Manufacturing is way to claw back margins
Manufacturing is way to claw back margins
PRODUCERS must venture into the processing sector to reclaim some of the margin between raw milk and retail prices, or accept more downwards pressure on prices in future.
Milk Marques Andrew Dare told 300 people at the Spotlight on Profit seminar on milk marketing that producers share of retail prices had fallen from 68% to 56% in recent years and that was likely to continue. "It is a major move and in the wrong direction," he said.
The reluctance of processors in some milk buying rounds had also inflicted pressure on prices. "Even for intervention, bids were not received from major processors. They maintain conversion of liquid into skimmed milk powder would cost 4-5ppl. But Dutch processors can do it for 2.6ppl, and that 2p/litre difference should rightly be in dairy producers pockets."
But a move into processing could cost £25m for a medium-sized plant and producers could not afford to fund this borrowing in small groups. The need for larger businesses, which must be controlled by farmers, was evident to counter the action of major processing companies, he said.
"Share prices for companies in the milk sector means many are unwilling to invest. In general, plcs will go back to the raw material supplier – producers – to reduce costs when facing pressure from retailers," he added.
Mr Dare also suggested generic marketing of milk would not necessarily increase producers profits, despite a recent MDC and NFU commissioned report suggesting for £1 invested would yield a return of £1.58. "With the inefficiencies of the milk market I doubt whether producers would see any benefit. But there is a case for marketing branded milk products."