Forget price, worry about PROFIT

ken Boyns


 Where and when were you born? Caerphilly, Mid-Glamorgan 1977.

 What was your first job? Working in a peanut butter factory.

 Why did you want the MDC job? I believe I can make a difference to dairy farm profitability.

 What would be your epitaph? He always tried his best, but no one ever gets it all right.

 What do you do to relax? Spend time with my two children.

“Forget milk price, it’s profits farmers need to worry about.” Maybe not the response expected from new Milk Development Council chief executive Ken Boyns when asked what he believed was a sustainable farmgate price. But he has his reasons for saying it.

“There’s no point having the best price in the country when all of it, and more, is being absorbed by excessive production costs,” the former MDC chief economist reasons. And its an argument which is hard to find fault with. After all, no matter what business you’re in, you need a profit to be able to progress high prices on their own don’t sustain any business.

So, how do farmers ensure they are profitable? Well, for Mr Boyns, just a few months into his new role it’s a paradoxically complex, yet simple issue. “Farmers must ensure they are as efficient in every aspect of their business as they possibly can be. Everything from labour use through to energy efficiency must be analysed and challenged where it is failing to deliver maximum beneift. It’s a hard message and one farmers have heard many times over the last decade, but it is the only way to succeed in modern dairy farming.”

As a case in point, 30-year-old Mr Boyns highlights the huge variation in feed use efficiency experienced across UK farms. “How is it that two farms can feed identical diets and yet one is able to produce 1000 litres more milk a cow than the other? There is something making the difference and the lessons need to be learned.

“Equally, how can some farms spend twice as many manhours looking after cows as others and yet both achieve broadly similar physical results? It may be simple things like yard layout or housing set-up which allow one farm to spend less time with cows. But whatever it is, it’s the difference between profit and loss, so for many units there are still efficiencies to be gained,” he explains.

However, increasing efficiency isn’t going to be the saviour of the industry, as the current decline in milk production testifies, he claims.


“Between 1995 and 2005 the UK lost 43% of its dairy units, but production remained roughly the same. But now both farm numbers and production are falling, signifying that despite trying to maximise on-farm efficiency even the most efficient, profitable units are no longer able to find cash for continued expansion.

“This is where milk price has to come into play. When, as now, we are losing the bigger, better units which have been at the forefront of the expansion drive it signals only one thing, the industry is on a tipping point.”

And while everyone has been decrying the lack of business acumen in the sector, it’s actually the more business-minded farmers who are now leaving milk production. “They have done the sums and can see their money would be better invested elsewhere.”

So what, apart from a rise in milk price, is the solution? “There are three prongs to the MDC strategy and these are broadly defined as innovation, relationships and competitiveness. These apply to both individual farms and the wider industry.

“Innovation is key to the future of the milk market and we are a long way behind the rest of the EU when it comes to developing and marketing value-added products. We need to work on differentiating products through whatever means are appropriate, be that on basis of local provenance, production standard or processing methods.

“And, this differentiation can take place at any point from the farm onwards. Supply contracts established by a number of retailers, such as Waitrose and Marks & Spencer have already demonstrated the ability to brand milk according to production standards and sell it accordingly.

“Producers supplying these contracts receive a premium price for their milk and as such are rewarded for their commitment to certain production standards.”


Not that the economics of meeting these standards are lost on Mr Boyns. “It is true there are sometimes extra costs involved in complying with standards, so some of the premium can be swallowed up. But it’s down to individual producers to decide whether the numbers stack up for them once again it all comes back to profits, not milk price.”

When you add up all the product produced by members of these supply groups, and that produced under organic conditions, they total about 10% of the market, so they are not the largest sector by any means, explains Mr Boyns. “But the market is growing and more opportunities are developing every year.”

Further down the supply chain differentiation has been well exploited in recent years by Arla Foods with its Cravendale brand and now other brands are following suit, reckons Mr Boyns. “The key to adding value at this level of the supply chain is ensuring the product is going to be sold in sufficient volume to make it viable.

“There is no point manufacturing small volumes of a high value product when costs, such as delivery or packaging make it unviable. Admittedly every product has to start from a low base, but it must have a sufficiently demonstrable unique selling point to make consumers value it as a brand.”

And the added profits resulting from differentation rely on healthy working relationships throughout the supply chain, he adds.

So, while adding value to milk is an option for part of the supply chain, what about the bulk of UK production which is retailed through the major multiples as retailer own brand product? “Its simply a matter of competiveness,” Mr Boyns says.

“When you’re in a commodity market you have to be competitive at supplying that commodity. That competitiveness comes from having good supply chain relationships, which then allows you to move your product out of the commodity market. Cathedral City cheddar has developed from just another mild Cheddar into an instantly recognised brand because of the relationship which has been built with retailers and consumers and the recognition the product now has in the market.”

But while milk prices are one issue facing the sector, more pertinent to Mr Boyns and the MDC is the implementation of the levy board review and the arrival next year of the Dairy Sector Company working under Levy Board UK.

Heading up the Dairy Sector Company will be former NFU president Tim Bennett, a move Mr Boyns regards as a positive step. “Tim will bring huge experience to the role which can only benefit the sector. I’m confident he will want to see the core principle of MDC, returning as much of the levy back to milk producers as possible, continue. We are constantly reviewing MDC’s activities and are confident the sector company will recognise the value of what we do and ensure the continuation of our work.”

And hopefully, says Mr Boyns, by the time the Dairy Sector Company is in place on 1 April next year, the sector will be a more confident one than it is at present. “The sector is in a time of immense change and it’s our job to guide people through that change and ensure they come out the other side with profitable businesses. But despite the woes of the industry the glass is most definitely half full not half empty.”

By Jonathan Long

Q We are losing the bigger, better units… it signals only one thing, the industry is on a tipping point