In a way, it’s good to look at Europe and elsewhere to reassure each other that we are not alone with this conundrum. In Germany, last week was International Green Week, where Michael Braun, sales project manager of Die faire Milch hosted politicians having a drink of milk at the show while on the stand.

Meanwhile, as the European Milk Board reports, “In a peaceful protest at the Paris International Agricultural Show (SIA), farmers from various sectors from all across Europe called on decision-makers to implement a real solution to the crisis in agriculture. Their demand: fair agriculture – NOW. To this end, it is essential to implement reforms for a fair cost-covering price on the market in order for agriculture to be fair at last.”

Kjartan Poulsen, EMB Chairman and representative of LDM, Denmark, also remarked, “The way Europe is acting now is not good. We are all here to call for a fair Europe. We are in the heart of France – in Paris – where people have a high regard for food. French policy-makers are called upon to ensure that European agriculture, which produces this food, is actually fair.”

I think the Latvian representative, Guntis Gūtmanis, EMB board member and representative of LOSP, said it best: “All countries together – all farmers together – are fighting for fair prices that cover the cost of production. It’s actually very simple: no farmers, no food, no future.”

I think it’s a requirement for fair milk for all, no matter where you operate.

• Suzanne Christiansen, editor, Dairy Industries International.
  Keep in touch via email: suzanne@bellpublishing.com
  Twitter: @dairyindustries or LinkedIn: Dairy Industries International magazine

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This month, the quarterly currency adjustment is negatively impacting the on account price by 0.04ppl, which means the UK manufacturing price for conventional milk and organic milk remains 40.02ppl and 48.68ppl, respectively.

Arla Foods amba board director, and Arla farmer, Arthur Fearnall, said: “Global milk supplies are slightly lower ahead of the expected spring flush. Retail sales continue to pick up and commodity markets are stable. In the UK, the organic milk price increase is driven by growing demand. Overall, the outlook is stable.”

Paul Savage, agriculture director for Arla UK continues: “It is a particularly exciting time for our farmer owners, we are currently holding our district meetings for all our owners to attend and are going through our farmer elections across every region in the UK. This month we also announced a significant investment in a state of the art mozzarella production facility at our creamery in Taw Valley, Devon. As one of the biggest food companies in the UK, it is only natural that we look for further opportunities to grow and increase the value of our farmer owners’ milk, which we believe can be achieved through exploring further export opportunities.”

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The forecast range for the season increases to $7.30-8.30 per kgMS, up from $7-8 per kgMS.

Fonterra CEO Miles Hurrell says the lift in the farmgate milk price comes off the back of five strong Global Dairy Trade events.

“Recently, we’ve seen a lift in demand, primarily from the Middle East and Southeast Asia, for our reference commodity products and this has been reflected in GDT prices.

“Overall GDT prices are up 10% since our last update in December, with whole milk powder prices up 11.5% over the same period.

“Looking ahead, the potential impact of geopolitical instability and supply chain disruption on demand from key importing regions remains uncertain.

“We can navigate these dynamics thanks to our scale and our diversification across markets, which provides us with optionality. We are also well placed to continue to get the co-op’s product to customers through our partnership with Kotahi,” says Hurrell.

Fonterra’s forecast earnings guidance for FY24 of 50-65 cents per share remains unchanged.

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In recent months, lower milk prices in most key global dairy regions have reduced supplies. “In our view, however, a possible whiplash effect is growing in probability. We may see a demand resurgence emerging months before global milk output can recover,” notes Lucas Fuess, senior analyst – dairy at Rabobank. “In the second quarter of this year, we declared that ‘it’s always darkest before the dawn.’ And although clouds remain this quarter, the storm will not last forever.” 

