Dairy UK director-general Jim Begg says paying farmers the cost of production for all their milk will be bad news for the industry. He explains his thinking to Philip Case.

What are your views on the recent Farmers for Action letter, which called for dairy farmers to be paid at least the cost of production for their milk by 1 October?

The recipients of that letter will be fully aware of competition implications, which were so obvious it almost beggared belief. I would expect everyone in receipt of the letter to be fully aware of the issues.

What effect would paying farmers a price for their milk that covers cost of production have on GB’s ability to compete in domestic and international markets?

It is important to understand that the raw material price of any food item moves in line with the balance of supply and demand in the marketplace. If you get any deviations from that you are instantly exposed to a lack of competitiveness.

Milk prices in other EU countries have reflected the marketplace and reduced significantly. Ireland pays around 24p/litre and if we paid the cost-of-production figure proposed by the FFA (about 30p/litre) that would make us £600/t less competitive in cheese.

We would be flooded with imports overnight and you could forget any potential with exports. This would happen over and over again during slumps in the international commodity price cycle. We have got a volatile market now; we have to get used to dealing with that.

Dairy farmers feel that they are on the bottom rung, though. Do you agree?

Yes. That’s why we have knocked out this code of practice agreement with the farming unions and that has changed lots and lots.

Do you think it will deliver?

I’m absolutely sure it will deliver because everything that the dairy farmers have asked for has been accepted. But it is only the start because it can go on and devolve and go deeper into the areas, such as producer organisations.

We have always had the most advanced farm contracts in the UK. This takes it a step further. It will not change the market because it is a non-market aspect. But what it can do is give much more flexibility to farmers to be in control of the way they want their business to go.

They can take decisions about movement faster, be more flexible, and entertain the possibility of expanding beyond the wishes of their company. And if they want to leave they can do, much faster.

Do you think all your members are going to implement this code?

Yes I do. Otherwise, we would not have gone to this stage. But, it is entirely up to them. It’s voluntary and they cannot be compelled to do it for competition reasons.

They have been involved extensively in the process and we are making arrangements with Dairy UK to make sure that the companies which have not been involved in the process are fully acquainted with what it means, and we have got meetings lined up with the smaller dairy companies and the other companies who have been watching this rather than being involved in it.

What mechanisms are there to ensure the code is kept up to date?

A review process after a year of operation is very much part of the code.

Do you support the dairy protests?

I don’t believe confrontation is the way forward. I don’t think the industry will prosper from it. I certainly don’t condone the protests. Next week we will have the discussion on the principle of blocking the factories, but not at the moment.

But dairy farmers are being crippled across the country and many going out of business. Surely something must be done?

We are not just sitting here doing nothing. What do you think the code of practice is? The plight of the situation with dairy farmers is fully understood.

The price increases have hit farmers hard. The (1 August) price reductions, which have not actually materialised now, would have hit hard. That would have been coupled with very poor milk production infrastructure for farmers this summer. Everybody understands that. The solution will come from the marketplace and we need to get more money into the supply chain – it’s not about blockading factories.

What would you say to the dairy farmers who are leaving the industry in their droves because they are in a loss-making situation?

We are in volatile markets and volatility will have price cycles but the current situation will reverse – definitely.

Nobody can say when this will be. I have a private view as everyone else does.

We can see what’s going on in the markets just now, which is leading me to say that they will definitely move up and the cost situation will reverse.

This is going to be the way of the future. We are in this deregulated situation and we must have long-term approaches to these issues.

The long-term demand situation is definitely upwards and farmers should take confidence from that. But it’s well understood why their confidence has been damaged.

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