Farmer/processor collaboration can offer win-win potential

Published 14 June 19

Chris Gooderham, Head of Market Specialists for Livestock, examines how farmer/processor collaboration offers win-win potential for the UK dairy market:

UK farmers and processors can capitalise on the current conditions across the global market, but only if they can collaborate further to improve communications through the supply chain.

Globally we have seen:

- Rising demand and population growth;

Milk supply that has been muted in a number of the key milk producing regions, partly as a result of poor weather conditions and financial stress;

African Swine Fever in China that has reduced demand for whey products, but seems to be having an overall positive impact on demand for alternative protein sources, including dairy.

The key message coming from the global market is that if you can produce more milk, there is a market for it. However, in the UK, where milk production has been running at record high levels, the additional volume has caused concerns, with plant capacity being the biggest challenge as the sector moved through the spring.

Uncertainty over Brexit, and what the future trading arrangement could look like, is also causing the UK dairy industry to hold off from making key investment decisions take stock at a time when it could potentially be reaping export benefits.

However, the opportunity clearly exists, as it is not often that the growing global demand is coupled with plentiful domestic supply.

Limiting factors

The groundwork is in place for the UK. We have two large multi-national organisations that are investing heavily in the UK and tapping into export opportunities.  We have an efficient farmer base that has shown its capability to increase milk yields, even during periods of poor grazing.

Despite this, the supply chain is still not working as effectively as it could. There are some examples of individual milk processors working alongside their farmer suppliers to ensure they meet the needs of a growing global population together, but these are not yet widespread.

Most processors only have limited tools in their armoury to pass market messages back to their farm suppliers. In fact, other than talking to their farmers, many processors choose the lever of changing the milk price in an attempt to alter milk production levels. However, milk price changes have been shown to have little, or no, impact on short-term milk production.

So how can the UK better grasp the opportunity?

The Irish have shown over recent years how a joined-up approach through the supply chain can reap rewards. The ambitious expansion plan that was put in place post-quotas required farmers and processors to work together to keep increases in production in line with market and processing capacity growth.

The more recent uncertainty caused by Brexit, giving concern over what their key export market will look like in the future, has again seen the Irish supply-chain kick into action. Rather than sitting back and waiting for more clarity around the future, they are laying down the capability to produce other cheeses, such as mozzarella, that are more akin to consumer tastes on mainland Europe. It is this joined up supply chain approach that better allows market opportunities to be taken.

In the UK, we could learn a lot from this more collaborative approach by working more closely together:

- Processors can have confidence of a raw milk supply to exploit market and export opportunities, and that the raw milk supply will be the quantity and quality needed by the market.

- Farmers can better understand the market in which they are an integral part and gain confidence of a profitable home for any additional milk they plan to produce.

If processors and farmers can achieve a deeper level of two-way communication, including longer-term planning around global market needs, the UK will start to make serious inroads into competing on the world stage.

 Chris Gooderham