Do small dairies have a long-term future?

While the big boys handle the lion’s share of milk produced in England and Wales, there is no shortage of dairy farmers who clearly prefer to sell their milk through smaller, independently-owned dairies.

There are fewer of these businesses than there were, but those that remain strive to develop and capitalise on all the marketing strengths associated with maintaining a close working relationship with their suppliers.

There was a time when selling to such a buyer may have been deemed risky. The major dairy companies were perceived as providing a more reliable market and with small dairies unable to offer the price incentives of the large companies, the inevitable happened.

But things could be changing – and the collapse of Dairy Farmers of Britain in June 2009 has been a catalyst in that change.

It is ironic that following the DFoB crisis, it was the smaller milk buying businesses that saved many dairy farmers from being forced to leave the industry. And today, as provenance and locally-produced food continues to be both a tactical and ethical marketing tool, smaller milk buyers are finding an increasing amount of support from many dairy farmers.

The operators of small dairies – some handling an annual throughput of milk that would seem insignificant when compared to that of the milk buying giants – believe their role in the future of milk marketing in England and Wales has never been more secure. They waste no time in using the DFoB demise as an example when compounding the point that the scale and turnover of a business is no guarantee of its sustained profitability or stability.

On the day Dairy Farmers of Britain went bust (3 June 2009), a group of 22 milk producers in East Yorkshire were left high and dry. They had no milk buyer, many were remotely situated and approaches to other major dairies did little to engender any hope that they would be able to stay in business.

Facing an uncertain future and the imminent prospect of compounding lost milk cheques from DFoB with a total end to their income, a small business called Chestnut Dairies came to the fore. Run by east coast dairy farmers Sue and Eric Varley, the company had been buying raw milk from brokers, pasteurising and bottling it on their farm at Seaton near Hornsea and supplying retail outlets.

While the East Riding of Yorkshire is certainly not a major milk producing region, there remained a hard-core of dairy farmers whose future in the industry suddenly looked extremely vulnerable.

“We’d been considering taking on a few more dairy farmers, but not 22, and not all in one go,” recalls Sue Varley.

“But just after the DFoB announcement we received a phone call late one night from a farmer who said very simply: “Will you take my milk. If you don’t I’m going to have to sell my cows.”

“The phone call was from a farmer running a small herd of cows – how could we refuse. We knew we had to do something. This was a social issue as well as a business one. These farms had got to be helped to stay in business and that’s how we ended up with the milk from an extra 22 farms. We’d no idea at the time what we were going to do with it. Our priority was to get the milk collected and then set about deciding how we were going to sell it,” says Sue Varley.

Chestnut Dairies has a passion for farming and resolve to develop new markets for the 250,000 litres of milk it now handles every week. Sue and Eric Varley are now more confident about the future of small, independent dairies.

“We’re a family-run business that has been running for almost 30 years. We milk a herd of cows ourselves and are proud to offer a personal service to our farmer customers who are more like our friends than our suppliers.

“It’s a team effort on both sides and while we’re picking up perhaps 1,000 litres every other day from some farms and 8,000 litres every other day from others, we are all in this together,” says Sue.

Chestnut Dairies is now supplying Waitrose, Tesco, Sainsbury’s and major local food supplier Heron Foods in Hull.

Improving milk quality without involving producers in major cost has been a big challenge for Chestnut Dairies, and David Levick of Kite Consulting has proved what can be achieved.

“When the Varleys took on the DFoB members there were several who had been struggling with milk quality problems and been penalised heavily. But Sue was committed to encouraging her new milk suppliers to improve their milk quality and spent time a lot of time working closely with them.

“When Chestnut Dairies took on the extra milk they didn’t have a market for it, so the spot market was the only option even though the market at the time wasn’t good. But the Varleys persevered and eventually turned things around. They subsidised the price paid to their suppliers and kept paying their core farmers the average being earned through Arla and Wiseman contracts,” Mr Levick says.

Sue Varley and David Levick have worked closely with producers to improve milk quality.

“We’ve worked with individual farmers looking at their milking parlours and milking routines and opened up constructive discussions with producers on a range of issues affecting milk quality such as mastitis prevention, somatic cell counts and general dairy hygiene,” says Sue.

“We have six-monthly meetings with our producers where we can focus on how individual herds are tackling and improving their milk quality,” she says.

Chestnut Dairies is currently paying “in the top twenties” per litre for its milk.

“Our contracts are based around prices being paid by the large dairies but our overheads are lower because we’ve got a dedicated work force who put in an enormous amount of effort and commitment,” Sue explains.

“We pay a fair price and milk from our own herd is paid for at the same rate and we can make a profit based on that price,” she adds.

Case study: Andrew and Sally Potter

Andrew and Sally Potter milk 80 cows at Low Bragg Farm, Farndale, near Kirkbymoorside in the heart of the North York Moors. The collapse of DFoB cost them over £30,000 but they were one of the 22 dairy farmers in the region that approached Chestnut Dairies.

“If it hadn’t been for Sue and Eric Varley we’d have gone out of dairy farming – and many others faced the same fate,” says Andrew, who farms with his wife Sally.

He is now on a contract that he feels matches what he would be receiving from a national milk buyer. But like all milk producers – including the Varleys who produce their own milk – he says the milk price for all dairy farmers has got to increase.

“I certainly don’t feel any more vulnerable because I’m supplying a small, privately-owned dairy. And when I pick up the phone I speak to the boss so we always feel we are much more connected to those who are selling our milk for us – and that’s a big bonus.”

Case study: Bill Clarke

Trewithen Dairy at Lostwithiel buys milk from 20 Cornish dairy farms. It was recently awarded a £5.7m grant from the Rural Development Programme and last year signed a deal worth £1m a year to supply Launceston-based Kensey Foods with all of its milk.

The family-owned business has Bill Clarke at its helm – a man who believes competition is essential for the future of the milk sector.

“If the large-scale milk buyers have it all their own way, inevitably inefficiency will creep in. It’s only by competition from people like us that keeps them on their toes. The dairy industry is large and complex and would be significantly weaker if it didn’t have innovative, small companies like ours to be constantly pushing the boundaries and maintaining efficiency.

“If farmers are prepared to put so much effort into producing such a top quality product there has to be processors able to add to it the value it deserves, says Bill Clarke.

There is no shortage of dairy farmers keen to get involved and Trewithen Dairies has recently signed-up three new producers. “We want dairy farmers who are in for the long-haul and who are genuinely passionate about the welfare of their cows and care of the environment. We find that dairy farmers who join us have a real interest in where their milk is going and how we plan to market it. We welcome that and enjoy the dialogue it creates.”

“We are one of the few dairies that continues to reward producers by an incentive for milk that has an extremely low Bactoscan and we pay our dairy farmers a premium above the regional average for their milk,” says Mr Clarke.