Category Archives: Profit margins

Butter price rise: falling milk production, rising demand, adverse weather, liberalisation – low prices are still the elephant in the room

As salaried workers in the commercial media, futures markets and organisations including the NFU, AHDB, DEFRA, DairyUK and RABDF pontificate about the situation, it is good to see that the ignored elephant in the room is slipping in to the columns of the Financial Times.

Emiko Terazono, commodities correspondent, reports that many dairy farms in Europe and Brazil have endured years of ‘sluggish’ (aka low) dairy prices and quotes Kevin Bellamy (Rabobank): “Many dairy farms in Europe and Brazil are suffering from a shortage of young cows to bring into the herd after the years of sluggish dairy prices. Because of the period of prolonged low prices the young stock aren’t there”.

She refers to the EU’s move to liberalise its dairy market in 2015, lifting restrictions on production and exports, which caused prices for fall by more than half between 2014 and 2015, with many dairy farmers around the world going out of business or struggling under increased debts. The EU then responded by introducing voluntary output cuts and compensated farmers for not producing milk. World milk supplies from leading five producer regions slipped 0.4% in 2016.

January protests outside the EU Council building covered here. Above, see the European Milk Board’s Faironika, the artificial cow canvassing for fair payment for dairy farmers and explaining the nutritional value of milk, the role of farmers and their value to the rural economy

During the protests in January, Sieta van Keimpema, dairy farmer and vice-president of the European Milk Board, the lobby group representing the region’s producers, “Milk producers all over Europe are still in the throes of the crisis . . . and although the milk price has rebounded from last year’s lows, it is still lower than the cost of production”.

 

 

 

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No fair trade here: cream and butter prices rise but farm-gate prices for milk don’t

The Financial Times reports that a reduction in the milk supply, due to a cold spring and dairy farmers leaving, has led to prices of butter and cream rising 18.7% in the year, according to data from the Office for National Statistics. But despite “record prices” for wholesale cream and butter in recent weeks, the National Farmers Union point out farm-gate prices for milk have continued to fail to keep in step.

BBC online reports that Arla’s CEO Peter Tuborgh said producers “put the brakes on” in 2016, in the wake of previous overproduction of milk and consequently lower prices and Michael Oakes, chairman of the National Farmers Union dairy board, added that UK supply had fallen partly because so many farmers “decided enough was enough during that downturn”. Many farmers have often had to sell milk for less than the cost of producing it and so – understandably – the number of UK dairy producers has fallen.

The National Farmers’ Union said the “constant boom-and-bust dairy market cycle” helped “no-one, most of all farmers” and expressed concern about the lack of strong upward movement in the farm-gate milk price.

Milk buyers are worried about milk volumes falling but, the NFU spokesperson added, “Confidence within dairy farming is at an all-time low [due to] mistrust in the market dynamics and suspicion about how milk buyers are treating their supply base, coupled with the lack of direction on the impact of Brexit on the dairy sector.”

Post-Brexit, will the UK government ensure that ‘ordinary’ farmers receive a fairer proportion of the agricultural payments and turn away from the practice of subsidising offshore companies and rich individuals?

And will the Groceries Code Adjudicator, who places great emphasis on scrutinising supermarkets give more time to food producers and address the issue of unjust farmgate prices?

 

 

 

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The Royal Association of British Dairy Farmers: 2003 and 2017

In August 2003 the Farmers Guardian reported that a series of industry-wide meetings, called by the Royal Association of British Dairy Farmers (RABDF), were held for a year to discuss the true costs of milk production.

Members of RABDF, with independent research consultancies and dairy farmers, produced a report showing that the cost of milk production is much higher than current estimates state. The true cost of milk production was found to be between 20 and 23p a litre, rather than the 18p currently being paid. Dairy farmers were working an average 70-hour week with only a few days holiday each year and low milk prices have left them earning just £2.90 an hour.

The chairman, Tim Brigstocke, said that problem areas were fixed costs, farm overheads, farmer remuneration, family labour costs, pensions and staff development had not been included in current assessments.

