Last week, saw two key events in the UK dairy calendar being held - the
UK Dairy Day
event in Telford, followed that evening, by the annual
Dairy UK
Dinner. At the event in Telford, I was asked to join a panel discussion on the future of milk pricing and processing, but in London, I was just an attendee !
Across the two events, there was a wide range of interesting points made about the current and future prospects for the UK dairy sector. Amongst the most interesting of these, it seemed to me, were:
- the historic high prices of 12 months ago have now been followed by a series of ongoing price falls and weakened international demand. In the UK, we have seen consumers buy less product, trade down from brands to own label products and look increasingly for value for money options
- the root causes of the falling price of dairy products at farm gate level - a combination of Brexit, COVID, falling demand in China, the impact of climate change on production around the world and the tragic situation in the Ukraine (with the possible exception of Chinese demand) are not going to go away in the short - medium term. Markets are likely to remain uncertain for the foreseeable future. The NZ GDT index has fallen in 9 of the last 12 auctions and this gives an indication of current world market sentiment, even if the last auction saw, promisingly, a modest recovery
- as a result, processors are looking at all ways of implementing cost reductions, improving operational efficiencies, and at the same time, stepping up efforts to achieve more sustainable and resilient supply chains. They are faced with issues around labour, energy, the need for investment in dairy tech type projects (to increase both sustainability and resilience) and the influence of the discounters in the UK market
- the environment is high up on the consumer agenda. At times, they are sceptical of the claims of plant based products. Some of these only serve to make consumers more confused. There is still a debate to be had around who will pay for the additional tasks that farmers need to undertake to achieve sustainability targets. Some processors, such as Arla, have made a start on this through their sustainable incentive policy. The evidence though is that farms that go down this route end up being more profitable, as they use less energy, water, feed, fertilizer and fuel
- the introduction of mandatory contracts in the UK farming sector has been a long time in coming (they were first discussed in the UK some 16 years ago!) but need to show a good deal of practical thinking in their development and be underpinned by clear guidelines. At the same time, market demand and supply will set price points and contracts will not see an end to market volatility
- Government support is being provided through an additional £133 million being invested in technical and innovation projects. These are designed to help reduce carbon emissions and make better use of robotics. There are also accelerated payments to farmers under the Sustainable Farming Initiative, the appointment of more UK Agri Food Attaches (we now have 16 in all), additional funding to the UK Dairy Taskforce for Exports and more support to the “Buy British” campaign
- world demand will over the next few years, at a structural level, outweigh supply and so the dairy sector still shows exciting opportunities and there are valuables lessons that could be learnt from looking at other sectors, such as horticulture and outside the agri food sector, maybe even the oil industry. Farmers in the short term though need to cut volumes and in general be more reactive to market changes and conditions. The UK cannot afford to be stuck in a commodity trap, but needs to invest into higher added value and brands
These were two very different, but none the less enjoyable, events. It was especially nice to see at the UK Dairy event, the
NFU (National Farmers' Union)
Minnette Batters, receive an award for her contribution to the UK dairy sector over the last few years.
At both events, it was also an opportunity to see plenty of industry contacts, clients and colleagues - one of my mantras on these occasions, has always been “see some old mates and make some new ones”.
The UK dairy sector clearly has a role to play in national food security, nutrition and sustainability and none of these objectives are incompatible - quite the reverse, in fact. The dairy industry remains a tough, but rewarding one to be involved with, and both these events last week proved the point loud and clear.
It seems to me that many of the challenges and opportunities that the dairy sector faces can be solved by the development of meaningful, constructive “win – win” relationships being developed by farmers, processors and those operating at the point – of sale, and more mid to long term thinking/co operation and we still need to work harder at these.
====================================================
John Giles
is a Divisional Director at
Promar International
, the consulting arm of
Genus ABS
and has worked on dairy market research and consulting assignments all over the UK and then in some 60 other countries around the world. He is a Visiting Fellow at the
THE SCHOOL OF AGRICULTURE, POLICY AND DEVELOPMENT (SAPD) at the University of Reading
