How successful is your milk buyer?
DairyCo has published its 2010 Company Strategy and Performance Report this week giving farmers new insight into how the market environment in which milk buyers operate affects their milk prices.
For most of the companies covered in this report the milk they buy from farmers is their biggest single cost, therefore how successful they are will have a major impact on the amount of milk they purchase and the milk price they can pay their producers, says DairyCo analyst Patty Clayton.
In particular the report looks at the potential of milk buyers in terms of security of demand and their ability to pay a competitive milk price. It also looks at the buyers long term strategy which allows producers to assess how best to structure their enterprise to fit in with that strategy.
Generally speaking, milk buyers benefited from improved returns from dairy commodity markets during 2009/10, although there was little improvement in farmgate milk prices, says Patty. There are a variety of conditions present in the GB dairy industry which have contributed to this situation.
Intense competition for market share in the retailer own-label milk market and the branded Cheddar markets have cut into processor margins, limiting the ability of buyers to increase farmgate milk prices.
There was a lack of involvement in the commodity markets during 2009/10, with those buyers able to divert milk supplies to commodity markets not choosing to, perhaps in an attempt to maintain long term relationships with current customers at the expense of making short term market gains.
Pricing signals to farmers are obscured as buyers do not provide detail on the balance of market forces which have created the need for a price change, explains Patty. While it is often the case that a variety of factors will contribute to the overall change in the milk price, the lack of transparency creates uncertainty for producers and, at times, can lead to false expectations.
A situation of long notice periods on contracts combined with short notice periods for price changes hampers the ability of milk producers to adjust business practices to market conditions or take advantages of business opportunities.
Keeping an eye on conditions within the dairy industry and the activities of milk buyers will enable producers to make better long term business decisions, concludes Patty.
The complete report as well as individual company reports can be downloaded from the DairyCo website here:
DairyCos aim is to promote world class knowledge to British dairy farmers so they can profit from a sustainable future.
To achieve this DairyCo aims to:
- Ensure farmers have access to world class information needed to improve competitiveness, GHG reduction and productivity
- Ensure farmers have access to direct and indirect support to help them improve their profitability through better business management
- Ensure that dairy farming is reducing its impact on the environment
- Ensure farmers understand the benefits of breeding and use the related tools
DairyCo is funded entirely by milk producers, via a statutory levy on all milk sold off-farm, at the rate of 0.06p per litre. This provides an annual income of around 6.5m.
DairyCo is a division of the statutory levy board, the Agriculture and Horticulture Development Board (AHDB).