Editor’s note: The following column is a quarterly update from Global Dairy Farmers, a network of farmers, companies and universities. Contributors from this global network of experts provide Progressive Dairyman readers with a quarterly update about events affecting dairy farms around the world.
At this moment milk prices are very low worldwide, especially in New Zealand and China. In the EU and U.S., we currently are dealing with milk prices below cost of production. Blaming others is never the solution; it is our own responsibility to find solutions for the future.
It is remarkable that the milk prices of cooperatives Murray Goulburn in Australia and FrieslandCampina in the Netherlands are significantly higher than others in the same region.
Both cooperatives have enough power or a strong portfolio to influence the market. I am happy we are delivering our milk to FrieslandCampina.
How does Fonterra in New Zealand explain to its members that farmgate prices in Australia are more than 25 percent lower? I guess it doesn’t. The CEO of Fonterra is blaming European producers for glutting markets with milk. That is their answer to low prices.
Cooperatives outperforming the market
Despite the relatively good milk prices from FrieslandCampina, current prices cannot cover the cost of production. That’s why I am looking for new ways to improve farmgate prices.
Together with students, we did market research and our thoughts were confirmed: Markets can be improved by listening better to what consumers want. Claims related to food safety and health are no longer for discussion; these are proven important.
Apart from that, consumers are keen on knowing the story behind the origin of the product milk. This can be done with the use of dairy farmers’ pictures, dairy farms and cows; these are positively contributing to consumers’ mood about dairy products.
This promotion strategy works out well in developed countries, such as Canada, the EU and Australia. There is room to grow at least 7 percent of the consumer market.
My good friend and Australian dairyman Terry Hehir is an example of how to double farmgate prices with hardly any increased production costs. He is producing speciality cheeses and restricting production. He and his processor are keen on having a shortage of their cheese in the market, thus increasing the price for their products.
I’ve seen other successful examples for how to increase milk price in my own country. Another solution can be to use backward integration in the food chain by producing “special,” such as A2 milk.
Be aware of risks involved in trying any new strategy. The dairymen who have succeeded in using these strategies also considered a buffer to cover potential failure.
Why Canada’s market is so appealing right now
In my opinion, Canada currently has the favored position in the dairy market because of its strong relationship between producers and consumers. This relation is under pressure due to Trans-Pacific Partnership negotiations.
The Canadian circumstances for producing milk are more than excellent. In most parts of Canada, you do have an excellent climate and clean air for dairy cows. Infrastructure for processing dairy products and knowledge transfer is well organized. There are no public food scandals, and Canadian consumers have generally good incomes.
In my last column, I referred to possibilities to improve farm management. Remember, you can divide the costs on your dairy into three main activities: producing feed, producing cows and producing milk.
If you start tracking costs in this way, I guarantee you that you will be amazed. This cost accounting structure will give you new insights in how to lower costs and improve margins.
Summary
My message to you: Be positive and proud to be a dairy farmer. Take the lead for the future and don’t blame others. You can have positive influence on your own situation. PD
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Bram Prins
- President
- Global Dairy Farmers
- Email Bram Prins
