IP Dairy Farmer - March 2021

The eye watering cost of the dreadful Covid pandemic will have to be paid for, and will be a liability many of us will leave behind for future generations. There are rumblings that the previous DEFRA/Government pledge to maintain UK agriculture funding at the same level as paid out under BPS in 2020 (c. £3.5 billion a year until 2027) is likely to take a hair cut in order to pay for Covid. 
To my mind any further reduction will likely increase farmers interest in the current stewardship annual payment opportunities, especially from farmers who find the coming years reduced BPS payments leave an ever-widening black hole in their funds.

Many farmers will not have the luxury of waiting to see what the new ELMS/Land Management Schemes will look like. Most dairy progressive farmers will be profitable without the payments, however a significant number will have to buy into nature restoration, wildlife and the environment under the banner of public money for public goods. Remember, reduced payments start this year. 

For any readers who rely on BPS payments to put their farming year-end accounts in the black, it will be decision time. Some will have to accept they need to exit the industry, but potentially with a DEFRA golden handshake payment. But many of those farmers will need help to be able to move on without feeling guilty that they have turned their back on the farm, or let anyone down. There are more important things in life than hanging onto a loss-making, 7-day a week job, but nevertheless it will be a big mental issue for many to adjust to, and that’s why for more than 12 years I have suggested funding to facilitate one-to-one guidance involving the farmer and family. I think it would be hugely beneficial. 
But I can see a heap of other mouth-watering opportunities for farmers that are currently in their embryo stage, but could earn good money. These include utilizing land for the offsetting and/or selling rights to the benefit of others, including developers with biodiversity net gain on the horizon worth around £15,000 ha! . In Arla’s 2020 annual results presentation, its CEO suggested that Arla farmers could be sellers of carbon reduction and carbon credits for example, and I agree and it’s an area I am exploring. 

Now to the outcome of the Farming Unions’ successful decade of lobbying of Government and George Eustice for legislation on UK milk contracts. Well, coming to you all sometime soon is a mandatory code of conduct for all milk processors and farmers, as announced at Dairy Tech which was a smart move by DEFRA.
 
The Unions now have the opportunity to cement their conviction that transparency and consistency in farmgate pricing can be achieved by Government. I just hope no one is stupid enough to believe one solution to transparency is to have mandatory open book accounting from milk processors, because if that happens, the only beneficiaries will be the retailers who will seize the information for their own gain.
 
The devil will be in the detail, and for sure all eyes are now on the Unions’ proposal for a legislated workable, formula-based pricing mechanism to replace discretionary pricing, which I continue to believe is incredibly challenging and counter-productive. I would immediately abandon any work on any formula which will be near on impossible to be agreed between the three main participants viz, the farmers/Unions, the processors/Dairy UK, and the processors’ customers/BRC (British Retail Consortium) who also need to be involved in my opinion. All must come together to cut the politics and point scoring, and agree the solution and to make this work.
 
Questions to be answered include whether the mandatory code is like the voluntary code and exclude co-ops. Surely it can’t! I discussed the way forward with Steven Bradley (www.milkprices.com), and we agree the industry needs to demand Government stamps its authority and sets up an independent body with teeth to oversee the code and deal with disputes and grievances. Then it needs to bring together a handful of people from the three key interested parties to agree a code, which must apply to every milk purchaser in the UK with no dispensations. Then that body needs power and a clear set of grievance procedures and escalation procedures. Any purchaser who fails to adhere to the code will then be hauled up in front of them. Its early days, but a credible trusted and respected chairman like Neil Parrish would certainly take no crap or bullshit from any processor.
 
If contract legislation works Government will trumpet the fact that they introduced the regulation. If it fails, though, it will hide behind the Unions and say “you asked and we delivered on milk contract legislation but you failed to make it work”. It’s how it works, with one or more organisations/architects lined up from day one to be the fall guys.
 
There are no timelines yet, but for sure the few processor and milk broker / buyer rogues the industry has will be the very ones who exploit all loopholes at the earliest opportunity, with the majority behaving as they should and do today. One code with teeth will put all on a level playing field and working to the same rules.
 
 The farming Unions claimed, “current contracts are weighted too heavily in favour of the milk buyer who can change terms and pricing mechanisms, and even introduce price cuts without negotiation, while locking famers into changes without recourse”. That’s an inaccurate generalisation, but for a small handful of UK milk purchasers its very true. And that brings me to one processor in particular.
 
Because in the space of only 10 days I have received another flurry of emails from dissatisfied farmers supplying County Milk Products (CMP). I have spoken to six of them, and some are in a desperate situation indeed. One broke down in tears on me. The farmers claim they have had two contracts replaced in only a few months and consequently are operating out of contract.  In addition for a year or longer they have not known what price they will get paid for their milk until the 17th of the following month. So, on the 17th February, they will know their January price, by way of checking what lands in the bank account. County Milk defends this by stating “we will endeavour to return to you as our suppliers as much value for that milk as we can” rather than commit to a price in advance. But the farmers claim CMP  do it to juggle their margins in a very non-transparent way and pass back what’s left. With farmers anticipating and fearing prices below 26ppl for January 2021 deliveries it is clear why they are worried..
For sure, under the new code County, and others, will have to change their milk pricing procedures and way of working. 

I look forward to seeing the detail of the legislation in earnest!

Comments to ianpotter@ipmsltd.co.uk