Herd reduction leads to profits from processing
Marketing milk for a
better future was a key
focus at last weeks Royal
Association of British Dairy
Farmers conference at
Jessica Buss reports
WHEN one Somerset producer lost 220 of his 1200 cows in the BSE cohort scheme he decided to invest in his processing business instead of replacing them.
John Alvis, farmer and managing director of Alvis Bros cheese business, has closed down one herd, reducing cow numbers to 1000.
Freeing up quota and an easing of arable aid payment rules, whereby he could move eligible land to another part of the farm creating a further arable unit, helped make this plan viable.
The prospect of being able to buy milk from neighbours at a price little above his own costs of production also helped, he told the RABDF conference. "It also provided a chance to redeploy funds into added value or niche production."
He believes that niche markets are far more lucrative than commodity production. "With commodity prices on the floor we decided to reduce our dependence on them and add value. Selling 20kg lumps of cheese is worse than selling raw milk from the farm," he said. "With milk costing 19p/litre last February, manufacturing at 3p/litre and maturing costs at 2p, that equals 24p/litre. The spot price for that 12-month-old cheese is just 22p/litre."
It is important to add more value than cost and for Mr Alvis that had already involved branding his high quality mature cheese.
"Building a brand is a frustrating, but rewarding, investment. My brand is the only thing anyone has offered to buy from me recently." It is a serious asset, he added.
Mr Alvis had also explored niche markets before. He first tried parmesan, but never managed to mature it successfully. But his venture into organic cheese has been more successful. "Replacing conventional cheese production with an organic niche market product is where we see serious growth." This encouraged him to invest further in the enterprise, allowing production to be trebled.
Local organic milk has been bought in to produce this. "But as a consequence of organic milk shortages we are converting one dairy herd."
Producers were often criticised by their neighbours when converting to organic, he said. But he believes they should see it as a positive step for their own farm. "They are taking milk out of the conventional market and should be encouraged."
But he stressed that contracts were an important part of his business strategy. "Nothing removes the sense of insecurity more than a contract, agreement or partnership from which there is a profitable return. We have to look closely at the contracts we negotiate."
Unless secure outlets for cheese are in hand, he has decided against producing it on spec. The customer has to make a meaningful commitment before cheese is made.
"Long-term customer agreements for both the quality and price of organic cheese has lured us in to investing more than £2m in a new cheese dairy and packaging hall."
Without a profitable contract there should be no production, he added. "We need demand-driven production. If you cant produce for that price why do it?"
These are tough disciplines, alien to our culture as milk producers, he said. "What other industry produces the goods then goes looking for the market?"
SUCCESS IN MILK
• Avoid selling commodities.
• Seek niche markets.
• Negotiate profitable contracts.
John Alvis has invested £2m in organic cheese production and now hopes to treble sales.