MILK producers must look at their businesses in the same way as larger dairy companies if they are to succeed.
Speaking at a Promar International conference – which includes the company formerly known as Axient – Promar Strategic director, John Jones said producers must become customer driven. That was how companies such as Cadbury and Nestlé, which he had provided consultancy for, ran their businesses.
"In any market the only important person is the customer," said Mr Jones.
"A true customer-driven company has the customer at the centre and asks what they want, and then puts it into production. That is quite a culture change and a difficult message to get across to many agricultural businesses.
"Thinking about customers falls off their agendas," he added.
It was vital to understand customers and provide what they were looking for, he added. That included offering variety and new products as they quickly became bored.
But their wants and needs were constantly changing and that was providing new opportunities for producers to consider.
The problem with milk is that the market had become old and, therefore, the bulk of supply has become a commodity and so prices have fallen.
There was scope for added value products. "But unless we react quickly, we will all be forced into the commodity area."
There would be a split in the milk market, added Mr Jones. "Tomorrow 80% of the market by volume is going to be for low cost ingredients that will account for 50% of the value. That needs a high level of efficiency, technology and skilled management." Producers supplying this market must produce at low cost with high volume output.
"The value added part of the market will account for 20% of the volume, but 50% of the value. This will be a higher risk business and it will need new skills, but high margins are possible. It will be market driven rather than efficiency driven," he said.
But whichever of these markets a farm chose to supply, it must be the best in its class. "If you are going to survive you have to be the best at what you are doing." He believed the average farmer would suffer.
• Be customer driven.
• Decide on your market.
• Aim to be best in class.
Low cost milk production is needed to supply the commodity market.