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Potter's View: "They squeeze out the small competitors, plus delivery milkmen and some middle ground processors"

Insights

This month, Ian Potter looks is highly impressed by the new Arla dairy at Aylesbury, and at the other end of the scale outlines the crushing effect the supermarket pricing policy is having on others in the sector.

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Last year I attended the third NFU Producer Representative Summit, and took a particular interest in a talk from Bridge Ability Ltd on the topic of ‘conducting professional negotiations’.

 

I recall the speaker stating ‘you can’t change the hand you are dealt but you can change how you play it’, followed by the line ‘a negotiation has three stages – propose, repackage and agree’.

 

At the meeting I declared that all those in the room who claim to represent producers and do any sort of negotiating should attend such a course. I then decided it is no good me getting on my soap box, so having communicated the training idea to DairyCo, I was pleased to see a range of training days on offer over Christmas and the New Year.

 

So I duly signed up to test the water at Stafford for the negotiating skills course funded through RDPE. Attending it left me feeling that perhaps DairyCo and AHDB were flogging a dead horse with a farming industry which either thinks it knows it all, or feels training courses are a waste of their time. Only five farmers turned up.

 

In April I wrote about Arla and posed a few questions on its pricing. A big thank you to all readers who took time to email in response.

 

While some responses were clearly written through gritted teeth, all agreed Arla was having a positive effect, with quotes such as ‘at last we have a progressive co-operative in the UK, which is long overdue’.

 

A significant number of emails came from Arla members and were related to the controversial butterfat reconciliation deduction or fat

tax. Most questioned why is the 0.75ppl fat tax/butterfat adjustment, which many stated was a covert price drop, applied across the board to all producers as opposed to targeting those who are producing low fat milk.

Fairer

On 1.6 billion litres it’s worth a cool £12 million, which farmers are losing until butterfats improve. The thinking was along the lines it would be fairer to charge the offenders, in a similar way to how seasonality operates. The alternative view was why doesn’t Arla simply cut the price by 0.75ppl and offer an incentive to produce more butterfat. No doubt the arguments will run and run.

 

A few months ago I visited its new Aylesbury plant for an at-the-coal-face nontourist look around the facility. One word sums it up: incredible. Especially the robots which pick up the milk trolleys and take them to the store for dispatch. The factory is super efficient.

 

While there I met Ake Hantoft, chairman of Arla Foods amba, whose enthusiasm is infectious. In his own words he said: “It’s an extremely exciting phase for us in the UK.” When you talk to him about Arla he does not think Denmark, Sweden, Germany, Belgium or GB (and now the Netherlands, of course), but he thinks of the whole company and its ‘big family’ of 13,500 farmers.

 

Arla’s progress since 1970 is impressive, and it is now the 6th largest dairy company in the world employing 16,000 people. The UK is its biggest market accounting for 26% of Arla’s global turnover. It welcomes a new boss in the autumn, of course, but I can’t see much changing.

 

During recent weeks I have encountered two very different milk buyer attitudes. Paynes Dairies claims to have had only one producer leave it to supply a competitor in the last 20 years. But recently it received another request to leave from a significant producer who believed he could achieve more money per litre with another buyer on a manufacturing contract.

 

Paynes agreed with him, had no reason to be awkward or to argue, and decided if he wanted to leave he could have the option to leave early, and May 1 was agreed. Alas, at the 11th hour, the decision by the producer was that it’s better the devil you know and decided to go back.

 

Contrast this to the bizarre stance taken by Dairy Crest, which rejected any resignations received by email, insisting they must come by post or be hand delivered.

 

Two of its Sainsbury’s-supplying farmers were so incensed they jumped in the car and drove from Devon to the firm’s London HQ in Claygate on resignation deadline day. It was a trip of 300 miles, and the comment was made they used no fuel for the trip because the vehicle was jet propelled with anger. It’s crazy Dairy Crest should, on the one hand, insist on all applications to supply milk on its formula contracts be made via email, yet refuse to accept email resignations.

 

As I write, spot milk prices appear to have levelled at around 17-18p, and production is showing signs of levelling a few weeks earlier than expected. We can only pray production drops because more milk means more problems and lower farmgate prices.

 

Irish dairy farmers are cursing us for dumping our distress milk on their doorstep and impacting on their fragile market. Oh, and I daren’t even look at the impact the extra cheese we are making will have on cheese prices in a few months. But, for sure, someone will blame the Irish if prices collapse. While the long-term future on a global level looks good, the reality that we will experience very volatile pricing is now upon us, and there are no immediate signs of a U-turn as prices continue to head south. Middle ground processors and their corner shop, garage and convenience store customers are taking a beating with the four pints for £1 offer, and processors may not be losing customers but they are losing volume.

 

So it’s a win-win for the big retailers. They squeeze out the small competitors, plus delivery milkmen and some middle ground processors. It’s the dairy equivalent of ethnic cleansing. And it’s working quicker than we may like to admit!

 

Ian Potter

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

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