Supermarkets aren't the villains in Britain's milk crisis

Over-production exposes dairy farmers to volatile international commodity markets.
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While there are clearly big differences between the two commodities, there are also marked similarities between the oil and dairy markets. Both are tough industries and both are international markets that are hugely influenced by a combination of global over-production and reduced demand, which have had an adverse impact on UK producers in the past year.
Oil can be stock-piled in its crude form. Milk, being perishable, has to be consumed within days or refined into storable product; mainly butter and its derivatives, or powders and long-life cheeses, which, like oil, are all internationally traded commodities.
Many people are familiar with the Brent Crude oil index but less so with dairy equivalents such as the GlobalDairyTrade series. In the last 18 months the GDT weighted index has fallen by more than 60pc, not dissimilar to Brent Crude over the same period.
In oil, a fall in the index creates an expectation of consumer benefit. If there is public concern, it is about how quickly and to what extent price cuts are passed on “at the pump”.
With milk, while there is a vague understanding of global over-production, the predominant public perception is one of farmers being ill-treated by powerful supermarkets engaged in a price war. Certainly, there is no expectation of benefits to consumers as a result of falling global dairy prices. Public opinion is informed by farmer reaction – protests at supermarket depots and stores, cost of production arguments and price comparisons with bottled water.
These periodic spats with the supermarkets have been a feature now for over 15 years and the supermarket chains have become used to having their depots blockaded, disrupting their time-critical supply chains to stores. In this episode, a couple of new dimensions have been added: the “Milk Trolley Challenge” – removing all milk from shelves, paying for it and then giving it away – and parading slogan bedecked cows through stores .
This kind of activity certainly catches the attention of the media but in 15 years it has not produced any lasting solution to the problem of price volatility faced by dairy farmers.
This is because the analysis of the problem is flawed and therefore solutions are bound to fail. The frustrations of the farmers are understandable but their perception of cause and effect is not supported by the facts and therefore their protests aimed at supermarkets are misjudged.
Supermarkets buy less than 25pc of UK milk output and collectively these retailers pay farmers the highest prices relative to the rest of the market. Because of historical protests, these prices are already the most loosely connected to global downturns. Farmers are therefore attacking their best-paying customers. If successful, their actions will only benefit the farmer groups who supply these supermarkets.
Then there is the fragmented, low-price battle ground of small shops, catering and food manufacturers. This is still an important domestic market, though compared to the supermarket sector, it is much more closely aligned to global trends and far less accessible to farmer protests.
The real problem is the 50pc of the market dedicated to longer-life products like cheese, butter and milk powder. This segment is exposed to international competition and produces much of the volatility in prices.
For example, in January 2014, UK bulk butter was trading at £3,400 per tonne; today the price is around £2,000. That price drop is due simply to global supply and demand issues that have nothing whatsoever to do with supermarkets.

Farmer protests are irrelevant to these international markets affected by the downturn in demand from China, Russian bans on EU imports and a global increase in milk output.
Currency has also been a factor. These commodities are traded in dollars and euros and the strong pound has probably affected revenues by about 1.5p a litre this year alone.
The UK dairy industry has undergone massive structural change since the end of the Milk Marketing Scheme in 1994. There are now 60pc fewer dairy farmers and 30pc fewer cows. Yet annual production is very similar at just over 14bn litres. This is because yields have improved by 40pc over that time. Yet the cost of production between the top 25pc of milk producers and the bottom 25pc is still an unsustainable 10p a litre, according to the Agriculture and Horticulture Development Board.
With the global price of oil falling below the cost of North Sea production, the rational response of companies has been to cut back on output and make workers redundant.
Some estimates suggest that 5,500 North Sea jobs have been lost in the last year with the possibility of another 23,000 to go before 2020.
In dairy, with the majority of farmers sole traders, the rational short-term response has been to produce more milk to secure marginal income. UK milk production is currently 3.9pc up on last year (and Ireland it is up a staggering 13pc)
During the past 15 years, “price pass back” and “Buy British” marketing initiatives have, at best, provided short-term relief for farmers and on one occasion landed the industry in trouble with the competition authorities. It is hard to see any meaningful Government intervention. What is needed is a long-term structural solution. The obvious answer is to reduce exposure to international commodity markets by producing less milk.
We have strong domestic markets for fresh milk, fresh dairy products and branded cheese, with limited threats of imports. An annual output level of around 11bn litres would satisfy these markets.
The Agriculture and Horticulture Development Board data suggests that there are still a significant number of inefficient producers in the system who should consider their future in the industry. Reducing output would not eradicate volatility, but it would certainly reduce the impact.
If redundant oil workers blockaded refineries and petrol forecourts demanding a special North Sea price based on production costs, they would soon get short shrift from consumers.
Neil Davidson was the chief executive of Arla Foods until 2005 and before that Express Dairies. He was made a CBE in 2006 for services to the dairy industry.
Source: Telegraph

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Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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