Inside Milk
'Milk supply will move much more'
In the coming years, the European Union (EU) will not only see strong fluctuations in dairy prices, but the milk supply will also fluctuate much more. Thomas Carstensen of Arla Foods Amba sees this as one of the challenges. In addition, cooperatives must also play a role in managing risks on the farm.
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Dairy prices have been moving since 2007. "Now the obstacle of April 1 has also disappeared." Carstensen means that the quota used to be the deciding factor when making the decision to produce more or less milk.
Obstacle April 1
"That trend became visible in January and continued in the months after April 1. It was not the milk price that supported the decision." Because the milk quota has disappeared, dairy farmers are becoming more responsive to the milk price. He therefore states that dairy farmers are causing the volatility, something that has been seen in the United States (US) for a longer period of time.
After price volatility comes volume volatility. A challenge for cooperatives that have to put a large volume of milk on the market every year. For FrieslandCampina, among others, it was an argument to call on dairy farmers to keep the milk supply in balance in 2018 and to start working on the phosphate rights in time.
Carstensen indicates that the volume of milk coming from dairy farms to processors will increase. At the same time, Arla is counting on more milk, for which profitable options must be developed. Of those extra liters, 95% must be destined for a cross-border destination. "Dairy farmers ask: what are we going to do? Pay a fixed price for 75% of the milk and let the remaining 25% depend on the market, that is not possible."
No control over milk price
The reality is that an average dairy farmer has to deal with 75% to 80% fixed costs. He can hedge the input, but he cannot fix the output (the milk price). That must change. The role that the cooperative can play in this is facilitating. More specifically, Carstensen is talking about setting a benchmark, "so they can do it themselves."
Trade must modernize. Not only do things have to be done in the traditional way, but also online. It is about hedging, but also about trading as happens on Dairy Auctions Online (DAO). “It is important that more transactions take place.” In other words: the market must become more transparent. The fact is that in the future more business will be done by women, probably Asian, over 30 and via the internet. The dairy sector will have to go along with this.