Processors see common ground

Processors reckon there is much common ground between them, the NFU and the MDC. But there are some challenging areas, too.

Peter Walker, director of milk buying for Arla Foods, says: “The Vision document is especially interesting – there is much we agree with.

It’s good sense, and is helping to build momentum.

“To a degree, milk buyers are already picking up on some of the content.

The themes about increased stability and getting producers and processors closer together to get the right amount of milk in the right place are important, and we are some way down this road.

“That’s one of the reasons we have increased the size of the Arla Milk Partnership, which in turn leads to more price transparency.

The new Asda contract is a good demonstration of this.”

Price stability is a different matter.

“It’s much tougher, though desirable. But we could work on clearer signals about price changes and why they are necessary.”

The UK has not helped itself, he adds, with national quota, rather than the market, working as the target.

“There are signs that we are moving away from that, which should reduce the number of marginal litres looking for a home.

Co-ops are also moving from milk broker to processor, and increasingly looking to buy milk for a ready market.”

Mr Walker believes the idea of introducing direct contracts between farmers and customers, leaving the dairies as contract processors, is flawed.

“It assumes that processors are not adding value.

Would people like us invest 50m in a new dairy?

Would we invest in packaging and innovation?

I doubt it, and I doubt that such investment would be replaced by producers.”

Arthur Reeves, director of raw milk purchasing at Dairy Crest, says the NFU and MDC have brought together a lot of issues in a succinct format.

“These documents seem to have captured the imagination of many in the dairy industry.

“While I think we are doing most of the things at Dairy Crest already, that doesn’t mean to say we can’t do more.

We are sharing market information with some Dairy Crest Direct board members so we are already transparent.”

Long-term pricing is being tried with Marks and Spencer, he adds.

“It seems to be working, and we are trying a similar thing with Waitrose.

The next step is to roll it out across other markets.”

Mr Reeves believes there is a future in dedicated contracts, something Dairy Crest is using to an extent through its Waitrose and M&S schemes and at its Davidstow cheese factory in Cornwall.

“Not only do they improve transparency, but they are also a powerful marketing tool.”

More rewards will come from improved branding, he believes.

“There is a lot of opportunity here. I think in 10 years’ time a lot more milk will be flowing into added-value products.

The benefits will come back to milk suppliers.”

Philip Gibson, head of communications at Dairy Farmers of Britain, says several areas, including regional pricing and the ending of milk pools, sit fairly easily with the co-op.

“Our new contracts are completely focused on moving away from buying on composition and selling litres.”

But how does moving from milk pools sit with the co-op ethos?

“It’s actually not necessary to have one fixed pool price to provide a fair return to members,” he explains.

“By being market-focused and behaving commercially, we can maximise returns from members’ milk and minimise transport costs.

And that will benefit all our members through increased earnings for the business.”

And, says Mr Gibson, not all members in far-flung milk fields such as Cumbria and West Wales need fear the change.

“If a milk field has a large number of big-volume producers close together, then ex-farm collection costs can be lower.

Although milk may need to be reloaded some distance, the overall cost isn’t necessarily that different.”

Dairy Farmers of Britain has, says Mr Gibson, already taken some of the recommended steps contained in the documents.

“We said we needed a strong foundation in milk balancing, which our joint venture at Westbury and, to an extent, our cheese business has delivered.

That has reduced the number of marginal litres looking for a home.

Then we invested in liquid milk processing, and we are also developing brands to add value.

The next step is to develop more innovative products.

“CAP reform and WTO mean there is an overall trend to lower milk pricing.

While we can’t influence world market prices, there is much we can do as an industry, and there are huge opportunities in our marketplace.

I think there is a real sense that the industry is starting to move forward and crystallise action.”