The new guidelines proposed by the RABDF included gross costs such as feed, forage, bedding, and vet’s bills; operational costs like labour (£10 an hour deemed a reasonable figure to factor into the equation, given the level of skills required in dairying), machinery, depreciation, property-related, unpaid family labour and resource costs: rent, quota leasing and finance costs. Mr Brigstocke urged producers to adopt these guidelines to arrive at a realistic picture of how much their businesses were costing them.

A Lancashire dairy farmer contacted this site to voice concern about the very differently focussed RABDF of 2017 and its ‘elitist style’.

RABDF, now described as the ‘the new secretariat to the Trehane Trust’, is advertising its October conference in Birdcage Walk London for ‘leading farmers’ who are to be granted the opportunity to ‘rub shoulders’ with policy makers and supply chain leaders. The conference will be held in conjunction with the Trehane Trust which funds research into all aspects of the dairy supply chain, from production to new product development and consumer trends in the dairy sector – but the crucial subject of farmgate prices is not listed.

One of the invited speakers at this most opulent venue (above) is from Arla – a downward trend-setter, announcing a price reduction for the April payment – the first milk price drop in 2017 by a major UK milk buyer. A further online search will reveal that this company has closed several processing plants making hundreds of workers unemployed, though the net profit of the Arla Group last year was €356 million.

The key findings of Trehane Fellowship recipient Mike Houghton of Andersons will be included. He has been researching future options and opportunities for the sector at home and abroad, using his contacts in Canada and the USA to find out more about their support systems, in particular crop insurance schemes and futures markets and consulting key people within the legal profession and the insurance industry to obtain a different perspective on the topic. 

Tim Brigstocke is now RABDF’s policy director

When this ‘Business and Policy Conference’ has taken place, will he help the RABDF to come down to earth in the interests of the average dairy farmer – arguably an endangered species?

In the interests of food security, will the RABDF present the facts about rising costs but low and fluctuating farmgate prices to the complicit policy makers and supply chain leaders, with whom wealthy farmers are being invited to rub shoulders?

Or will they continue their failed policies as the dairy sector continues to decline and foreign importers take over?

 

 

 

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Food security 10: British dairy production at risk

 

Pre-empting qualms about the health impacts of dairy products, from Lancashire dairy farmer Tom Rigby’s retweet we note the findings of professor of food chain nutrition Ian Givens and his colleagues from Reading University, Copenhagen University and Wageningen University in the Netherlands. They analysed 29 studies involving 938,465 participants from around the world undertaken over the last 35 years, including five done in the UK. “No associations were found for total (high-fat/low-fat) dairy and milk with the health outcomes of mortality, CHD or CVD,” they said. In fact, they added, fermented dairy products may potentially slightly lower the risk of having a heart attack or stroke.

A new hazard is being added to the long-term imposition of payments below the cost of production

As dairy farms close, due to unviable prices, the distances between farms is growing and providing a tanker to collect their milk is too expensive. The East Anglian Times reports that Muller has announced that it will close its Chadwell Heath depot in London and no longer collect the milk from 18 dairy farms across Norfolk, Suffolk. Essex and Kent. This follows the closure of two Scottish plants by Muller last year.

The 18 dairy farms who are to have their milk supply contracts cancelled by Muller have been given 12 months from the end of March to find new buyers for their milk at a price that offers them a viable future – one commentator adds gloomily:

“Given current trends it won’t be long before it will be possible to drive from Dover to York without seeing a single dairy cow”.

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A brief history for visiting readers from other countries (left, Jan-May)

The number of dairy farms across the UK has fallen dramatically since the Milk Marketing Board (MMB) was abolished in I993 by a Conservative government that saw it as “anti-competitive”.  In the period 2013-2016 alone, Business Matters reports that 1022 farms have closed. The MMB was created by an act of Parliament in the 1930s to ensure that all UK dairy farmers were paid the same price for their milk and that they shared milk collection charges regardless of where they farmed. This was to stop dairy farmers being bullied by over-powerful dairy companies who were establishing virtual regional monopolies.

Since the MMB was broken up, farmers have had to negotiate terms with processors individually and this ‘free trade’ has benefitted the milk processing companies and now the average price UK dairy farmers received for their milk last year was lower than it was when the MMB was abolished 24 years ago – and that is the main reason that the number of dairy herds in the UK has collapsed.

 

 

Seeking food supplies from Turkey and Morocco?  Time for change!

