The head of the co-op’s European business called current market returns an “insult to farmers” and warned they were unlikely to improve in 2016.
Peter Giørtz-Carlsen, who previously ran Arla’s UK division, said fresh thinking was needed to prepare for the next downturn — but the co-op’s core principle would not change.
“We have one milk price paid to our farmers regardless of what they deliver, and we will stick to that,” he said.
Mr Giørtz-Carlsen was speaking at the Dairy Industry Newsletter conference in London.
He was followed by the head of the British business at rival Muller. Between them, the two processors buy close to half of the UK’s milk production.
Arla’s plan for improving milk prices involves innovation, building brands and cutting costs, Mr Giørtz-Carlsen added.
Last year the co-op moved 500m litres of milk out of commodity trade and into retail and food service, inside a milk pool of 14bn litres in seven countries.
Branded products
The company will be pushing its branded products harder over the next four years, especially under the banners of Arla, Lurpak and Castello.
“Growing brand share and reducing trading share — that is the best safeguard we have against volatility,” Mr Giørtz-Carlsen said.
After the event, Andrew McInnes, managing director of Muller Milk & Ingredients, said he wanted to build the “biggest and best” dairy in the UK and Ireland.
Muller now buys 3.6bn litres of milk a year from 1,900 farmers, after last year’s buyout of Dairy Crest’s dairies wing.
Mr McInnes said the British liquid milk market had long been a “basket case”, with prices cut relentlessly and margins shrinking.
But he said the Dairy Crest purchase would transform the category, along with Muller’s long-term view.
“This is the deal that will deliver that restructuring,” Mr McInnes said. “The financial performance of [Dairy Crest Dairies] was dreadful. We have a huge challenge on our hands.
“Dairy Crest was operating hand-to-mouth to meet the needs of shareholders each year. We have a long-term perspective and are able to see beyond the peaks and troughs.”
Supplier representation
Mr McInnes also hinted how suppliers might be represented in the future.
Currently there are two groups: Muller Milk Group, which is the original team of farmer reps, and the Direct Milk DPO, a producer organisation of farmers who used to supply Dairy Crest.
Mr McInnes said he wanted one farmer body, which could raise questions about the future of Britain’s first producer organisation.
“We have an ambition to get to an aligned representative model,” he said. “We want to simplify our offering.”
After the finessed corporate speeches, Dr David Dobbin, chief executive of Northern Irish processor United Dairy Farmers, gave some tougher messages.
He said only a sharp drop in production would bring a market recovery – not any bail-outs, special contracts or cost-of-production models.
He warned the industry would keep contracting, as it seemed to have a “radioactive half-life” for both processors and producers.
“We are halving the industry in numbers every 10 years. I would have thought that would have slowed down — but the reality is it will not,” Dr Dobbin said.
