Conference hears milk contract row masks bigger issues in dairy

Irish Delegates (from left to right) John Berry, Regional Sales Manager, Semex UK, William Irvine, Chris Osborne and Mervyn Gorde
Irish Delegates (from left to right) John Berry, Regional Sales Manager, Semex UK, William Irvine, Chris Osborne and Mervyn Gorde

The issue of milk contracts changes and legislation featured heavily at the 2019 Semex conference, with DEFRA farm minister George Eustice and NFU president Minette Batters both stressing the need for legislation, but with journalist and dairy analyst Chris Walkland disagreeing with them and stating that the focus should be on growing the size of the dairy financial cake for all, rather than arguing over the division of the size of the cake that is already here.

This call was also effectively echoed by an inspirational talk by Sue McCloskey, of Fair Oaks farm in the US and the increasingly successful added value milk brand Fairlife, and by Arla’s UK boss Ash Amirahmadi.

“Changes to dairy contracts is overdue and inevitable as dairy farmers are captives of the processors,” said George Eustice. “Farmers either need the ability to walk away from a processor or, if you are to commit for the long-term, they need to commit to how that price is calculated,” he stated.

Minette Batters said voluntary codes didn’t work and regulated contract terms for dairy farmers would help rebalance the risk within the supply chain and place dairy farmers in a strong position to develop professional sustainable relationships with their buyers to be commercially focused, innovative and competitive. “Farmers have been price takers for too long,” she said. Once Brexit negotiations are out of the way “my god have we got to grow up and have a serious conversation at how we do regulate dairy contracts. Things have got to change,” she said.

But while Chris Walkland agreed with the principle of tightening up on “the minority” of unfair contracts in some contracts he warned that when it came to changing pricing mechanisms there was a risk of throwing the baby out with the bathwater, and the Unions shooting the industry in the foot. That’s because his analysis of the fairness of discretionary pricing (the current way that prices are determined and which the unions want to scrap) shows that the prices farmers have received since 2015 are within 2 – 3% of what a basket of global, EU and UK prices, formulas and indexes say they should have got. “This tolerance is not an unfair one,” he said. “Beware of throwing out something that isn’t broken for something that doesn’t work in the first place,” he advised.

But the arguments look set to continue for some time, as George Eustice confirmed that contract reform has been delayed until after a Brexit deal is finalised. In the meantime, though, the issue was also masking work in other vital areas, said Mr Walkland, and did nothing to grow the market, secure new consumers or increase farmer prices as it did nothing to encourage better ways of doing business or adding value higher up the supply chain than the processor.

On that front Sue McCloskey showed the perfect way forward for the industry, with her story of how her and her husband’s Fair Oaks farm had launched the Fairlife brand in conjunction with Coca-Cola that was taking the US by storm.

“Milk has lost its way in the US over the last 20 to 30 years. There used to be a hail of goodness around milk that we have allowed other people to steal. We have had to look at milk in a new way, and our Fairlife brand has broken the mould,” she said.

“Cheap milk prices in supermarkets says to consumers that milk has no value. We tell them that Fairlife is incredible stuff (with 50% more protein, 30% more calcium, and half of the sugar), and show consumers how to get brilliant nutrition for their families. We don’t just have consumer-fans of the brand, they are evangelical about it.” Fairlife is now in 98% of grocery stores in the country, with innovation in new products now giving consumers a “better milk for the home”, or a “better milk for growth”, or a milk for “better fitness recovery” or for a “better nutritious treat or snack” as well as one for “better weight management”. The company is also extremely open with consumers in everything it does, with a policy of communicating the facts to consumers, and with tours, restaurants a ‘cowfe café’ and even a new hotel on the site.

The Fairlife brand and partnership with Coca-Cola was “the most ambitious journey of our life”, she said. “We are honoured, excited and quite frankly humbled to be on that journey with The Coca-Cola Company. In this new lightning speed, integrated world of ours, partnerships are critical to success. I have always valued partnerships and would not be where we are today without our farming partners, science partners and now our Coca-Cola partners.” It had taken eight years of research and discussions and hoping to sell to them without success.

“But I was patient and persistent because I believed that Coke was the greatest brand and beverage company in the world and only they could truly make our dream and destination a reality. I had Starbucks, Pepsi, and the Dr Pepper Snapple group at our door but I insisted with my team on a relationship with Coke. And finally when the Coke R&D folks invited us to present our milk concentrate dispenser and Athletes Honey Milk I finally met the people that I could work with. We signed a deal on November 12, 2012, which was the proudest day of our lives,” she said.

Frequently mentioned throughout what was arguably one of the best Semex conferences ever, was the issue of consumers abandoning dairy in favour of plant based alternatives, which was also contributing to the size of the cake diminishing.

Ash Amirahmadi, boss of Arla’s UK business, said that the industry “hasn’t done a good enough job of making itself relevant and exciting to consumers”. “People don’t understand dairy, and the vegans, backed by big business, are casting doubt in consumer’s minds about us. They are not going to stop. If we don’t take action to put across our messages, to protect and promote then we really will be in trouble,” he said. “We need to change the conversation, make the industry exciting and one that consumers want to be a part of.

“People aren’t necessarily against dairy, they just find plant based more exciting at the moment. So we have to modernise the category, and appeal more, especially to young women.”

Nuffield scholar and journalist Tom Levitt stated that veganism was not the biggest challenge to the dairy industry, it’s that milk doesn’t fit with modern eating habits. “The market for milk is evolving, not disappearing. We don’t have the eating habits of our childhoods, any more, and we have lost our monopoly.”

Branding was the way forward to boost consumption, he insisted. “Put a label on it, and branding was the future,” he stated, “because people would value it more that way.

“Milk as a cheap low value product can be changed through marketing and branding. Supermarket own label will never add value as it is perceived as a poor man’s food and the milk isles are not attractive. The focus should be on promoting and creating desirable milk brands.”