On BBC Radio 4 today it was reported that some supermarkets are limiting sales of fruit and vegetables.

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A newspaper elaborates: “Morrisons and Tesco have limited the amount of lettuce and broccoli after flooding and snow hit farms in Spain. Shortages of other household favourites – including cauliflower, cucumbers, courgettes, oranges, peppers and tomatoes – are also expected. Prices of some veg has rocketed 40% due to the freak weather. Sainsburys admitted weather has also affected its stocks”.

HortiDaily reports on frost in Europe in detail (one of many pictures below) and the search for supplies from Turkey, Morocco, Tunisia.

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A former Greenpeace Economist foresees these and more persistent problems in his latest book, Progressive Protectionism.

Colin Hines reminds us that in 2014 the UK supplied just over half (54%) of its food supply. The EU was by far the next largest supplier at 27%. It is clear that we depend on Europe to keep ourselves fed. He adds:

“At present the UK can only feed around 60% of its present population of 65 million, let alone the around 8 million extra projected in the next 15 years. The UK’s food vulnerability could worsen for a number of reasons. The global availability of the food supplies that the UK at present imports could be dramatically reduced, due to rapidly rising global demand, particularly from Asia; or increased domestic demand from the countries that we at present import from; or if we are unable to afford whatever the global prices might rise to”.

And, presciently, “the threat to UK food security could be more serious should increased global demand combine with other potential problems such as climate change”.

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A 2013 report from the UK government’s official climate change advisers warned that droughts could devastate food production in England by the 2020s. Hines advises: “The answer has to be to heed the Sustainable Development Commission’s call ‘to produce more food from less land and to eat differently, specifically to eat more plant-based foods, less meat and dairy, and to waste dramatically less”.

To this he adds the need to halt as rapidly as possible the UK’s population growth, by curbing present levels of migration and reducing it to more sustainable levels, bearing in mind the numbers we will be able to feed predominantly from our own resources.

Finally he focusses on another area of import dependence.  A 2007 study, ‘Can Britain feed itself?’ by Simon Fairlie, estimated that it could, but that the dietary changes would be significant, “including far less meat consumption, feeding livestock upon food wastes and residues; returning human sewage to productive land; dispersal of animals on mixed farms and smallholdings, rather than concentration in large farms; local slaughter and food distribution; managing animals to ensure optimum recuperation of manure; and selecting and managing livestock, especially dairy cows, to be nitrogen providers”.

Time to ‘retool’ our provisioning?

“UK agriculture is also reliant upon imported energy, fertiliser, seeds and machinery. So should the availability of such imports become limited because of purchase by more affluent countries, or were we to become unable to afford to purchase such imports in the quantities required, then our domestic agriculture itself would be deprived of such essential inputs”.

And, essentially,  give our food producers – from farmers to small-holders – a fair price covering costs of production plus.

 

 

 

Organic farming: better for the climate, soil conservation, biodiversity and food security

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joanna-blythmanThis news will be of particular interest to those who have read about animal factory-farming methods (see the work of Tracy Worcester) and those who were earlier stunned by the exposure of systemic pesticides in ‘Roots of Evil’ (The Guardian 29.4.95) by Joanna Blythman(left) – often described as Britain’s leading investigative food journalist.

In 2016, Scheherazade Daneshkhu, Consumer Industries Editor for the Financial Times, reported that home deliveries of organic vegetables have almost returned to pre-recession levels – £2.1bn in 2008.There has also been a higher demand for organic jam, tea, oils, organic cotton clothes and beauty products.

soil-aShe cited the Soil Association’s 2016 Market Report, free to members, which recorded that sales of organic products rose last year by 4.9% to £1.95bn in the UK – the third year of consecutive growth for the UK organic sector, now worth £1.95bn. Sales of non-organic food dropped by 0.9%.

An increase in the numbers of independent suppliers has helped the sector to establish firm roots

80% of organic sales were made in supermarkets a decade ago and that proportion has fallen to 70% as organic products have benefited from the broader retail trend towards more local and online shopping. Ocado’s organic sales jumped by 19% as the online retailer expanded its organic range by a quarter. Discounters Aldi and Lidl are also gaining share of the market with small but growing ranges.

orc-header-2017The Organic Research Centre is the UK’s leading independent research centre for the development of organic food production and land management solutions to climate change, soil and biodiversity conservation and food security.

