associate with Great Britain? We have had, he said, BSE, FMD, the horsemeat scandal, TB in cattle and, more recently, negative headlines from the fact we were daft enough to take the Chinese inspectors to an English cheese factory which doesn’t export to China – which failed and resulted in all exports being temporarily banned. If any of these strategies are going to succeed our image has to improve, and the own goals must stop.

 

Now milk prices. Oh dear. On the world scene the news has been dominated by the disastrous July 15th GDT auction results, which saw another 9% slashed off the auction’s average price in just weeks. And this is despite the fact Chinese imports of WMP in June were double those in 2013. Talk of prices bouncing back was killed overnight, and prices have now dropped around 40% in less than five months. That’s meltdown that is! Prices will bounce back but it will probably take several months.

 

We were all warned dairying would have to cope with volatility, but this is looking like extreme volatility – and that’s while quotas are still in place. Let’s hope 2015 brings a price boost because the remainder of 2014 is starting to look dark and grim. Having said that, it’s the margin which matters and falling feed prices will offer some relief.

 

Different companies have different strategies for communicating milk price movements to their farmer suppliers. Some are direct and factual with no spin, some seek to deflect attention towards competitors, others roar with indignation about the injustices of the voluntary code, and some attempt crafty creative accounting in an attempt to curdle the milk cheque. Two recently caught my attention.

 

First Milk was the first milk purchaser to drop its standard litre price below 30ppl. The reasons given behind the move were sound, but in communicating the drops to its members, chairman Sir Jim Paice once again chose to fire another shot at Arla.

 

The letter read: “As you may have seen Arla have reduced their price from this week, almost a month earlier than us, citing the negative trend in global markets. Our analysis of their price and the deductions which they apply means that our actual price paid will still be more than the Arla AMCo price for most of our producers.”

 

This claim over-egged the pudding and was poorly researched, and while I do agree Arla’s headline price is not the paid out price for AMCo producers, its price is certainly not below First Milk’s. However, two other points crossed my mind in connection with Sir Jim’s claim to his members. Number one is the more accurate comparison between the two company’s prices should be between the First Milk price and that of Arla Milk Link, as both have been in existence for exactly the same amount of time, began life at a similar size, and in the same political environment (unlike Arla Foods Milk Partnership, which migrated into AMCo this year).

 

Number two is that this is the second time their chairman has had a poke at Arla, who, after all, are a fellow dairy cooperative. Okay, so one whinge at a competitor everyone can live with; two pops (without another competitor being highlighted) and it looks like a gripe; if he makes a third one-directional whinge it will look like an unhealthy obsession.

 

The next milk buyer to cross my radar was Freshways. It has shocked a number of its producers who have had cell counts and Bactoscans in the penalty band, with the sting being these producers will have deductions rolled back to January 1. Two suppliers claim the move has hit them with deductions of £24,000 and £30,000, and say the company turned a blind eye before when milk was short.

 

Other milk buyers in this situation send a fieldsman to offer assistance and advice to the farmers on how to improve. Why can’t Freshways do this instead of hitting the farmers with a huge bill, I wonder? I guess that wouldn’t generate anything like the same amount of cash, but it would generate goodwill, and that is hard to place a value on!

Ian Potter

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

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