Rabobank has thus lowered its 2023 milk production forecast. Milk production from the Big 7 export regions is anticipated to grow by 0.3% year-on-year in 2023. The downgrade from last quarter’s estimate of 0.5% is driven by reductions in most key global regions, including the US, EU and New Zealand. Into 2024, output is expected to climb by 0.4%, far less than the 1.6% annual average gain seen from 2010 to 2020. 

Attention also remains laser-focused on both supply and demand in China, where the severity of the economic headwinds and the duration of the lull in economic growth are reducing the likelihood of a strong demand recovery. Leading dairy processors in China do report modest demand recovery but, to date, this has not been able to offset strong domestic milk production growth. Milk production growth will slow into the second half of 2023 and into 2024, but a complete market rebalance is not expected in the near term and positive year-on-year imports are not expected until late 2024 or early 2025. 

Meanwhile, milk production is quickly increasing toward the seasonal peak in Oceania, with a keen focus on milk solids output in New Zealand. “Farmers in the region are stressed following significant milk price forecast reductions from various processors, pressuring margins as production costs remain elevated,” says Fuess. Total season output is expected to be lower, driven by the weak milk price, with the October peak watched closely in the market. 

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Grace Hall, a final-year BSc (Hons) Agri-Food Marketing with Business student from Atherstone, Warwickshire, will be looking at the links between milk prices and how they affect each part of the food supply chain for her project.

She will be working through prices using a data series that runs back over decades to see where changes occurred – and to try to understand what impact they had and what lessons could be learned.

Having grown up on a dairy farm herself, the subject is of keen interest to Grace  – and her work has already secured recognition from her lecturers and peers at the inaugural Food and Business Research Mini-Conference held at Harper Adams. Grace was awarded a prize for the best overall presentation.

She said: “When I came to look at dissertation topics, I saw this one – price transmission – come up. I contacted the tutor to discuss it, and having already got a background in dairy, I thought I would look at that.

“We will be working with two datasets, and ultimately the hope is to try to see the details of any relationship between the prices paid to producers and by consumers and their impact.

“I think that producer prices are an issue – the way that price changes affect milk producers shows that – and these changes have an influence on people’s livelihoods.

“It is really important for us to have a dairy industry in this country – it supports a lot of people’s careers, which is so important. So many people graduate from universities like Harper Adams and will go on to work in the sector – and that relies on dairy producers being there.

“If they can’t keep going, that is not a good thing!”

Grace’s research forms part of her final year of study at Harper Adams – which she set her heart upon after visiting her sister, who also studied at the University.

She said: “When I came to visit her, I got a feel for the campus and setting – it was only one of two unis I actually put down on my UCAS form!

“The rural setting, having grown up on a farm, was familiar to me.

“I can’t fault it – the course is specialised and offers you so much variation. It has been really interesting and very varied – and the course offers you a lot of different modules to choose from, which I like!”

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For many months, the dairy farmers at SalzburgMilch have been confronted with a veritable explosion in costs, affecting energy, fuel, fertilizer, animal feed and building materials alike.

“Because of the ongoing cost increases, the livelihood of many is now at stake. The family-run, small-scale farms, which are so typical of SalzburgMilch, are hit particularly hard. We therefore have to intervene again in order to be able to ensure security of supply,” explains Andreas Gasteiger, managing director at SalzburgMilch.

The milk price for all types of milk has been increased by 1.05 eurocents gross and an animal welfare bonus of 1.47 eurocents gross will also be paid out.

Due to the extreme market situation, GMO-free milk is also rewarded with a separate recycling surcharge of 1.13 eurocents gross.

The basic payment price for GMO-free milk thus increases by 3.65 eurocents gross to € 0.5 gross (44.25 eurocents net).

With the various types of hay milk and organic milk from SalzburgMilch, the price of milk has risen to 69.86 eurocents gross (61.83 eurocents net).

In view of the currently completely changed market situation, Andreas Gasteiger emphasizes the need for further negotiations:

“The last price negotiations with national and international trading partners were successfully concluded. However, it will not be amiss to enter into negotiations again, as the market is picking up extremely and the sharp price increases in all areas cannot be dealt with alone”.

