The New Year gives an opportunity to look back over the year that’s past but also look ahead at what’s to come this year. As a dairy farmer I don’t want to see a repeat of last year – most of us are still suffering from the worst dairy downturn we’ve ever experienced but at least we can see some light at the end of the tunnel in improving milk prices. A saying I’ve heard often this year is “never waste a good crisis” and I think we can all learn from the past two years – whether we put that learning into practice is another question. As NFU dairy board chairman I’ve listed below some of my learnings. I’m going to do my utmost to ensure that we put these learnings into action to ensure we don’t see a repeat performance. This boom and bust cycle is not good for anyone.
Learning 1: Strong supply chain relationships are vital
I’m not going to dictate to anyone what form of relationship farmers should have with their milk buyer other than to say that it’s vital there is one and that it should be fair, transparent and mutually beneficial. Most of you would have heard me mention the role of dairy Producer Organisations over the past year. I continue to believe they are the right structure for those who aren’t within co-operatives – why else have they been so successful across Europe? I’ve struggled to understand why the Muller Milk Group hasn’t grasped this opportunity to create a truly independent, democratic and forward thinking PO who can work alongside Muller to help be “the biggest and best” as is their aim.
And vital to better supply chain relationships are fair, balanced milk contracts. We’ve tried the voluntary approach alongside NFUS but too many buyers have ignored our call for more equitable terms. We’re left with re-looking at the compulsory option, possibly through minimum contract terms that should be the basis of every milk contract. This will allow buyers to go over and above the basic requirements but bring to an end some of the bad practice we’ve seen over the last year.
Learning 2: We need more accurate dairy market information
I fully agree with the findings of the Agri Markets Task Force report, published in November, that we need more accurate, trusted real-time data on the dairy markets. The model the USDA have is excellent and something we must strive to replicate. This I believe can only be done by compelling milk buyers and traders to provide information on marketed products to a centralised database that can then provide accurate UK prices for butter, cheddar etc. Today we are reliant on AHDB to ring around milk buyers and traders for this information which whilst filling a gap is not the best solution. Improved market information is the foundation onto which we can build better, trusted supply chain relationships, new volatility management options and better opportunities to read and interpret market signals.
Learning 3: New ways of managing volatility must be put in place
I’ve looked in awe across the Irish sea to the ways the Irish Co-ops and Irish Government have helped their dairy farmers in managing volatility. Every few weeks there seemed to be another initiative launched be that fixed price-fixed term loans, suspension of capital payment requirements, Glanbia’s Milkflex loan and more recently changes to the Budget 2016 to support dairy farmers. At the end of 2016 we saw some new options in Yew Tree Dairy’s offering to their suppliers – both fixed price contracts and futures based pricing. Unfortunately at the same time Muller have removed the risk management tool available to them in the Direct Milk PO formula, but I understand are working on something to replace it. One of Arla’s ways of managing risk for UK members is their currency smoothing mechanism, t has worked against us in recent months.
Learning 4: Focusing on one market is a mistake
We’ve all seen and felt the impact of losing the Russian market in August 2015. I dread to think what it would have been like if I was a Latvian dairy farmer at that time. The same can to an extent be said about UK processors – being too focused on one market can be detrimental. The retail price wars have stripped value out of the UK dairy supply chain and having an alternate market – be that export or brands is vital, and a way of managing volatility. In 2016 we saw Sainsbury’s move from having 2 liquid milk suppliers to 4, clearly to keep their options open and not be held to ransom by any processor. Farmers don’t have that luxury - most, if not all of us, are required to sell all our milk to one buyer. This restricts competition and opportunity and is something I’m keen to look into in 2017.
Learning 5: Let’s make Red Tractor work for us in 2017
One thing we should be proud of is that little logo that signifies the high environmental, animal welfare and milk quality standards by which our milk is produced on farm, transported and processed. No other country worldwide has such a well-recognised logo on pack that brings the whole industry together. True there’s work to be done in improving awareness and ensuring that we can stand by what Red Tractor means but I’m heartened by the energy and ideas from new Chairman Jim Moseley who aims to refresh and strengthen the logo going forward.
Learning 6: Brexit can be a challenge and an opportunity
And I couldn’t finish before commenting on that monumental decision in June last year. Whatever your opinion on our place in Europe and the world we are now entering a brand new era. This allows us to reflect on what’s worked well in the past for UK dairy and what hasn’t and set a new agenda for dairy going forward. Clearly each agricultural sector has its own concerns – labour availability vital for horticulture and access to the single market essential for the lamb sector. We’ve recognised that lobbying as the £109 billion food and drink sector is stronger than as dairy or farming alone. At the NFU we’ve restructured internally to create a new Brexit team and a new Corporate Affairs team who will be leading our work with MPs Liam Fox and David Davis’ teams as well as opening new doors in London and further afield.
So to end, I want to ensure you that as NFU dairy board chairman, my board and the team at Stoneleigh are here to support the dairy sector for 2017 and the years to come. We have a clear strategy based on the three pillars of building better supply chain relationships, building a better business environment and backing the best of British at home and abroad. Now is the time to turn Brexit into an opportunity to move this industry forward.