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Potter's View: "We simply have a worldwide imbalance in supply and demand of milk and milk products"


This month, Ian Potter casts his eye over Dairy Crest’s latest demineralised whey plant, stresses the increasing importance of global markets, and examines FFA’s grass roots appeal.

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Passport in hand, vaccinations up to date, and protection minders in tow, I recently decided to cross the border –the River Tamar – and pay a visit to Dairy Crest’s (DC) Davidstow cheese factory.


I wanted to see first hand the progress of its £65million investment in a state of the art demineralised whey (DWP) powder plant (for making into infant/baby powder). It will be commissioned next month and, when at capacity, it will produce around 26,000 tonnes of DWP (80t/day) plus 13,500t of GOS each year (another technical, profitable product but space constraints mean I cannot explain it). The total investment is estimated to have a payback period of under six years at current prices.


Basically, the process removes 90% of the minerals from the milk and the DWP leaves the factory in 1t or 25kg bags. It requires 500 million litres of supply (60 tankers a day) from 400 farmers, which is effectively 60% of all Cornwall’s milk output. Dairy Crest will never be a big gun in the world of infant formula, but it is likely to have one of the most efficient DWP processing plants in the world, thus adding value to its farmers’ milk.


DC has spotted the obvious advantage of the highly successful collaborative trading models Fonterra has across the world, and decided it is the number one partner to market all of its Davidstow infant formula. As I have stated previously on more than one occasion, processors such as DC do not have to be a co-operative to co-operate, a fact some GB dairy farmers struggle to comprehend.


Target market

Asia, particularly China, is the target market but getting a new product into China would be a huge challenge to DC. It’s not a case of filling a container and picking the telephone up and saying we will deliver it £100 tonne less than the competitors. Fonterra is the best route to quickly overcome trade barriers.


The Chinese market is huge, and sales of baby powder to China are predicted to rise to £17billion/year in two years. DC is not the only one investing significant money in DWP processing, though, and I hope the world will not end up with excess infant formula processing once everyone is up and running.


I believe this joint venture with Fonterra is a very smart move by DC. If it was to attempt to penetrate the infant formula market and go head to head with the world’s biggest infant formula producers – Nestle and Danone – it would only devalue the product. This deal will facilitate Fonterra adding value to the powder and allow DC to focus on what it does best at Davidstow –collecting quality milk from a very tight, traceable milk field and processing it efficiently.


Devon and Cornwall have a solid reputation for quality food products with geographical prominence, and this should be a great selling point of difference for DC’s infant formula, and comfortably satisfy Chinese requirements on tradability and provenance.


Meanwhile, quotas have ended at a time when world and UK farmgate milk prices are under extreme pressure. There is no point calling for the government or the EU to interfere with the market place. At the moment we simply have a worldwide imbalance in supply and demand of milk and milk products. It will correct itself, but at a financial and, in some cases, unquantifiable family cost.


The volume of milk we are producing, excluding organic, can be absorbed by the world, but not consumed. Basically, only a fool would pay producers more than can be earned from the milk processed, hence prices are under severe pressure. April and May will be very tough for some producers, even more of whose price could dip under 20ppl.


For decades the price the British farmer received for the milk was determined by the market the milk went to, with the Holy Grail being the magical liquid premium. That has gone, however, and now all smart GB dairy farmers take their pricing signals from the GDT auction and mainland Europe, especially Friesland Campina and Arla (whether you like it/them or not). While major players in the UK dairy market need to extract maximum benefit from the home and European market, all involved in the industry need to now be looking globally.


Political circles

The national news is almost on election overload, with UKIP’s Nigel Farage entertaining/infuriating Joe Public in equal measure with his ideas – some of which often receive quiet support even if they don’t translate to ballot box votes.


It’s not quite the same, but it left me wondering whether David Handley and FFA aren’t the new UKIP in dairy farming political circles. The established parties try hard to box him out of meetings but he is gaining supporters, won’t take no for an answer and can be relied on to pull a crowd 10 times bigger than the established parties and organisations with their Prime Ministers and Ministers of Dairying when it comes to dairy farmers turning out of an evening.


Mr Handley regularly has stones lobbed at him from very well funded opposition while he takes centre stage on a shoestring budget. It won’t stay like this for ever, though, because you can’t keep the peasants down for ever! They revolt and force change.


Finally, as supermarkets battle it out offering four pints for 89p or less, my wife noticed Sainsbury’s selling branded cat milk for £5/litre. You could scratch some eyes out rather than purr at that price!

  • Ian is a specialist milk quota and entitlement broker.
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