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Mark Chantler, chief executive of Meadow Foods, comments: “We are aware of the inflationary costs our farmers are facing and continue to work closely with our customers to reflect these inflationary pressures. We will continue to closely monitor the markets and will return any price increases to our farmer suppliers as soon as possible.”

Meadow Foods is a leading supplier of value-added ingredients to the food industry. The employs more than 400 people across four BRC AA accredited sites in Chester, Peterborough, Holme-on-Spalding Moor and Dolgellau where they process more than 550 million litres of milk each year in the manufacture of value-added dairy ingredients. The business operates seven days a week providing ingredients for some of the world’s best known food manufacturers and food service operators.

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High prices and growing milk supplies from New Zealand (NZ) and the US in particular, are likely to be driving down prices, she says. Current forecasts see strong growth continuing in both regions, leading to higher exports, and the potential for further pressure on commodity pricing.

Demand from China has been strong, and has underpinned the earlier price increases, Clayton adds. These high prices may be curbing demand from more price-sensitive markets, but it will be import demand levels from China, which will remain the main driver of dairy commodity pricing through the second half of this year. For further information visit ahdb.org.uk/news

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The price revision is being done all India, in rest of the markets where Amul is marketing its fresh milk.

In the last 1.5 years Amul has not made any price revision in its fresh milk category. Since then due to rise in costs of energy, packaging, logistics, overall cost of operation has increased. Considering the rise in input costs, Amul member unions have also increased farmers’ price in the range of Rs. 45 to Rs. 50 per kg fat which is more than 6% over previous year.

Amul as a policy passes on almost 80 paise of every rupee paid by consumers for milk and & milk products to the milk producers. The price revision shall help in sustaining  remunerative milk prices to Amul milk producers and to encourage them for higher milk production.

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“Customers know we are continuing to get products to market, despite the challenges in the global supply chain and they are looking to us for this reliability. We’re also seeing customers want to buy more of our products than usual to help mitigate the risk of global supply chain delays,” he continues.

“We’ve seen Global Dairy Trade (GDT) prices continuing to increase since February when we last updated on our forecast farmgate milk price and then this week there was the 15% increase in GDT prices.”

Fonterra’s 2020/21 forecast farmgate milk price range to NZ$7.30 – $7.90 (€6.50-7.08) per kg of milk solids (MS), up from NZ$6.90 – $7.50 (€6.18-6.72) per kg MS. The midpoint of the range, which farmers are paid off, has increased to NZ$7.60 (€6.81) per kgMS.

Hurrell says the lift in the co-op’s forecast farmgate milk price is good news for New Zealand farmers and the wellbeing of rural communities It would see the co-op contribute more than $11.5 billion to the New Zealand economy through milk price payments this year.

Fonterra has decided to maintain its plus or minus NZ$0.30 range on its forecast farmgate milk price, reflecting the continued uncertainties in the global dairy market.

Hurrell says it is important that farmers recognise there are a number of downside risks to the mid-point of the range. For example, the EU and US are heading into their season and their milk supply will start increasing, the impacts of Covid-19 on key markets and market volatility.

“A $7.60 per kgMS forecast farmgate milk price also increases our input costs putting further pressure on our earnings in the second half of the 2020/21 financial year,” he notes.

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From 1 June 2021, up to 10 cents of each farm’s milk payment will be determined by the farm’s sustainability credentials and milk quality.

“Fonterra farmers are already among the world’s best in these areas and we’re really proud of that. The Co-operative Difference payment is another way we can recognise farmers, while also supporting our strategy to grow the value of our New Zealand milk by responding to increasing demand around the world for sustainably produced dairy,” says Richard Allen, group director, Farm Source.

“The new payment recognises farmers who are already going above and beyond because they’ve innovated and invested early, and it also offers farmers more encouragement for taking the steps required to meet the changing expectations of customers and communities, both today and into the future.

