Milk Prices - The Madness Continues

The continuing madness around milk prices has got me thinking about the past. My first “proper” job was with the Milk Marketing Board (MMB) . One of the last roles I had (as with all MMB employees at the time) was to try and secure signatures on the Milk Marque contracts prior to deregulation of the milk market in 1994. Once I had found the relevant farm I knew there was about a 70% chance I would achieve the necessary signature. I could tell within 5 minutes of meeting the family if that chance had increased to 100%. It all depended on what generation of the family was present around the table.

If the people were of an age to have experienced trying to sell milk pre-MMB days, then I was assured a signature, if the people were younger and tempted by the “extra penny” then it was an altogether tougher proposition.

So much has changed in the milk market since the MMB days (and indeed some of it good) and a couple of simple realities are identical – raw milk is a perishable product and only about half of the milk produced goes to the fresh liquid market. Over the last 22 years (yes it is that long since the dairy market was deregulated), all that has repeatedly occurred is a myriad of price changes. I am reluctant to generalise them as negotiations because that infers mutual agreement between buyer and seller. This has created a horrible concoction of volatility with inequality, inequity, high costs of production and losses across largely milk producers and also some processors.

I am not necessarily an advocate of reforming the MMB or similar but having spent all of the last 22 years in and around the dairy farming and processing sectors we have to find an end to the madness.

The gathering pace of milk price madness.

That madness seems to have gathered pace since there was even a glimpse of milk prices recovering. As recently as this Spring and early Summer, almost all milk processors were refusing to consider taking on new suppliers – and some even forced suppliers away – and as I write this, on the eve of the Dairy Show, several processors are making it clear that they would like to recruit new suppliers at the show (even the ones that forced suppliers away!).

We have had A and B quotas introduced in a “heads we win, tails you lose” manner, we have had some of the worst paying processors being heralded for being the first to increase prices and the most transparent processors being publicly flogged. Rather surprisingly, the only group to come out with any credibility are some (but definitely not all) of the supermarkets.They have delivered some consistency at both processor and producer profit level. We have had Northern processors with access to cheap milk pinching product share from Southern processors who haven’t got a local First Milk situation to benefit from, with the only result being to drive down the value in the whole chain.

Milk Prices - The Madness Continues

By my calculations, to invest in the dairy supply chain from conception of the heifer to production of let’s say mature cheddar takes about 4-5 years. Is there a part of that chain benefits from the u-turn in milk supply strategy that we have seen in the last few months? Which part has or should have been expected to have the confidence to invest in the future? Which has been forced into ever shorter tactical milk production and milk buying policies? And of course, individual producers continue to have no practical ability to negotiate milk prices with the milk buyer – whatever the euphemistic noises made by the toothless producer groups (although Direct Milk’s DPO has very recently grown some “milk” teeth with its deadlock declaration to Muller).

individual producers continue to have no practical ability to negotiate milk prices with the milk buyer

Is volatility necessary?

This is not about volatility – I believe any farming sector can learn to adapt and cope with volatility; it is about whether volatility is really necessary in the UK market. It is about whether UK producers are effective in their negotiations with buyers and whether there is anything that can be done after 22 years of trying to improve that negotiating position.

There are fundamental factors in the domestic milk supply chain that will never change (just like there were in the 1930s when the MMB was formed). If, as looks promising, milk price is soon to recover to viable levels then we must look for a new way of doing things (just like the creation of the MMB did) to prevent the same amount of pain as has been inflicted in the last price trough – because quite genuinely it does not suit any party other than one with simple short term objectives. If we are not careful we will end up losing milk producers and milk processors and the UK’s dairy sector will simply shrink.

The one fundamental similarity with pre MMB days is that the dairy farmer has to be better and more tangibly represented in the supply chain.

Milk Prices- A Solution?

I have one (rose tinted spectacle) solution……all non-retailer aligned dairy farmers (the aligned ones could join in) could terminate their existing contract and move en masse to Arla. In so doing they should tell their current processor that they would be really happy to carry on supplying them but they just want to do it through an organisation that has proper and tangible negotiating strength  in order that they stop being taken advantage of. The processor still has access to the supply it needs and the whole chain has more consistency. I fear this will never happen and that is why it took a bill of parliament to do it in 1933.

Of course, until there is some sanity in UK milk price negotiations, the best advice will always be to minimise the cost of producing each litre of milk – and even when sanity does prevail, that is still best advice.

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