Meurig Raymond's speech - Semex 2015

NFU President Meurig Raymond addressed the first major dairy conference of the year today, Semex 2015. Read the speech below:

Yesterday, on the way up here, I stopped off with a passionate First Milk supplier. He was expecting a cheque today from First Milk and he’s got bills and direct debits going out in the next week or so.

But, last Thursday – like 1,100 other dairy farmers across Britain – I received an email from First Milk. It said that First Milk’s future is paramount. Thanks Jim Paice and rest of First Milk, for meeting with the dairy team - the message is to them they have to go and explain to their members their decisions.

I’m not here to kick First Milk but this situation is one symptom of the troubles currently facing dairy farming.

Good news is hard to come by. The closest we’ve come is for Muller Wiseman farmers - a slight respite with their price holding for February. Globally, we’re all hoping that the second successive positive move for dairy commodities on the GDT last week is just the beginning of an improved trend.

What the NFU is doing for its dairy farmer members

For the NFU, it is important that we focus most on issues where we can make a difference. Milk price is not one of those areas. We cannot reverse world market trends. But there are definite areas where we where we can work to improve the situation.

The NFU have spoken to RPA, we’ve spoken to HMRC, and we’ve spoken to all the banks.

We've made sure that they’re aware of the situation and what they can do alleviate cash flow problems for farmers (help with tax return forms is available here for NFU members).

Yet our work at the NFU is so much more than reacting to what’s happening today. Take CAP – it’s an area we’ve worked hard at over the last 4 years. We made a difference. We tackled capping, the prospect of stricter greening measures and the threat of full 15% modulation.

Thanks to intense lobbying by the NFU team in HQ, London and Brussels, we made substantial progress. Looking ahead, we are still keeping Defra to account in terms of CAP delivery and roll out and are pushing for reviews of the overall policy at the European level at the earliest opportunity.

Another major area for us is regulation - we’re constantly working to reduce the regulatory burden on our members so that they can get on with producing milk. We’re working on planning, NVZ regulations, in the last review of Red Tractor Dairy the number of standards facing our farmers was vastly reduced.

And then TB. No other organisation had the forethought, passion and sheer determination that the NFU had, and still has on this. You know it’s a high priority for the NFU. It is important that as a dairy industry we all work together to try and resolve the horrible situation many of our farmers see themselves in.

More specifically, I want to run through some key themes that are of specific relevance to dairy.

Volatility

Let’s be clear, volatility in milk prices is not going away – it’s something we, as dairy farmers, will have to adapt too. Volatility impacts all sectors – 2014 saw three-year lows for beef prices, wheat prices come close to the £100/tonne mark; something few expected to see ever again. But the rollercoaster ride that is the milk price underlines the need for better tools to manage volatility.

Contracts

Contracts are one of these tools. This remains important part of our work – we have succeeded in making a difference with the Voluntary Code through increasing transparency. New and innovative contract options will provide more choice to producers. We also need to look at new pricing mechanisms that share risk fairly. A complete relook at contracts is needed.

Contracts where milk prices are set through formulas or set for a longer period are already available. Some are well established in the liquid milk market, but as yet cover a small proportion of dairy farmers. We know milk buyers are already looking at different contract options. I’ve heard David and Farmers for Action often refer to A and B contracts as they did in the EFRA evidence session in November.

What we need is fairer contracts. Contracts that better share risk between the farmer and milk buyer. Some recent A and B contracts I’ve seen put all the risk and cost of balancing onto farmers. I don’t think this is right and if it is forced onto farmers there needs to be the right price premium in place to help swallow the pill.

There is a contract problem that I’m well aware of. A number of dairy farmers may already be on notice for Spring. I am worried about what happens to these farmers in April. I’m continually speaking to all the main milk buyers to raise this and it remains something of a moving feast.

Taxation and risk management

Government has a role to play when it comes to volatility. Not in managing the market of course, but in terms of tools to manage fiscal risk. So on taxation, we’d like to see Government offering longer periods for profit averaging, just like we’ve seen recently announced in Ireland.

And how about developing some financing tools that support risk management?  Farmers in other countries have them – Australian farmers have access to a farm deposit scheme and New Zealanders have an Income Equalisation Scheme.

We’re thinking over and above agricultural policy. We’re looking at how policy across government departments can help our farmers.

Investment

Dairy is a supply chain that needs continual investment. I would also like to see serious consideration given to the introduction of an infrastructure investment allowance.

Most G20 countries support business capital infrastructure investment by providing some form of tax allowance. The lack of these allowances in the UK is creating a barrier to investment for many farm businesses. An infrastructure allowance, delivering relief over the long term would send out the right investment signals to business. It says loud and clearly that the Government wants businesses to grow.

The next Government must retain an appropriate and consistent level for the Annual Investment Allowance. Agriculture is a capital hungry sector and I want to see farm businesses plan their long term investment cycles.

Of course, I’m glad to see processing capacity and investment increasing here in the UK - look at Arla’s Aylesbury plant, Muller Wisemans’ new butter plant and the focus on value added products by a number of processors.

But if we’re to make gains in our dairy self sufficiency, we need further investment. We still import around 100,000 tonnes of cheddar, 350,000 tonnes of soft cheeses and 100, 000 tonnes of butter. It’s even worse on yoghurts and chilled deserts where over half what we see on our retail shelves comes from outside the UK. 

On the other hand, numbers like this do indicate the scope we have when it comes to import substitution. And remember that we can compete against other EU producers – that was a point Andersons underlined at last week’s Oxford Farming Conference.

Backing British Dairy Farming

We have the support of the British public. British people want to buy British, they want fresh milk delivered daily.

I think it’s vital that they get it. I struggle sometimes to find British butter on retail shelves, and rarely see the Red Tractor when looking for British cheese. Why are we so bad at promoting our own quality products?

The New Year has triggered a further round of price cuts and promotion; our food retailers are set for a spell of fierce competition on price in 2015. Farmers don’t set retail prices but we do fear the knock-on impact and downward pressure this has on margins through the supply chain. Matching discounters on price is not sustainable in the long run for the big four; their business model isn’t set up for it.

I do think our major retailers can do more to back dairy farmers. They should provide sufficient shelf space for British dairy products, they should promote Red Tractor - they all use it as the basis of their procurement policy.

I can’t make this any clearer to them – back British. We can’t blame consumers for not buying British if the product isn’t on display in the first place.

So my message to retailers is stand up and be counted – do your bit for British dairy farming so that you can give the public what they want – the quality British dairy products that they value and trust. Back British – to ensure a sustainable and positive future for the dairy supply chain. And for those that will point to support they are already offering, by all means shout about your credentials on liquid milk, but let’s see this replicated for other dairy products.

Through all of this, I can’t stress enough that we need to work collaboratively.
Most of us, representing British dairy farmers, signed up to the aims and aspirations of “Leading the Way”. The messages in there still hold true and are probably more vital now more than ever. I do recognise and respect that there are many different ideas and views on how to tackle the current situation.

That’s fine but it’s also important that all of us representing dairy farmers focus our attention and energy on finding solutions.

Milk and dairy are too important to the nation to allow the industry to be dealt blow after blow. We know we can compete; we know we have a great opportunity in the long run.

We all have our strengths in different fields – using them collaboratively for the benefit of our dairy farmers is something that we can all strive to do.  Let’s ensure we do that from now on. Let’s make sure there is trust and commitment across the dairy supply chain, taking and creating every opportunity we can to Back British  dairy farmers.