Can “anyone” influence the milk price?

by JP on September 11, 2012

A while ago I took myself down to London to support SOS Dairy. I wanted to go and show my support for a number of reasons. Firstly I have uncles that are dairy farmers back home in Ireland, secondly I have been fortunate enough to work within the agricultural industry for the past 18 years. I feel that to have this ag background has provided me with a good living, an income for my family, and I have enjoyed the people I have worked with. So without farming, and dairy farming in particular for me, I wouldn’t have been graced with the opportunities that I have been given and lived the life I have to date.

So how did dairy farming get to this stage? Why have nearly 2,500 dairy farmers come out in protest? Why have they been blocking milk processing sites and targeting retailers? Why have we got to this stage when we all know it costs more to produce a litre of milk than it does to produce a litre of water! Yes, we could go into the finer details regarding costs but the simple fact is that milk isn’t cheap to produce.

Take your average dairy farmer, he is currently producing milk, which then gets sold, and yet he is losing money as he’s not being paid enough to cover the cost of production. Is it because as the buying public we want it now, we want it cheaper, we want it better, we love a bargain, we want to spend our money elsewhere, are we becoming greedier and more demanding of instant gratification?

As ‘consumers’ we are at the end of a very long supply chain when it comes to milk production. We are the ones who create a need for demand, our purchasing power has huge strengths and can therefore determine what products the shops will stock and at what price. Before I continue I’d like to point out that 75% of consumers are not aware what the current milk price is! So based on this statistic why are the retailers using milk prices as a tool to get numbers through the front door? And why as consumers are we being led by this?

Could it simply be to create increased margin for the next person in the supply chain, the ‘retailer’. The retailers’ main role is to efficiently get the product from the processor, to the store, on to the shelf and then sold to the consumer at the highest price possible, whilst also minimising wastage of un-purchased products.

Next comes the ‘Commercial Director’, and possibly a ‘Fresh Foods Director’, they are responsible for all sales to all consumers. Typically these directors will have been in retail for a long time, they may have moved around and by now would be very educated with how the system works and what needs to be delivered. They would have very specific targets assigned to them with an expectation that in a role this important, the targets would be met. These targets could be measured by monitoring margins, sales and reduced wastage. The Director would have pride in achieving his targets, but also aiding the hope that he will be considered for a more prestigious role within the retail sector and therefore an increase in his salary.

Next comes the ‘Category Director’, simply put they would be responsible for their specified category. So in this instance, they would be responsible for all dairy products. They would have a team behind them to assist from the sourcing of the product right through to the sale, once again with a view to increase sales and minimise waste. They were once a buyer themselves and have come up through the ranks by being innovative and enthusiastic, they now have more income, prominence and respect.

Below the Category Director might be a ‘Senior Buyer’, somebody to help with the day-to-day stuff. So what challenges might a senior buyer come across when sourcing milk? They would need to deliver margins, aid with sales growth, minimise waste…and all the while being mindful that they want to be promoted up to the next rung on the ladder.

So then you come to the ‘processor’, the processor would be expected to approach the retailers and attempt to get them to purchase their products. Their negotiation skills would be their best asset, as this will potentially provide them with an increase in sales, which means an increase in turnover, which hopefully means good long term prospects.

All of these roles I have mentioned are responsible for our milk price. Agreed that there are outside factors such as the price of cream, global markets and powders but simply, the price is being driven by people who might simply have aspirations other than making sure the farmers costs are covered! Does the greed of wanting that promotion, an increase in income, or a new title override all other factors when it comes to negotiating?

So finally it comes down to the food chain, it comes down to the farmer who supplies the raw materials to the processor. A recent study done by Mr Camerons good old UK government wanted to find out “Who are the happiest people in the land?” Yes you’ve guessed it, it was the farmers! Depending on the season they work an average of 15-20 hours per day, getting very little money for the products they produce, turning out to protest and blockade to get a fair price for what they produce and yet they are still the happiest guys in the country. The more I thought about it the more I understood it. My dad and my uncles are all farmers, and they have never really been one for a “bling bling” lifestyle, they do have the odd holiday and have enjoyed a few pints over the years but in some ways they would much prefer to be at home, working the land, caring for the animals, and experiencing the pressures that come with being a farmer rather than the pressures experienced by other roles within the supply chain.

Some farmers are fortunate to have a couple of big tractors, and maybe a 4×4 but to be fair you need these to help manage the farm effectively. I like to think that the majority of them do enjoy getting up in the morning, working the land, milking their cows etc Some might be more efficient, more progressive, more marketing orientated and entrepreneurial, but aren’t we all different in society? The one thing they do all have in common is wanting the best for their business. So it’s only fair that they would want a fair price for what they produce, so they can re-invest it in their business and secure the future of their farm, just like the other important links in the supply chain want to invest in their future.

On average a farmer will farm for 25 – 30 years, most retail buyers last for 18 months! So of the two who is in it for the long haul? And who purely sees it as another step in the journey?

Please don’t get me wrong, we all know that we need to manage our businesses but I have found myself asking the following question, does less equal more? Think of it like a microwave, we all seem to be craving to live a life in an instant society, we want to shove everything in the microwave, hit the button for 5 minutes and then “ping”, your new house, car, 2.4 children, pet dog are all ready in an instant. But as this 5 minutes elapses we are giving little, or no thought, to our actions. Are we considering the finer points, such as where is the food I feed to my children coming from, are my children being educated on food sources, why is that supermarket selling milk for less money than it costs to produce, and why am I contemplating buying it?

So for me, maybe if we made better choices would this mean we would all be better off? Who knows, maybe we might be as happy as all our farmers.

I am now a believer that less does equal more, and trust me…I have gone 5 months without a microwave and am happy stirring my porridge every morning and knowing how much I paid for the milk that is in it!

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