Dairy Crest's Chief Executive Mark Allen discusses the dairy industry
The past few months have not been easy for anyone involved in the dairy industry.
Poor spring and summer weather, and much higher feed costs, have made it particularly difficult for dairy farmers. They need more money for their milk, but British consumers aren't feeling that well off either. But there is no easy solution.
As one of the biggest milk buyers in the UK, and the only major milk processor still in British ownership, we at Dairy Crest have to balance these different pressures.
Dairy farmers must feel confident that they can make a decent living from their hard work and skill, so that they continue to provide us with the high quality British milk we enjoy today. It is also important for their sons and daughters because they need to believe in the future of dairying. This is the encouragement they need to be the next generation of farmers.
However if the price of milk, cheese and butter increases too much, there is a risk that imported dairy products replace those made with British milk, making it harder for the next generation of farmers.
Make no mistake, there's a great deal at stake here. With around 12bn litres of milk produced each year, dairy remains the single largest of the UK's agricultural sectors, worth £3bn annually, but recent months have seen stormy farmer protests outside supermarkets and dairies.
That's because farmers are finding it harder and harder to make a decent return on their milk, a problem which processors such as Dairy Crest have also been facing. It's certainly encouraging to hear the Government talking about making the countryside a more profitable arena for business.
So what can be done in practice to return dairy to a more stable and profitable footing? For a start, we can all still do much more to turn milk into added value dairy products for which consumers will pay a little more.
Some businesses, including Dairy Crest, have been successful at bringing new branded products made from British milk to market to meet customers' evolving needs, and this in turn has helped our farmers. However, this alone is not enough to balance the intense pressures that our customers and suppliers are currently facing.
To do this we have to become increasingly efficient and that has meant making some tough choices - none more so than our recent decision to close several of our dairies. Such decisions are not taken lightly.
Since we split from the Milk Marketing Board nearly 20 years ago, we at Dairy Crest have worked hard to build a series of successful brands, including Country Life butter, Cathedral City cheese and Frijj milkshakes.
Together these three brands now have annual retail sales of more than £350m and are growing strongly. We have ploughed some of the profits from their sales back into advertising, and we are constantly bringing new products made from British milk to market to meet our customers' evolving needs, including our healthier ranges and great-tasting and fun ranges for children.
The consistent, profitable growth delivered by these brands has been a great success story for Dairy Crest and our farmers in recent years. However, this alone is not enough to balance the intense pressures that our customers and suppliers are currently facing.
Commitment to building great brands and keeping our costs to a minimum remains a focus for Dairy Crest. But there is only so much we can achieve alone - if we are to meet the unprecedented challenges we face, then we must adopt a more collaborative approach with our farmers.
We have already made some notable progress on this front in recent months. Working with Government and farmer representatives, the industry has introduced a voluntary code of practice, which will help the business relationship between farmers and processors.
Dairy Crest was an early adopter of this code. We are also pioneering the development of a mathematical formula for use by us and our farmers to calculate the price we pay our farmers for milk in a more transparent way, which better reflects the costs they incur in producing it. We are also doing more than ever to give our supplier farmers assistance in areas such as herd health and on-farm efficiency.
Collectively, all of these measures should go some way to help ensure that our farmers and Dairy Crest alike get a more sustainable return from their products.
But they won't work all on their own. We'll need the continuing support of our large customers, in particular the major retailers and the other large "end users" of milk, such as the major coffee shop chains who need to pay a bit more for their milk.
Over the past couple of months we have had some encouraging conversations with individual customers, a number of whom are already helping farmers by paying more for milk. It is vital that this dialogue continues as we move forward. The sector will only make real progress in the long term if all parts of the supply chain are fully engaged.
We have already seen the first signs of how this can work, and are determined to ensure our business contributes properly to a thriving dairy sector at the heart of Britain's rural communities. It is a prize worth fighting for, but there is still much more to be done.
This article was published in today's Daily Telegraph: