Presentation to Roger Helmer MEP and Bill Newton- Dunn MEP 30/10/10
Peter Lundgren is an ex-dairy farmer now growing arable crops and rearing outdoor pigs in Lincolnshire. He works closely with a number of NGOs on sustainability and has been commissioned by the World Society for the Protection of Animals www.wspa.org.uk to undertake a financial review of superdairies and make comparisons with alternative extensive methods of producing milk.
Peter Lundgren feels strongly that farming is about more than producing food at the lowest unit cost so that others in the chain can add enormous profits; truly efficient food production has to be about producing safe wholesome food and giving the producer a fair return on time and investment whilst supporting the rural economy and enhancing the environment.
The UK market is split roughly 70% – 30%. With 70% going into premium markets for liquid and branded dairy products whilst 30% goes into generic milk products at world market prices. The premium markets are fully subscribed – it’s the generic products that are imported.
Looking at the graphics produced by DairyCo on page 6 of the Dairy Supply Chains Margins 2009/10 report it is possible to see dominance of the retailer within the milk chain:
- the retailers abusing their dominance of the milk supply chain to increasing their margins by increasing the price to the consumer whilst, at the same time, driving down the price at which they buy from the processor.
- The processor is able to maintain their margins and past on the price cuts to the weakest link in the chain – the farmer who has to absorb the cuts or go out of business.
- This graph demonstrates that there is no linkage between the retail price and the farmgate price and demonstrates that anyone who thinks efficiency savings at the production level will be passed on to the consumer is being very naïve.
- It is this inequality where the profits (or loses) are not shared equitably within the milk chain that has led to the advent of superdairies in an attempt by individual farmers to drive down production costs below the price the farmer receives from the processor. However, as the graph indicates, there is nothing to stop the retailers clawing back those efficiencies for themselves.
- The graphic also demonstrates that the farmer is not the only one losing out – the consumer is consistently being overcharged for milk.
Economic review of superdairy.
Initial analysis of a superdairy indicates efficiencies of scale equal to around 2p/lt below that of a traditional family dairy farm.
- However even with these efficiencies the superdairy is unable to survive at world market prices and will need to muscle in on premium markets for liquid milk and branded dairy products to survive.
- The superdairy will displace between 60 and 100 traditional dairy farms from the premium markets they need to survive
- The superdaiy’s lower production costs will have the effect of driving down the benchmarked price for premium contracts thus putting all producers in financial jeopardy.
- The superdairy just as vulnerable to retailer dominance of the milk chain and fluctuations within the market place as every other producer.
This demonstrates the co-existence between traditional family farms and superdairies is not possible – the advent of superdairies will make the vast majority of traditional family dairy farms economically unviable.
Is the superdairy the only future for the dairy industry?
No its not. Many extensive dairy herds using dual-purpose breeds that have low capital costs and low input costs – and pro-rata high returns- are able to match the superdairy on production costs.
Who’s most at risk?
It’s the dairy farms that have tried to increase their efficiencies through increasing their capital costs and production costs to increase production that have increased their exposure to risk and are the most vulnerable.
Can a superdairy survive at world market price?
To survive at world market prices the superdairy will need access to public funds – I estimate 27% of the capital cost would need to come from public funds.
Certainly not the consumer, nor the countryside, nor the image of UK dairy farming – and importantly the economic analysis questions whether the investor in the superdairy will benefit.
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