There is certainly a place for all the things that have been mentioned. For years, Finland and Italy have had the highest milk prices in Europe. They have the highest production costs in Europe and they get the highest price for their milk because they have developed brands with protected geographical indication and protected designation of origin. They have worked hard at that.
I spoke to a chap in Parma in Italy who sells a bespoke cheese. He met 100 customers in the UK, from corner shops to Asda. I asked how he sold the cheese to Asda, and he said, “I just told them what I wanted, because they can’t get the cheese anywhere else.”
We have failed miserably to compete at that level. We have a liquid-milk market that is the envy of the world, but we have abused it. The retailers use it as a wee badge of honour, but we do not get the benefits of it, and neither does the supply chain.
To go back to the point about diversity in prices, one reason why the retailers are prepared to pay for a cost-of-production model is that those guys need a flat profile, which is a much more expensive way to produce milk than spring calving. The same level of milk has to be produced all the time, which means that the animals must be fed at the same levels in summer and winter. Kenneth Campbell’s costs will be higher than those for a lot of people on grass-based systems, but the retailers want that profile.
In 2007, there was a massive spike in dairy products. The retailers knew that the British housewife needed fresh milk, so they introduced cost-of-production models and ring fenced a lot of the more efficient flat-line producers to produce liquid milk.
On Mike Russell’s point, I absolutely agree that we cannot afford to be without peripheral milk fields, because they are so important for the local economy. There are good farmers in Bute, Kintyre and Orkney, and I have been there several times to help with things. More collaboration is needed between the farmers, between the factory and the farmers, and in the marketing. We need to put a lot of effort into that. The Scottish Government can help, as it can help Robert Graham, but investment is needed.
Paul Grant and James Withers are working on that, but more is needed. I argue that match funding is needed. If Robert Graham is prepared to put £300,000 into a television advert, can we get some money to entice him to double that? We can do both the things that have been mentioned.
Where Kenneth Campbell is farming, he is getting an Arla price, which is a European price. To move on to Jim Hume’s comment, the big difference is that the price for the retail-aligned producers is 32p, and they have since 2007 consistently had the highest milk price. There was a period in 2013-14 when the market price overtook the cost-of-production model, which was because the market was working. The code of practice had been produced, and processors had put in place different pricing systems.
To reply to Robert Macintyre’s comment about asking people to produce milk, in 2013-14 we never asked anybody to produce more milk. The review by James Withers, which we are fully behind, said that we can grow our industry by improving our marketing and investing in processing, and production will react to that.
The reason why there was too much milk around the world in 2014 was that everyone was getting good prices because the market was strong, and every region in the world had good weather. If cows are turned out, they will—even if someone is the worst farmer in Scotland—produce more milk in good weather than in bad weather.
The issue is alignment. We need to market, process and milk, and those elements have to be in line. In terms of price variation, cost of production is at the top, but since 2012 there has been a change in attitude and processors have put in formulaic pricing that reacts to the market. Dairy Crest has a formula that is based on cost of production and the markets, and the price is still sitting at around 28p. Dairy Crest Direct, which represents the farmers, has acknowledged that that is slightly higher than the market can stand, and it is prepared to take a penny off the price in the company’s interests. That is collaboration.
Müller Wiseman offers a pricing formula that is similar to NFU Scotland’s formula, which is based on the AMPE and MCVE model. For a good part of two years, that formula paid more than the standard litre, and now it is paying below the standard litre.
There are different areas. Arla is paying a European price: it is a co-operative price that is agreed by the farmers. The mechanism by which Arla pays its price is agreed by all the farmers in Europe. Basically, it is set according to how much money Arla brings in and how much it spends every month. The rest goes to the farmer, minus the capital retention. That price is now around 24p to 25p, but that is what Arla is making.
Twelve months ago, Arla’s price was around 34p to 35p, because that was what Arla could afford to pay. The co-operatives are paying as much as they can. First Milk cannot pay as much because its business is not returning as much at present—that is because of the particular circumstances. The public limited companies are taking their profit and paying as much as they can.
Robert Graham’s price at the moment is higher than that of Müller Wiseman Dairies, and the Dairy Crest formula price is higher. That is a good thing because, in the past, all the liquid processors paid the same. If one price dropped, they all dropped, and if one lifted, they all lifted. We now have diversity, which tells me in one of my optimistic moods that the processors are starting to pay as much as they can.