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We need to be honest about which parts of milk the industry are not thriving, says Professor Janet Godsell

"We need to be honest about which parts of the industry are not thriving and help them to adapt", argues Janet Godsell, Professor of Operations and Supply Chain Strategy from WMG at the University of Warwick, about the UK milk industry.

Given the current issues regarding the industry, Professor Godsell argues that: "Rather than being negative about the whole industry, we need to specific. Identify where initiatives are working and learn from them. Where retailers are acting responsibly this should be high lighted so that consumers can make a real choice. "

Professor Godsell's analysis in full:

Adaptation in the UK Dairy Supply Chains

In response to: http://www.bbc.co.uk/news/uk-33842001

The recent images of farmers emptying supermarket shelves of milk is a stark reminder of the difficulties faced by many farmers in the UK. It is a tough industry, but some farmers are finding it tougher than others.

It is an industry where there is some overcapacity, and the harsh reality is that in business, it is not necessarily the strongest of the species that survives but the one that is most willing to adapt. This is true in the dairy industry.

Amongst the despair there are pockets of good practice, and lessons to be learnt to support the on-going adaptation of the industry. Invisibly at the heart of many of these adaptations, is the ability to create better integration across the dairy supply chain to improve milk quality, animal welfare, environmental, food standards and costs.

Dairy Development Groups

This can be achieved collaboratively across the chain through the use of dairy development groups, whereby the retailer, producer and dedicated farmers work together to continuously improve and in return are rewarded with a price per litre of milk, calculated on actual production costs plus a premium.

These types of contracts tend to be offered to the farms with the ability to produce milk to the required profile, within a geographic range of the producer, and the willingness to collaborate and learn from other members of the development group. Unfortunately, it is not an option open to all. It could be an option for more, if more retailers chose to operate in this way. These schemes could also be expanded to include other dairy products. Marks and Spencers, Waitrose, Sainsburys, Tesco and the Co-operative all have schemes of this nature though there are some variations.

It is important for retailers to make sure consumers are clear that they are operating such a model so that consumers can build this into the choice they make about where to buy their milk and dairy products.

Value Added Products

Smaller farmers, or those in more geographically remote areas may find it more difficult to be part of a dairy development group. Lack of economies of scale, and increased logistics costs make the cost of production higher. Farmers in this situation need to find a way to increase the value of the milk, so that they can charge a premium to cover their additional costs. This may include the development of value added products such as artisan butter, yogurt or cheese. It could also include taking control of the supply chain and processing, bottling and selling the milk direct to businesses and consumers. The milk used to make our cappuccinos and lattes at the University of Warwick retail outlets comes from such a farm, Farmer Dawsons of Kimbereley Hall Farm, Atherstone. Point of Sale (POS) information in the form of cow shaped blackboards informs customers about the source of the milk. The cartons include Dawson’s Diary an update on what is happening on the farm. This degree of vertical integration requires a much broader set of business skills than those solely needed for milk production. Farmers who are willing to change but lack these skills require support and development to help them develop a new sustainable business model. They may also require capital investment to help purchase the new equipment and facilities.

At the end of the day, the UK dairy industry is currently polarised. There are parts of the industry that have adapted and are surviving, and this has been by taking a more holistic supply chain perspective; collaboratively though dairy development groups or through vertical integration by developing value added products and services.

Rather than being negative about the whole industry, we need to specific. Identify where initiatives are working and learn from them. Where retailers are acting responsibly this should be high lighted so that consumers can make a real choice. Such retailers could consider expanding such schemes to a broader range of dairy products too. Farmers who have seized the initiative to develop value-adding products also require on-going support to continue to grow their businesses. The opening of the new Gloucester services has seen a major increase in demand for a range of different local suppliers, including those from across the dairy sector. It has become the single most important customer for a number of those suppliers. Services like this could be rolled out across the country, if the Government were willing to back such an initiative.

We need to be honest about which parts of the industry are not thriving and help them to adapt. This is likely to require further adaptation of the supply chain, whether collaboratively or through vertically integration. The UK public also has its part to play. Ask questions. Find out more about where your dairy products come from. Vote with your feet and choose to support those within the industry, big or small who are trying to secure a sustainable future for dairy.

11 August 2015


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