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24-02-2017

South Wales Dairy Conference

Afbeelding: SWDC web image

Never waste a crisis, said Euryn Jones, Regional Agricultural Director at HSBC, opening the South Wales Dairy Conference. The aim of the day, held near Carmarthen at the beginning of February and organised by ForFarmers, HSBC and CARA, was to draw some lessons from the past few years in the dairy industry and look to the challenges ahead.

Rocky road ahead

Afbeelding: Mark Berrisford Smith - web

The huge task ahead for the British Government as we head towards Brexit was highlighted by Mark Berrisford Smith, Head of Economics for HSBC’s commercial banking business in the UK. 

“Don’t think the British Government will have time to do much else but concentrate on Brexit for the next few years,” warned Mr Berrisford Smith. He went on to explain that the government needs to negotiate an exit treaty for Brexit that not only covers all the aspects we hear about in the press but areas as diverse as the European Space Agency and transport links, as well as addressing the huge number of trade deals that have to be made across the globe.

“Once article 50 is triggered we will leave the EU, whether deals are done or not, but trade deals take on average seven years to complete. It is very likely that there will need to be some kind of interim measure in place to bridge this time gap.

“We are on a cliff edge and once we trigger Article 50 the clock starts ticking for the UK, not the EU. We know we only have two years to get something sorted or we just drop out, the EU has no such deadline to work to. We have a rocky road ahead.”

Brexit is not the only bump on that road. A sluggish global economy and no clarity on what President Trump’s economic policy will mean for global trade, will both contribute to the ride.

“Post-Brexit Sterling has become a different currency from the one it used to be,” continued Mr Berrisford Smith. “What really impacts our currency now is politics; a Brexit speech can knock 10 cents off the pound.

“The situation with currency devaluation brings inflation, and we may be looking at rates between 3.5% and 4%. In an economy where we find it hard to bid wages higher, the consumer will feel worse off, affecting their behaviour.”

Farming support post Brexit

“Farming support is going to be very different post Brexit,” said Mr Berrisford Smith. “Whatever we get won’t look like the CAP. When the British Government make the rules they have to defend them and can’t blame Brussels for a policy unpopular with the British public or media - it may be seen as a perfect opportunity to claw some money back.”

Developing a successful dairy business

Afbeelding: Tom Rawson - web

Setting clear objectives, being innovative about business structures and keeping his eyes open for opportunity has helped Tom Rawson develop a hugely successful dairy business in Evolution Farming.

After a background growing and developing the family dairy farm Tom Rawson set up Evolution Farming in 2009/10 with a business partner (another partner has joined them in subsequent years). The business has innovated and grown to include two farm business tenancies, a contract farming agreement and three management agreements on units across the country, as well as consultancy and industry work. The aim is to be milking 3,200 cows this year, with 1,800 owned within the business.

“Setting clear objectives has been crucial in giving guidance,” explained Mr Rawson. “Amongst the objectives of Evolution Farming is the doubling of profitable income every five years, recruiting and retaining the best staff, achieving a cost of production in the top 10% of dairy farms and a return on capital of 25%.”

Tom and his partners have been innovative about how they have raised capital, privately and with the bank. They’ve sought help and advice from consultants and advisors, mentors, friends and family and through constant networking.

“You never know where your next opportunity or excellent staff member will come from. We’re having increasing success with Facebook, Twitter and other social media,” he explained.

The downturn in the sector has re-focused Evolution Farming on cost-cutting and has reinforced the power of the spring calving model in their units.

“It helped us realise that profitability and return on capital is key to any business – don’t spend too much! Evolution Farming is now aiming to achieve a cost of production that’s around 20ppl across all units, in a bid to help manage volatility at a farm level. We’ve looked to structure debt with the bank, not with local creditors.”

Mr Rawson continued; “In future we’re aiming to become more professional. We also want to provide career progression within the company to ensure we get the right calibre of applicants for jobs and that we retain them within the business.

“There will be opportunities in the future to increase animal performance, particularly yield form forage, and we want to choose our next opportunities carefully. But, above all, one of our key objectives has always been to make farming an exciting place for the next generation to work in.”

A changing dairy horizon

Afbeelding: Ian Potter - web

Ian Potter, industry commentator from Ian Potter Associates, spoke about how the last industry slump and future issues will affect the dairy industry.

“In the three years between 2012/13 and 2015/16 British milk production jumped 1.9 billion litres (14%) at a time when there was not real increase in demand, leading to the price falls we saw,” said Mr Potter. “Be in no doubt that the recent price recovery was supply driven not demand led, and dairy markets will keep falling if we keep flooding the market. When milk prices get to about 25ppl farmers seem to turn on the tap.

“I hope we see stable milk prices for a few months to help us take stock and work out how to manage this situation, but ultimately the market will take care of the milk price.”

Avoiding the lows means you have to give up the highs when it comes to milk price, he argued. Ian stressed that there are national and international market opportunities available. The UK is the world’s third largest dairy importer by value. It is also the largest net cheese importer in the world and 98% of the UK dairy imports are of EU origin.

Dairy farmers need to continually explore ways to cut costs. Volatility will drive out the high cost or high debt farmers or those with an alternative option.

“Those with deep pockets or low costs of production will survive. When prices rise don’t go out buying, instead pay off borrowings and put some aside,” said Ian.

Developing diversification

Afbeelding: Andrew Freemantle - web

A downturn in the pig market led pig farmer, Andrew Freemantle, to establish a farm shop and diversify further by producing a range of pork products sold in the shop and to local restaurants and catering outlets.

“We started pig production back in 1994 - a good time to be in the business - but by the late 90s the industry was producing more pigs than was needed and I knew we needed to diversify,” explained Andrew, who farms on the outskirts of Exeter.

He now has a 350-sow farrow to finish Freedom Food approved pig unit marketing about 190 pigs a week. About 50 or so of those pigs each week are sold under their own Kenniford Farm Brand.

Andrew made a further move into catering trailers, taking advantage of shows and outdoor events, as well as having more permanently-based trailers in local shopping areas.

“I’ve got a balance in the business by making sure a quarter of the pigs we produce are sold at a fair price all the time, via our own shop and catering businesses. This makes it easier to manage the low prices when they hit the pig market. We must take a lower price on this quarter of the business when pig prices are high in the market but it’s worth it for that security during the hard times.

“I’ve learnt that if you diversify you have to make sure you don’t neglect the core business. There is no point earning a bit of money at a farmer’s market if the pigs are not performing back home. Our core business needs to be low cost, high output to survive.”

“Master the ability to delegate quickly; it’s the only way your business will progress. Diversification can be a great way to keep family motivated and on the farm if the core business can’t afford their wages,” Andrew concluded.