Its detailed financial report on organic farming in England and Wales for 2014/15, published two months later also showed organic farm profits increasing, with organic dairy farming outperforming conventional dairy farming in England and Wales.

orc-graphThis research was undertaken for the Welsh Government, a partner in Organic Centre Wales. It highlighted that the organic dairy industry is now generating higher profits during that period than conventional farms despite producing lower yields.

This was due to reduced costs on items such as fertiliser and machinery together with the premium price for organic milk.

Professor Nic Lampkin from the Organic Research Centre, one of the co-authors of the report said:

organic-food-text“Organic farms are far more engaged in production methods that are better for the environment. Restricted pesticide inputs, and more diverse crop rotations contribute to greater diversity and to natural weed, pest and disease control. These are all seen as important reasons for the financial support given to the organic sector . . .

“We have been monitoring the performance and profitability of the organic sector in England and Wales for the past 20 years the analysis of 2014/15 data showed that organic farms achieved higher or similar profitability to comparable conventional farms, and on organic LFA (less favoured area) cattle & sheep farms profitability was statistically higher than conventional farms. At the enterprise level, organic dairying net margins were above the conventional level, whilst for beef and sheep enterprises, organic margins were ahead of the conventional sector. Cropping enterprises also showed a positive position for most organic activities, and therefore it can be concluded that with the addition of support payments, organic farms are performing at a similar or better level than comparable conventional farms”.

However, the Soil Association report points out that despite the third consecutive year of organic sales growth, the amount of land under organic cultivation has continued to fall. There are 548,700 hectares of farmed organic land, down 5% since 2013, according to the Department for Environment, Food and Rural Affairs. The amount of land in conversion to organic is also in decline but the size of the average organic farm has increased, in line with trends in the sector.

More reassuringly, the Organic Research Centre report adds that although numbers fell during the recession, organic farming in England and Wales has stabilised, with fewer farmers withdrawing from the sector and new converters coming on board. 

‘Organic Farm Incomes in England and Wales 2014/15’ can be downloaded here: 2014/2015, PDF 2.04mb – no paywall.

For the full ORC article please click here.

 

 

 

What does Brexit mean for Britain’s food?

A “decades-old failure to invest in food skills and equitable infrastructure for sustainable development” exposed

In Farming UK, Tim Lang, professor of Food Policy at City University’s Centre for Food Policy – a Lancashire hill farmer before becoming an academic and establishing himself as a leading expert on food issues – has said that leaving the EU will expose a “decades-old failure to invest in food skills and equitable infrastructure for sustainable development.”

Stephen Devlin, an economist with the New Economics Foundation, says, “Now more than ever, with enormous economic and political uncertainties in the air, we need to consciously plan the future of the essential food and farming sector.

“Do we want a sector that is increasingly automated and concentrated, or do we want more diverse growing patterns and more farming jobs?”

A just-in-time food system that could easily be dislocated 

Professor Lang told Farming UK that, in the 1980s, the United Kingdom was 82% self-sufficient in food. This had fallen to 61%. The country was running a food trade gap and the fall in the value of sterling since the EU referendum had made imports more expensive.

Over the last 30 to 40 years a food revolution had resulted in a longer food chain and longer storage. Tesco had adopted its just-in-time system from Toyota. At any one time under this just-in-time system there were just three to five days of food supplies in the UK. “It is highly dislocatable,” said Professor Lang.

He said the UK food system was one in which the farmer made very little from the total money generated. All the money is made elsewhere

Lang said food traders ruled the modern food economy and millions of food contracts depended on cross continental supply chains. The food system was heavily tied into Europe. To sever this would be a task “awesome and unprecedented in complexity.”

In an article currently inaccessible on NEF’s website, Stephen Devlin presents a chart showing net EU food imports.

CHART

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He adds: “It’s crucial that we don’t just blindly increase production in general to produce more of the commodities that we are already exporting, like cereals and milk. Instead we need to produce a more diverse range of produce more in line with what we actually eat – like more fruit and vegetables. In fact, a more diverse farming system may also have environmental benefits”.

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Article reference via search engine:soursce-food