Cry over spilt milk – before it’s too late

We seem to live in a world where things are allowed to go from bad to worse, and then even worse, until we get to the point of near total collapse. Only at that point do the relevant players decide that something needs to be done urgently. Of course, by then it is too late and many years of sitting on their hands cannot be remedied quickly and we all sit scratching our heads as to how we allowed ourselves to get into this mess.

Without wanting to get too political, if our elected leaders decide to embark on a policy of austerity and cut back on public spending to improve the national debt, they should not be surprised when many years later our normally excellent public services grind to a halt. Like any business, if you do not invest for the future and replace tired assets, sooner or later they stop working, often at the most inconvenient time.

These ‘tired assets’ could, and should, include the workforce. If you take them for granted, do not pay them properly and expect them to work beyond the call of duty, employees will finally rebel and say “enough is enough”. At that point they either find another job or, if they are comfortably placed, they may retire early. The requirement to stay at home during the pandemic has made many people think that there is more to life than work and wasting many hours every day commuting to and from their place of employment.

Similar principles apply to the country’s supply base. If for years they are used and abused, suppliers will pick and choose who they want to do business with, who is willing to negotiate a sensible price, who will not demand unreasonable contract terms and, ultimately, who will pay their bills on time.

I first got involved with the dairy industry when I joined Northern Foods plc in 1979. My then employer had started life as a dairy company which became Northern Dairies before branching out into other food and drink products. With the subsequent acquisition of Express Dairies, initially in the North and then in the South, Northern Foods became one of the leading dairy companies in the UK, not only in liquid milk, but also in yogurt, dairy desserts and commodity dairy products like skimmed milk powder, condensed milk and chocolate crumb.

Through until its closure in 1994, the price of raw milk was fixed on an annual basis by the Milk Marketing Boards to give a fair return to farmers, processors and retailers. The picture was complicated by the introduction of milk quotas, which restricted the amount of milk farmers could produce. Membership of the then EEC meant that the MMBs were always on borrowed time and eventually Margaret Thatcher abolished them. With the emergence of the big supermarket chains, the price that farmers would receive for their milk was thereafter going to be a matter of what the retailers were prepared to pay. As milk is consumed, in one way or another, in almost every household in the country, supermarkets have always used it as a loss leader and placed it at the furthest extremity of the store so you have to pass everything else to get to the milk you have gone in for.

When I joined Northern in 1979, the average price of a pint of milk was 14 pence. By the time the MMBs were disbanded in 1994 the price had risen to 38 pence. Then for the next 27 years the price barely moved at all, still being at 42 pence in July 2021. It has only been in the last 18 months that the price has risen dramatically to a high of 67 pence in November 2022.

A number of factors have contributed to the price hike, most notably feed, fertiliser and fuel costs and the dry Spring weather ruling out the usual ‘flush’ of milk production. However, the significant rise in the milk price, amidst a cost-of-living crisis, has depressed demand and supermarkets are already cutting farm-gate milk prices from the start of 2023.

The net result of all of this is that dairy farmers, with continuing high input costs, are making a very small margin on the milk they produce with the consequence that production will fall in the second half of this year. That inevitably could lead to milk being in short supply on supermarket shelves in the same way as we have seen with eggs in recent months.

So it would be a good time for retail buyers to take a long hard look at the returns being made by their dairy producers and the consequences of cutting the price they pay for milk and other dairy products. You cannot get a quart into a pint pot (or out of it, for that matter!).