“We want to reward the on-farm efforts that demonstrate our Co-op’s care for the environment, animals, people and communities. It’s these actions which help ensure we’re the dairy company of choice for customers around the world and for New Zealand dairy farmers, for generations to come.”

The 10 cent Co-operative Difference payment is made up of:

• 7 cents per kgMS for achievement under the Environment, Co-op & Prosperity, Animals, and People & Community focus areas.

Once these have been achieved;

• 3 cents per kgMS for milk that meets the ‘Excellence’ standard under the Milk Quality framework.

While The Co-operative Difference framework was introduced in 2019, the milk payment is new to farmers.

Full details on the Co-operative Difference payment are available here.

The Co-operative Difference payment details:

• 7 cents per kgMS for achievement under the Environment, Co-op & Prosperity, Animals, and People & Community focus areas. Once these have been achieved;
• 3 cents per kgMS where Excellence is achieved for all milk quality parameters under the Milk Quality framework.
• Effective from next season, from 1 June 2021.
• Current Farm Source Rewards Dollars in The Co-operative Difference will be replaced with The Co-operative Difference payment.
• The amount and targets will be set annually by the Fonterra Board.
• The total amount available to be paid to farmers does not change, but a proportion of the Farmgate Milk Price will be available to be redistributed between farmers to better reflect individual farm’s achievement against the Co-operative Difference Framework.

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Even though Grüne Woche is not taking place as usual in 2021 due to the pandemic, the traditional morning pint was held digitally on 19 January. Personalities from politics, business, agriculture and science debated their different opinions online on the subject, “And will the milk price be better tomorrow? Agricultural Policy 2023 (CAP 2020).”

In the debate were Patrick Liste (editor-in-chief of the agricultural weekly paper and moderator of the discussion); Karsten Schmal (DBV milk president), Peter Stahl (chairman of the board of Hochland SE and chairman of MIV); Karl-Heinz Tholen (head of the milk department at BMEL); Johannes Pfaller (spokesman for the BDM federal advisory board) and Professor Holger Thiele (ife).

The Milchindustrie-Verband (MIV) represents around 80 companies in the German dairy industry. With an annual turnover of around €27 billion, the dairy industry is the largest segment of the German food industry.

For those, who speak German, a video of the morning pint is available at: milchindustrie.de/videos/film-zum-milchpolitischen-fruehschoppen-2021.

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Company-specific programmes and calls from processors to reduce milk deliveries continue to have an effect. However, the situation on the milk market remains tense. The tightened measures and what is now the third lockdown in Austria due to the coronavirus are affecting consumer behaviour, albeit not as strongly as during the first lockdown in spring 2020.

Meanwhile, Rabobank analysts are cautiously optimistic in the current milk market forecast, because prospects for milk prices in 2021 are better than expected at the beginning of the pandemic.

After a very strong global milk production growth in 2020, Rabobank assumes that milk production will slow down significantly in 2021. The global growth in milk volume is estimated by Rabobank to be around 2.7 billion litres in 2021, which is far below the increase in milk production from 2020.

Rabobank points out that for the largest global milk exporters – EU, New Zealand, USA, Australia, Belarus, Argentina and Uruguay – the growth in milk production in 2020 was surprisingly high. In 2021, the EU and South America are projected to see the largest slowdowns in milk growth, while production in Oceania and Australia will remain unchanged.

Further positive reasons for the good prospects on the milk market are the rising raw material prices (especially crude oil) and it is also assumed that the demand of some large milk importers will increase. In addition, expected recovery in economic growth is also having a positive effect in many regions.

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Due to the temporary discontinuation of deliveries to hotels, restaurants and communal catering, the demand from the German households increased significantly. Specialised delivery dairies for the bulk consumer sector suffered in particular. In contrast, demand in German and European retail rose to a record level.

