3. PUBLIC
HSBC AGRICULTURE
The UK dairy industry – just how did we
get here?
3 November 2015
Agrihive – New Zealand House
Allan Wilkinson –
Head of Food and Agriculture
allanwilkinson@hsbc.com Mobile 07836 536150
4. PUBLIC
TOPICS FOR DISCUSSION
Changes over last 30 years
The MMB – long live the King?
Why all these issues in 2015?
Processing – successes and otherwise
Is the industry fit for purpose in a UK
and a global context?
5. PUBLIC
The 1980’s – excesses, regulation and controls
Milk Marketing Board formed 1933 – Statutory powers
To collect every litre of milk at a fixed price and fixed cost
EU Milk Quota introduced 1984….
UK - 16bn litres/ 50600 farms, 2.9 million cows
57 cows x5500 litres/ cow =314k litres/ unit
(EU - 105bn litres, 1.1 million farms, 23.6m cows
21 cows x 4450 litres/ cow = 93k litres/ unit)
CHANGES TO UK DAIRYING IN THE LAST 30 YEARS
6. PUBLIC
The 1990’s – demise of MMB – inflexible /out of date
Formation of Milk Marque
65% of farmers /60% of milk signed up with co-op
1993/4 – 36700 farmers producing 14.6bn litres from 2.6m cows
or 400k litres/ herd from 71 cows, yield of 5650/cow.
100 licences issued
‘FARMGATE’ Milk Price became a key battleground
Three daughter co-ops- Axis, Milk Link and Zenith.
CHANGES TO UK DAIRYING IN THE LAST 30 YEARS
8. PUBLIC
The 2000’s FMD, the rise of brands, of markets and
consolidation through M&A at home and especially abroad.
By 2005….UK 14bn litres from 2million cows on c21k farms
(660kl/unit)
EU15 – 115bn litres from 18.4m cows on c500k farms (230kl/unit)
(EU NMS 10 – 1000k producers, 16bn litres of milk, 4.7 m cows)
MARKETS BEGAN TO MATTER - GLOBALLY.
CHANGES TO UK DAIRYING IN THE LAST 30 YEARS
9. PUBLIC
The 2000’s continued……
By 2007/8, 64% of UK producers present in 1983 had exited.
2009 – failure of DFoB…why? Co-op or Management??
Innovation and space dedicated to dairy in supermarkets
2010 – present – over £250m in UK dairy processing
October 2015 virtual ‘duoply’ for fresh milk
Reported more types of UK cheese, than the French have!
Milk – the ultimate convenience product – 1965…and now.
CHANGES TO UK DAIRYING IN LAST 30 YEARS
10. PUBLIC
The position now -
Global demand is rising, but < than current global supply
UK growing trade deficit of value of milk products
Falling Liquid consumption and rising cheese/ butter/ yoghurt.
2014 -UK 13.8k producers 133 cows x 7900 litres = c14.4bn
EU 878k producers 27 cows x 6000 litres = c142 bn
Global production c 617bn litres
The rise of the export orientated global business.
CHANGES TO UK DAIRYING IN THE LAST 30 YEARS
11. PUBLIC
SUMMARY
Change across EU, consolidation
Falling numbers of producers supplying ….small numbers of
increasing internationally orientated export focussed
processors
The global market is here to stay and so is VOLATILITY.
Growing UK market - a KEY market by other EU processors
Place for ‘a way of life’ providing it is profitable and cash
generative
CHANGES TO UK DAIRYING IN THE LAST 30 YEARS
13. PUBLIC
HSBC AGRICULTURE
The UK dairy industry – just how did we
get here?
3 November 2015
Agrihive – New Zealand House
Allan Wilkinson –
Head of Food and Agriculture
allanwilkinson@hsbc.com Mobile 07836 536150
14. Rt Hon Elizabeth Truss, MP,
Secretary of State for Environment,
Food and Rural Affairs
16. The Savills Fit for Business Test
Have you got the mindset to take control
of your own destiny? Or are you feeling
bewildered and a hopeless victim of
circumstances?
Why are you dairy farming? It is right for
you and your family? What are your plans
for inheritance? Are you doing the right
thing for non-farming family members?
17. What will you need to spend in CAPEX
over the next 10 years? How will you fund
it and justify it?
Are you communicating with your bank
regularly and treating your bank like a
business partner? Is your bank engaged
and understanding your cash flow and
balance sheet?
18. Do you know your cost of production - REALLY?
What is your realistic future milk price? Are you
looking at evidence or living in hope in the face of
the evidence?
Have you worked out whether you are producing
what your milk purchaser really wants? Are you
maximising your return under your milk contract?
Would an alternative purchaser be a better long
term bet?
19.
20. What are you paying yourself per hour –
properly costed? What can you afford to
pay yourself and remain competitive?
Would you be better off paying someone
else and trying to add value to other parts
of the business?
What are your other skills? How much
could you earn doing something part time
or full time?
21. Might there be a day when you will find
yourself stranded without a milk purchaser
at all?
Have you weighed up the risks of
continuing to sell to a purchaser on
extended credit terms? What might these
extended credit terms end up costing you?
Is the risk justifiable?
22. Are you buying all your inputs on the best terms
and when did you last spend time checking the
alternatives?
Are you using the available AHDB resources to
get properly informed and constantly up to date
on global and local issues?
Are you getting what you need from your farm
advisor?
Are you ruthlessly and honestly benchmarking
your performance and constantly trying to identify
ways to incrementally improve performance?
27. The questions
• What should this business look like?
• How should it deal with succession?
• How can it get through the current price
trough?
• What is fundamentally flawed with the
industry?
29. Why isn’t farming as dynamic as
other industries?
• Subsidy?
• Tax?
• Capital?
30. What milk price can we expect?
• What quoted price in which currency?
• Can anything be done to reduce volatility?
• Will anyone build processing facilities if
farmers aren’t competitive?
31. Will it be enough?
• How do we measure cost of production?
• What is the variation?
• Why don’t people mention economies of
scale?
32. Does land ownership hinder
succession?
• Should landowning be viewed separately?
• Who should be helping farmers with this?
33. Should merit play a bigger role in
succession?
• Choosing between family
• Outside equity/skills
• Are management skills good enough?
