A tough-love letter to UK dairy farmers and their representatives

Part one of your problem in pursuing a fair milk price is illustrated on the soft drink shelves at your nearest supermarket. At mine, you can get two litres of Co-op rola-cola for 29p…or 1.5 litres Coca-Cola for £1.71. That’s a 7.86-fold (i.e. 786%) difference in the price per litre. In the same store for four pints of milk, the price of Cravendale at £1.99 is 45% higher than Co-op own brand’s £1.37. Clearly, this suggests a relationship between brand and pricing, and brings economics into play, particularly the law of supply and demand.

When the Co-op wants rola-cola, it has several or perhaps many potential suppliers, all of whom are more or less equally capable of assembling “carbonated water, malted barley extract, natural flavouring, phosphoric acid, sweeteners (Acesulfame K, sucralose), preservative (potassium sorbate)” and decanting it into plain, generic plastic receptacles. So plentiful supplies from an ample choice of manufacturers who can be played off against each other offers the buyer their dream dog-eat-dog scenario…which means they can sell two litres of rola-cola for 29p and still make a profit.

In contrast, there is only one supplier in the world who can combine “carbonated water, sugar, colour (caramel E150d), phosphoric acid, natural flavourings including caffeine”, then place it in an iconic bottle (albeit plastic but still a gorgeous piece of design) with distinctive red and white labelling, and stronger emotional bonds with consumers than between many courting couples. So chances are this manufacturer is making a rather bigger margin than the poor retailer from the £1.71 for 1.5 litres selling price.

Obviously, this situation has not arisen by chance. It comes about as a result of a multi-million pound/dollar, multi-national and multi-decade investment in the Coca-Cola brand. On a smaller but still significant scale, the Cravendale owner’s investment in that brand is what earns them the 45% higher selling price currently evident at my local Co-op.

Part two is human nature, in particular the innate drive to exploit power to one’s own advantage. To drive down feeds costs, some farmers join buying groups. In the auction ring, how many farmers give away how keen they are by bidding enthusiastically? When buying fertiliser, are you happy to pay more than the going rate to ease a merchant’s difficulties with narrow margins?

All today’s large farm businesses were once small ones. Along the way, the strong used their power to exploit opportunities and expand. The same goes for shops. Right now, the biggest shops clearly have rather more power than even the very biggest farms.

Part three is a curious business anomaly. A mixed farm producing cereals as well as milk will enter into grain sale contracts for a defined tonnage, specification and price. Yet the same farm agrees to sell milk under a contract that specifies neither volume nor price, and with a long notice period.

Clearly, finding a solution is a huge challenge for the farming industry. In addition to milk, this scenario also applies in eggs, pig meat, vegetables and salads. When imported products are readily available, things get even more difficult because supermarkets as just as likely to buy competitively priced imports as we all are individually with cars or tractors, clothes or shoes. So it can be argued that the liquid milk sector at least has the advantage of being ring-fenced to the UK.

For supermarkets, the need for customers to buy fresh milk every few days is a powerful vector in persuading shoppers to return more frequently that they otherwise would. That's why milk is discounted, not because supermarkets don't value it. On the contrary, their need for fresh milk is fundamental to their business model, and if it's unbranded or their own brand so much the better because that allows them to play one eager (i.e. desperate) supplier off against another. But if the availability of unbranded milk was restricted, or ideally eliminated, they'd have no choice but stock branded milks, among which the strong brands (like Cravendale milk and Muller yogurts already, for example) would earn the best prices for their suppliers.

Otherwise, most liquid milk, with the notable and minority exceptions of innovative farmers' brands like Acorn, Bowland Fresh and Jess's (see back copies of Farmers Guardian for reports on all three), continues to be anonymous generic white stuff in plastic cartons, sold at give-away prices by retailers as an important part, to them, of their customer retention strategies.

Farmers wanting to be play-makers not pawns have to act accordingly and not leave action to others. For example, those yet to join Farmers For Action, already better off as a result of FFA’s activism getting the August price cuts cancelled, could start by signing up. Every dairy farmer without exception should contact their farming union and find out what help they’re offering in getting more balanced supply contracts in place between producers and processors.

Then to support the SOS DAIRY campaign's phase two, what if all dairy farmers were to de-tune cow diets so that yields fell by two to three litres per cow per day? With feed prices where they are, immediate cost savings could go some way towards cancelling out foregone milk income. As long as de-tuning is done advisedly, with forage making up any potential feed intake shortfall, it could be done without detriment to cow health or fertility.

Empty shelves where milk should be is a spectre that should worry even the most hard-nosed milk buyer and their retailer customers. Three litres a day less milk from a million cows would be noticed very quickly in the supply chain. Together with the ongoing publicity being created by the industry, supply chain jitters could help strengthen the dairy farming coalition's negotiating position in seeking fairer contract terms and pricing mechanisms, and lasting stability for the long term.

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