IP Dairy Farmer - April 2020

Posted on: 01/04/20

Following on from the collapse of Tomlinson Dairies few involved will be surprised to learn that Sainsbury's believe they don't owe their supplying farmers anything. Surprisingly, prior to it taking the hard-line stance that farmers could whistle for their lost milk money, much to the surprise of many one of the Sainsburys Dairy Development Group farmer committee members suggested that unaffected SDDG farmers should pay towards the losses sustained by their Tomlinsons colleagues.

At the time some of the farmers were privately convinced the idea was the signal to Sainsbury’s to stand firm and pay nothing. But recently the idea has re-emerged with several Sainsburys’ farmers consulted as to their view on the proposal that producers will pay 0.14ppl on every litre produced for three years, which, if achievable and fully supported, would provide around half of the lost milk cheque to those affected. Some quick maths tells me that 450 million litres at 0.14ppl equates to £630,000 per year. So, three year’s totals £1.9 million. Thus a 2 million litre producer would pay £2,800 for three years, and a total o £8,400. Not much in the great scheme of things.

It’s a noble self-help idea, but I suspect the reality is when it comes to signing-up SDDG farmers to pay over the cash it will be a very different story. Few who believe the idea is noble will publicly declare their position for fear of a backlash, I guess. And it also raises questions - if it were to be pushed through would such a payment be tax deductible, like a charitable payment? And would it be included in the SDDG cost of production formula? Can the SDDG farmer committee approve such a major decision and enforce it? I doubt it. For me the bottom line is it will be for each individual farmer to decide whether they wish to support the idea and effectively make an honourable donation or not.

At the end of the day it will need some selling and clever wording to get this over the line, and I wish those involved well. The final question has to be if the farmers stump up 50% of the lost money will anyone match fund? For sure Sainsburys won’t, so don’t even ask!

As I write UK dairy co-ops are on a roll. Whether it’s Arla or First Milk, in which members have invested 7ppl, or the likes of South Caernarfon Creameries or Dale Farm, which is now the UK’s largest indigenous co-op with c.1250 members. Farmers are rightly proud to supply them, especially when they look over their shoulder and witness the crippling 2ppl price drop Meadow Foods have forced on producers, which takes their 1st April liquid standard litre price to only 24ppl.

Some co-op farmers were previously looked down upon by the likes of Meadow suppliers, who were convinced they were smarter and superior. Today those co-ops are professionally run and I believe honestly run for the benefit of their members, who are now reaping the benefits. If only the UK co-ops were to open their recruiting doors there would be a stampede - especially in Arla’s direction, and especially from Meadow Foods suppliers. I don’t think it would have a single farmer left.

Umpteen furious Meadow farmers emailed me having been informed that it had to make the cut due to reduced demand by Arla of 150 million litres. But I’m not buying this as an excuse as it’s a certainty Arla gave notice to Meadow many months ago if not a year ago, so the volume reduction has been known about for a long time. The big unknown now is where this surplus Meadow milk be placed and at what price/cost?

Some believe Meadow had two options to either serve contract termination notice or dramatically cut the price in the hope farmers will quit on the basis they have a few if any alternative buyers - possibly with the exception of Yew Tree Dairies. Thus farmers claim they have to take the 24p on the chin, with Meadow insisting any wanting to leave must serve their full year’s notice. It’s brutal at 24ppl especially given that price is only paid on the A litres and the April B price could easily be 20p or less.

Arla has recently joined Saputo and others in diversifying into plant-based oat drinks. Just one of Arla’s 2400 GB members contacted me criticising its diversification and unfortunately, I was unable to persuade him to consider the alternative, positive view. His take was that I should be publicly criticising Arla for the move, which he described as a betrayal to its members. I disagree, because for sure Arla will not go dairy free and will remain a 99% dairy focused business. Its decision to capitalize on the growing demand for plant-based drinks should add value to the business with the profits flowing back to members.

With UK liquid milk consumption having halved from an average of 140 litres per person each year in 1975 to 70 litres now, processors, co-ops and farmer suppliers cannot afford to be tunnel visioned, and effectively say no to embracing the value-added products. Especially given towards four million Brits allegedly follow a dairy free diet now. Whether you like it or not, modern consumers will dictate what dairy farmers and their processors produce. Today, it is estimated that the total value of the dairy alternativities market is around £15.5 billion and represents 12% of all milk sales. More importantly it is growing by 5% each year. We all have to adapt and embrace change in order to survive. Also remember that every day 70 million people in the UK need feeding, and require farmers to feed them, even though the farmers only account for 2% of the population.

As we head into the spring flush and an escalating coronavirus situation, things look fairly bleak. Several are predicting spot milk prices will drop to around 20ppl as coffee shops and good service outlets grind almost to a halt. On this point there is one unsung hero which receives little credit for the significant impact it has in balancing milk production and it comes in the name of the Yew Tree Dairy, with its powder plant. The foresight of this family should be honoured and trumpeted because without that facility, and its capacity to process serious quantities of surplus milk, we would undoubtably be facing lower prices and distress milk.

There are no positives from the coronavirus, but it is a fact that it has very quickly changed people’s habits and overnight reduced everyone’s environmental impact far more than the anti-dairy and meat campaigners could ever have achieved if they had succeeded in persuading everyone to ditch dairy and meat. Maybe in the long-term priorities will change and the panic buying of meat and dairy will prove how essential most rational consumers think these are to them, and help silence the antis. I sure hope so!