The weaker market situation in the first half of 2020 led, with a time lag, to slightly lower payments made by German dairies to their milk producers. However, there is a strong regional variation. The average milk price in 2020 will be around €0.325 cents net per kilogram of raw milk nationwide. Due to the weather, milk deliveries in Germany in autumn 2020 have been slightly higher than the same period in the previous year, which was already a very dry year. In contrast to 2019, individual regions within Germany have been much more severely affected by the drought in 2020, why there will be regional feed shortages or low feed reserves for the winter months. The production capacities for cheese in Germany were increased slightly in 2020. But no further large-scale cheese projects are currently being planned.

The German dairy industry association is concerned about the possible “hard Brexit”. The negotiations are being conducted intensively and an agreement with the UK is sought, as the UK is a large net importer of dairy products. An example: the UK imports more cheese than it produces itself. Germany would also be affected by the hard Brexit and MIV notes that the Republic of Ireland would particularly suffer from the measures.

The MIV is expecting the discussions in Brussels on the free trade agreements with Australia and New Zealand with tension and (a certain) skepticism. The MIV advises that the EU Commission should not submit offers, which are too large, since on the other hand the sales volume for European goods will hardly increase. This is especially true for the New Zealand market.

Germany is currently implementing the directive against unfair competition (UTP directive) from Brussels. This takes place in the form of an amendment to the Agricultural Market Structure Act. The federal government is pursuing an ambitious approach, but it still needs some time for the deliberations. The dairy association is not entirely satisfied with the guideline. The fact that the regulations should no longer apply to a turnover of more than €350 million per year, is unworldly in the eyes of the MIV.

The dairy association is also awaiting the deliberations of the new EU Commission on genetic engineering labeling law with interest. According to the judgment of the ECJ, there is an increasing number of voices, especially from the scientific spectrum, who call for an intensive discussion and reassessment of the topic.

The reform of the Common Agricultural Policy 2020 is currently being negotiated under the German presidency. Conclusions can be expected soon, so the set of rules can be applied from 2023. The MIV is hoping that Brussels will provide relevant and affordable solutions without increased bureaucracy for the dairies.

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The Austrian dairies handled over 289,435 tons of raw milk from suppliers in May.

Milk deliveries were 1.1% below the same month last year. Since August 2019 it has been observed that the monthly milk delivery was always slightly above the comparable period of the previous year, this trend was interrupted with the May delivery.

Company-specific programmes and calls from processors to cut back on milk deliveries are now being seen in the supply chain. Production at the Austrian dairies adapts to the changed demand due to the coronavirus crisis. Simultaneously with increasingly strict coronavirus measures and the subsequent lock-down, the Austrian milk supply reached its peak (in May) due to the season. Dairies and cheese factories appealed to their suppliers to cut milk deliveries in March.

The catering sector and wholesale trade, as important buyers of dairy products, have completely disappeared with the lockdown and exports have also partially come to a standstill. By shifting production in response to changing demand, the local dairies were able to process the milk into non-perishable products.

The production adjustment is evident in the drinking milk area. The big winner in the drinking milk segment is UHT milk (long-life milk). In March an increase of 49% was recorded compared to the same month in the previous year; production rose 39% in April and 11% in May. This was due to stock purchases due to the Covid-19 spread.

The production of fresh milk developed in completely the opposite direction, since the accumulated household supplies of UHT milk and other products bought in stock also had to be used up again. As early as March, the volume of fresh milk sold around 8% less than in the same month of the previous year. In April the production of fresh milk was reduced again (-12%) and in May, production was down by 17% compared to the previous year. In May 2020, it was around 4.3 million kg.

Sour cream and soft cheese showed growth in production in all three spring months compared to the same period in the previous year. Sour cream production rose particularly sharply in March by 25%) and May (+ 20%).

The largest production plus for soft cheese was recorded in March (+ 19%). It was not only fresh milk that was negatively affected by the redistribution, sweet cream and hard cheese were also among the losers.

