It's Not Just the U.S.

Dairy farmers press supermarkets for deals that will secure supply
Published Date: 25 April 2008
By Dan Buglass
THE relationship between farmers and supermarkets has been fractious at best in recent years. The multiples have made repeated pledges of loyalty to farmersuppliers. Producers, on the other hand, feel that they have been relentlessly squeezed while the big players post increasing profits. The media at large has in recent weeks highlighted the fact thatinflation in the food sector is resulting in considerable pain to theweekly budget of the average consumer. Not so, according to the UK government's Office for National Statistics: the most recent data shows that food in real terms is almost 20 per cent cheaper than 30 years ago.That is why, according to many former dairy farmers, they have soldoff their cows and reorganised their businesses. The end result isthat the surviving milk producers for the foreseeable future will fall well short of matching the EU quota of 14 billion litres they are entitled to sell each year without a penalty for being in excess. Earlier this week Morrisons was cleared by the Office of Fair Trading, in respect of allegations surrounding price fixing, many of which related to the dairy sector. That verdict cost the OFT £100,000.Jim McLaren, the president of NFU Scotland who runs a dairy farm near Crieff, believes the time has come for the multiples to lock into secure contracts that will be of mutual benefit. He said: "Now that the weight of price-fixing allegations has largely been lifted from the shoulder of Morrisons, they can get on with the job of formalising arrangements with milk producers to secure its supplies of liquid milk in the future." All the major competitors – Tesco, Sainsbury, Waitrose, Marks &Spencer – have entered into varying agreements with dairy farmers. We have been in discussion with Morrisons over the last ten days and stressed that point and hope for an early announcement that will give everyone a degree of security." Tesco is certainly on the front foot with the announcement yesterdaythat the 147 direct suppliers in Scotland contracted through Robert Wiseman Dairies will receive a significant increase in their milk cheques at the end of this month. Those producers, who are part of the £25 million Tesco Sustainable Dairy Group (TSDG), established in July 2007, will now be paid 28p for every litre of milk that ends up on the UK's leading supermarket chain's shelves. That will take these selected dairy farmers very close to the top of the UK milk price league. Sarah Mackie, senior buying manager for Tesco in Scotland, said: "We look forward to building closer relationships with the farmers who supply us with milk, and working with them in the future."Dairy farmers in Scotland, in common with their colleagues throughout the UK, have been near to total despair in recent years. Jim Watt of Benthall Farm, near East Kilbride, was close to packing in, but he is now happy with the new arrangement with Wiseman and Tesco. He said: "Just over a year ago I was making plans to sell the herd andcut my losses. Joining the Tesco milk pool proved to be a turning point and gave an opportunity to invest for the future."A new milking parlour is being installed and I plan to grow the herd from around 90 cows to 120 cows in the months ahead." My son has decided to come back to the farm and we are genuinely looking forward to the future with a lot of optimism as a result ofthe new contract."However, life does not appear so bright for those dairy farmers who trade with Wiseman, but are not part of the Tesco deal: the new terms could cost them money, according to Ian Potter, a widely respected dairy analyst.He said: "In a shock move one of the UK's most straightforward and transparent milk buyers, Robert Wiseman, is to change the notice period for non-Tesco buyers in an attempt to halt the threat of sudden losses of milk supplies."Under the new contracts the three-month notice of severance will onlybe operational from the first day of the month, but that has much wider implications, according to Potter.He said: "At first sight it may not seem like big news, but the contracts warrant further examination. It translates into the fact that any producer who has not served notice before 31 May 2008 may not be able to leave before 1 December. Milk will be scarce in the autumn and the big players will still have to meet their obligations."The perceived 'white knights' of the UK dairy industry are worried about quitting existing contracts for higher prices at a time when milk will be short. That tells a big story. Farmers should stand firm."