Extra processing wrong tactic in light of over-capacity
Extra processing wrong tactic in light of over-capacity
By James Garner
A SENIOR economist has questioned dairy farmers willingness to invest in new milk processing capacity, saying it is very risky, particularly when there is too much already.
Sean Rickard, senior lecturer at the Cranfield School of Management, said farmers should concentrate on producing quality milk cheaply and enter partnerships with processors to meet consumer demands.
His advice, given at an Express Milk Partnership press briefing in London last Friday, contradicted that of farmer leaders. NFU President, Ben Gill, is in favour of farmers joining forces and reclaiming added value.
Mr Rickards comments also come at a time when most of the dairy milk co-ops have opted to acquire or build new milk processing capacity.
But ploughing money into extra processing capacity would only divert farmers attention and stop them from investing money to improve the efficiency of their own business. That would not necessarily serve them well, he said.
"The best thing is that farmers are thinking about new arrangements. This is good news and who knows what will serve them best.
"But if farmers believe they are good processors as well as good farmers then they will probably be proved wrong. They would be better advised to join a producer group that has a partnership alliance with a successful processor."
Mr Rickard said small groups of dairy farmers working together in a trusting, sharing relationship was the proven way to drive production costs down. Attempting to build a Milk Marque number three would not work, he believes.
"But investing in processing capacity is costing a lot of money and there is risk." Mr Rickard expressed concern over United Milks decision to invest £45m into processing capacity that would produce butter, a commodity that is price sensitive.
"Having a super-efficient dairy and saving costs is one way of returning money to farmers. United Milk might save 1p/litre on processing milk, but if its milk suppliers get slack and their costs go up by 2p/litre, the result is unhappiness."
Decision defended
A spokesman for United Milk, however, defended its decision to invest in the 800m litre capacity Westbury plant due to start processing next May. "I think that when some companies are talking about over-capacity they are really referring to inefficiency.
"This factory will be the most efficient in Europe. When new plants come on line it is not unheard of for others to go out of business. The most important thing is to produce against secure and established markets, and we believe the suppliers of Westbury will be in a good position."
lUnited Milk has posted a loss of £1.2m for its first year of trading. Chief executive, Don Morris, said this was in line with expectations and put most of the deficit down to the recruitment of extra staff needed for the co-ops expansion plans. *