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Key highlights include:

• Group turnover up 4% to £282.8m (2019: £272.3m)
• Operating profit up 4% to £7.5m (2019: £7.2m)
• Net debt down 20% to £33.1m (2019: £41.1m)
• Net assets up 25% to £39.8m (2019: £31.8m)
• Relative milk price continuing to improve for farmer owners
• First member premium paid out post year-end
• First4Milk Pledge launched
• 11% reduction in CO2e emissions year on year
• New share trading platform trades more than 3m shares
• Re-financing completed with Wells Fargo, extending lending facilities to July 2024 demonstrating financial stability of First Milk
• Post year-end acquisition of Lake District Biogas completed

Commenting on the results, chief executive, Shelagh Hancock, said: “The year ending 31 March 2020 saw us deliver business growth and development, further strengthening our financial position, whilst continuing to return value to our farmer members, who own the business. We have also launched our First4Milk Pledge – a broad commitment to sustainable dairy and a celebration of the leading standards on our members’ farms.

“Despite the uncertainties around the ongoing Covid-19 pandemic and with Brexit looming, First Milk is well-placed for the future, as a business that has strong collaborative partnerships and the scale to be relevant in the marketplace, whilst remaining agile and adaptable. Our vision for the future remains resolute – we are working together to deliver dairy prosperity.”

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Table courtesy of Hochwald

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This comes after evidence gathered during the Groceries Code Adjudicator Call for Evidence in 2016 highlighted how unfair practices have persisted in the dairy industry.

Consultation proposals include an option to introduce a mandatory pricing mechanism within all contracts between dairy farmers and processors. This would ensure the price paid for milk produced by the farmer is formally agreed within the contract, and that contract negotiations take place in a clear and transparent way.

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“The total Farmgate Milk Price will remain the same across the Co-operative, but the amount that each individual farm is paid will vary depending on their contribution under The Co-operative Difference, in addition to the other variables, like fat and protein, which affect the amount that’s paid,” said Fonterra CEO, Miles Hurrell.

“We’ve always paid our farmers based on the value that milk provides to the Co-operative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.

“This payment helps us meet the changing needs of our customers, so they continue to choose our milk and enjoy dairy as a sustainable and nutritious choice.

“We want to deliver the innovation, sustainability and efficiency needed to make the most difference to our strategy and our bottom line. It makes sense to financially reward those farmers who go the extra mile to help our Co-op differentiate its milk.”

Last year Fonterra launched The Co-operative Difference – a straight-forward framework to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.

The payment will replace the Farm Source Reward Dollars that farmers currently earn through The Co-operative Difference and will work on a tiered system. The more a farmer achieves in The Co-operative Difference programme, the higher the payment will be. The precise payment structure will be confirmed over the next few months following discussions with farmers but will be no more than 10 cents per kgMS.

Nestlé’s Robert Erhard said: “At Nestlé how milk is produced matters. Now more than ever, people expect farmers to act as good stewards of the land – safeguarding the climate, enhancing animal welfare and carefully managing water and the health of soils.”

“Farmers put in a lot of effort to produce the best quality milk possible. Over recent years, large numbers of farmers have spent a significant amount of time and money to improve their local environment and waterways to make their farms sustainable for the future. It’s great to see these farmers distinguished and rewarded for their efforts to produce and deliver a product that Fonterra can capture the highest value from. Through The Co-operative Difference, we can get better, together,” said Northland dairy farmer, Terence Brocx.

“We’ve created this with our Co-operative principles in mind. All farmers can participate in The Co-operative Difference and we’ll keep supporting them through Farm Source,” said Hurrell.

“We want farmers looking to the future, and The Co-operative Difference encourages them to continue to focus on the things that will create the highest value milk. This helps us create higher value products that stand out in the global market for their New Zealand-ness and the sustainable way they’re produced.”

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