Milk prices are due for a dust-up

The processing industry's hunt for dairy farmers has been going on for a few years now and is becoming increasingly intense, it can be concluded. The terms of delivery are being polished up and the premiums on top milk flows have been further increased by many processors for 2025. FrieslandCampina is preparing a volume surcharge to accommodate the larger companies, something that a few years ago not done was based on the cooperative idea that every member is equal. Only a few smaller processors are still in the luxurious position of being able to afford a waiting list. The rest are doing everything they can to lure dairy farmers in to continue to use the production capacity in the factories to the maximum. However, the pond with fish is getting smaller and smaller. A market like this makes it difficult for processors to keep rolling a six.  

How much less milk?
The big question is how much milk will disappear from the market next year. ZuivelNL is counting on 2025 a shrinkage by -2,5%, which would amount to approximately 290 million kilos. At first glance, a cautious estimate. Apparently, the lobbyist does not want to be seen as a doomsayer. There is something to be said for that, because such forecasts can also function as self-fulfilling prophecy. Banks are also fairly moderate in their expectations. For example, ABN Amro expects the agricultural sector to shrink by -2,5% next year and by -2026% in 3. Feed companies often expect more volume shrinkage. Shrinkage percentages of up to 15% for the entire livestock population are sometimes mentioned informally. However, the biggest blows are likely to fall in intensive livestock farming.

De interim score of the National Termination Scheme (LBV-plus), for which registration ends on 20 December, shows that 410 dairy farmers had submitted their application at the beginning of December. A sloppy 3% of the companies. This number may not be too bad, but based on an average milk production of one million kilos per company, this is still considerably more than the volumes that ZuivelNl is counting on. It is not only the smaller companies that are closing down, but also the big boys, so it is said in the corridors. Every dairy farmer who continues to farm is therefore a sought-after object for the processing industry. A processor can simply no longer afford a substandard milk price.

ACM looks over your shoulder
In addition, extra transparency is required. In the future, a private processor must be able to justify why the milk price is moving up and especially down. Martijn Snoep, chairman of the board of the Netherlands Authority for Consumers & Markets (ACM), held a plea how dairy farmers can improve their position in the chain. He calls on dairy farmers to work together to strengthen their position and make chain agreements. The European competition rules offer farmers a lot of room for this, he indicates. This week, European Commissioner Christophe Hansen also called for better contractual agreements between dairy farmers and processors. He advocates more producer associations. According to him, it must also be determined what exactly constitutes a fair milk price. The German Minister of Agriculture, Cem Özdemir, even wants processors in his country to oblige to make fixed agreements on volume, price and contract duration for at least 80% of the milk to be delivered. He is pushing things too far, and the German dairy industry is therefore protesting strongly. 

Milk price system requires innovation 
However, it is an outdated and one-sided system that milk processors can determine the milk price - often afterwards. The chance that you as a factory manager do it wrong, is not that big. In this way, an energy supplier does not attract customers. DOC Cheese is now making a brave attempt to change this by offering its members a fixed milk price for part of the supply. Incidentally, they are still a bit unaccustomed to the current favourable market and are first waiting to see what happens. When the market turns around again, interest will probably increase. Other processors would do well to also tap into their creativity and offer dairy farmers, in addition to a good milk price, more contractual freedom of choice. Just as you can also fix the feed price for a longer period. Moreover, you then become a more interesting party for dairy farmers. The current milk price system was perfectly suited to a surplus market, but that has long since ceased to exist.