23 April 1999

Dairy industry wants more


Many dairy producers believe farmer-owned processing

capacity is the best way to achieve better milk prices. Why

not get closer to those who own it? asks dairy company

spokesman Jim Begg. Robert Harris finds out more

CONTRARY to popular belief, the UK dairy industry is one of the most efficient in Europe. It is not the obsolete dinosaur that Milk Marque suggests, says Jim Begg, director general of the Dairy Industry Federation.

But it would be all too easy to undermine that efficiency if farmers continue to be led down the path of investing in unnecessary commodity processing, he adds.

More than 80% of the dairy products produced by his members – more than 200 dairy processors, ranging from multinational giants to one-man bands – go into consumer packs. "There is no other country in Europe which can match that," says Mr Begg.

Moreover, there is already flexibility in the system, he adds. "At peak production we have around 10% spare capacity." Although much could be used once quotas are scrapped, there is no point in building more, especially for commodity products, he maintains.

"Farmers wishing to invest in new, large-scale commodity processing should be under no misapprehension about the marked and swift market changes that lie ahead."

And processors will also have to fund expensive new technology to compete in global markets as demand for added value, exportable, branded products rises, says Mr Begg. "Owning capacity may look good on paper, but it is extremely costly to maintain your position once you are there."

He admits that forging closer partnerships between dairy companies and farmers will not be easy, with relationships between the two sinking to new lows over the past few months.

Slanging matches during recent Milk Marque selling rounds have left dairy companies accused not only of driving ex-farm milk prices down below their true value, but also of colluding to achieve this.

Mr Begg is quick to defend his members. Dairy companies need prosperous farmers to ensure consistent supplies of high-quality milk, he says. "We are always looking at the ongoing viability of the farm side as well as the processing side. A dairy industry has to be healthy all round to drive investment."

Talk of pulling prices down is as unrealistic as it is untrue, he adds. "The conception that dairy companies influence the bidding process and drive prices down is ridiculous. I know – I can see the degree of competition between them far better than any farmer can."

Carefully chosen words, given the imminent release of the Com-petition Commissions (formerly the Monopolies and Mergers Commission) report into the sale of raw milk in the UK. But Mr Begg is sure his members have nothing to fear.

"All we want is a fair system where the milk price is determined not by the buyer or the seller, but by the market. A price which gives the farmer the right price for producing milk and which allows dairy companies to be profitable and to invest.

"I can understand farmers desire to get a higher price at the moment. But you cannot group together to buck the market. It may benefit farmers in the short- term, as happened with Milk Marque shortly after deregulation. But it will inevitably end up in the same confrontational way."

This is why the DIF is so keen to see the report stopping Milk Marque from processing its own milk while it continues to sell to other companies. "As long as the UK milk volume is restricted by quotas, it is possible to influence the price by changing the supply.

"One way is to squeeze supplies by processing milk into bulk commodities, leaving your competitors to buy milk at a non-competitive price. The other way is to export milk, effectively dumping it. The effect on the price is the same."

Whatever the Competition Commission recommends, the milk industry must put the recent wrangles behind it, says Mr Begg. Co-operation, rather than confrontation, is the way ahead. "We want it, and farmers want it. I know many feel detached from the market place.

"There are real efficiencies to be made through better welfare schemes, traceability and producing the right type of milk for a particular process."

Closer relations could also reverse the fast-developing two-tier market which sees most open market supplies being turned into low-value commodities, while buyers have sought to protect their high-value milk supply by sourcing it direct. "The sooner Milk Marque and other suppliers respond to customer requirements, the sooner some of that high-value milk may come back into the market," says Mr Begg. &#42

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