End of Year Review 2015: Agriculture

A tough year, especially for dairy farmers, saw protests against supermarket prices and the formation of new co-ops in response to volatile market conditions. There were also innovations...

A tough year, especially for dairy farmers, saw protests against supermarket prices and the formation of new co-ops in response to volatile market conditions. There were also innovations from Co-operatives UK, which launched a new membership package for agri-co-ops, and from the Ecological Land Co-operative.

It was a tough year for British dairy co-ops, with reduced global demand leading to oversupply and prices below the cost of production. In July, co-ops First Milk and Arla announced one of a string of milk price cuts.

Arla cut its price by 0.8p to 23.01p for UK members. It costs between 30p and 32p to produce a litre of milk according to AHDB Dairy, which works on behalf of British dairy farmers. Farmers responded with direct action. They emptied shelves of milk in supermarkets including Aldi, Asda and Lidl, paying for it or leaving full trollies at the checkout.

After the protests, Morrisons introduced its Milk for Farmers scheme, which enables shoppers to choose to pay a higher price for milk and cheese so more cash is passed to producers.

Arla, which supplies the majority of Morrisons milk, sparked controversy when it chose to distribute the extra profit between its 13,500 producer members across Europe, not just its British members. Its spokesperson said UK farmers benefited from revenue from all its business, including successes in Europe.

First Milk met controversy over distribution of income from a Tesco deal
First Milk met controversy over distribution of income from a Tesco deal

First Milk took a different approach in September after a deal with Tesco improved prices for members supplying its Haverfordwest creamery. Scottish members, who had contributed towards £9.5m of improvements at the Welsh site, said the move had bypassed them.

“This is the first time there’s been a market uplift,” said NFU Scotland president Allan Bowie. “They’re looking for benefits from all sites but this deal only benefits one particular milk field, which was created by First Milk’s new management.”

First Milk said it had invested across the country, including substantial input at Campbeltown and Glenfield near Fife. But Mr Bowie said the co-op’s Scottish infrastructure for value-added processing was ‘inadequate’.

First Milk’s year has been tumultuous. In June it cut 70 jobs and conducted a Myners-style independent review following a disappointing performance in the previous nine months.

Its new chief executive Mike Gallacher worked with the co-op’s board to refocus the business on core UK dairy contracts and customers. They based pricing on net commercial returns from First Milk manufacturing sites and customers, using the tightest and closest milk fields. In December it announced increased profits but lower milk prices.

Meanwhile a deal spanning Ireland and Northern Ireland created a new dairy co-op. LacPatrick, formed by Ballyrashane and Town of Monaghan co-ops, plans significant new investment and a global marketing strategy.

Nigel Kemps, the co-op’s new deputy chief executive, said the merger was forced by the state of the market and poor returns to producers. “The size and scale we now have as a merged entity will ensure we can be more competitive, and achieve better returns,” he said. “Our aim is to give dairy farmers in the north of the island confidence to grow their own businesses and herds.”

In November, the two largest dedicated organic dairy pools in the world, the UK’s Organic Milk Suppliers Co-operative (OMSCo) and the Organic Valley/CROPP in North America, announced they would increase collaboration by taking membership in each others’ organisations. CROPP is already responsible for the marketing and distribution of OMSCo’s Kingdom Cheddar, the only European organic cheese in the US market.

Richard Hampton, managing director of OMSCo said: “This agreement will allow both co-operatives to market each other’s bulk and branded products and, by working together, OMSCo will be better prepared to satisfy the growing global appetite for organic dairy products.”

This year OMSCo received the UK’s first license to export organic products to China, covering 15 million litres of milk.

US agri-co-ops have had another year of sustained growth
US agri-co-ops have had another year of sustained growth

US agri co-ops announced records for the fourth year in a row, with net income up 16.5% for 2014 and revenue rising 0.4% from 2013. They earned $6.5 billion net income and generated $246.7bn total revenue.

Employment increased 0.4% to 191,000 people. The number of agri co-ops fell almost 4% from 2,186 in 2013 to 2,106 in 2014. Despite this, co-op membership grew by 1% to just under two million.

Co-operative UK’s Co-operative Economy report shows that British agri co-ops have a combined turnover in excess of £6.2 billion. Approximately half of the UK’s farmers are members of a co-op.

“The sector needs to be vocal and to feed into relevant policy and development areas,” said Ross Evans, Co-operatives UK’s agricultural manager. “We need co-ops to be a point of focus, whether that’s in Defra’s 25-year Food and Farming Plan, the development of alternative business models for farming or the needs of dairy producers.” He says farmers are concerned about volatile markets, notably in milk and lamb, and how to manage the risks.

Co-operatives UK’s new membership package aims to bring support for English, Welsh and Northern Irish agri co-ops in line with that available in Scotland. It is working with the Scottish Agricultural Organisation Society to build on existing networks, improve collaboration and make the sector’s voice stronger. The new offer will include governance and legal advice, grant support, regional and national events and marketing materials, along with discounted training and business development consultancy.

And 2015 saw the Ecological Land Co-operative continue to innovate. Its successful £300,000 share offer will enable it to develop 20 sustainable farms in the UK over the next five years.

The multistakeholder co-op purchases agricultural land and divides it into residentially managed smallholdings. The smallholdings are aimed at new entrants to horticulture and mixed farming, which are protected for affordability and agricultural use in perpetuity. Investor members retain 25% of voting rights, worker members share 25% of the vote, and individual land managers own the remaining 50%. Its 22-acre Greenham Reach site already accommodates three businesses and three dwellings.

Key events:

APR: Milk quotas end in the EU

MAY: Land co-op opens share offer for 20 small farms across England

JUN: First Milk announces governance review following job loss proposals

JUL: Irish dairies complete merger and create new co-op, LacPatrick

AUG: Farmers protest at supermarkets following milk price cuts

OCT: First Milk bypasses Scottish farmers with Tesco deal

OCT: Arla’s shares benefits of UK price increases with all 13,500 members

NOV: American agri co-ops set records for fourth year running

DEC: Co-operatives UK launches new package for UK farmer co-ops

DEC: World’s two biggest organic dairy co-ops announce new partnership

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