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Knowledge is key to navigating volatility (Jan 23)

Promar International’s John Giles looks ahead to prospects for dairy in 2023, and stresses that being well informed will be key to negotiating another year of uncertainty.

With some of the highest summer temperatures on record, 2022 will probably be best remembered as the year when the issue of climate change was thrown into sharp focus. The year also saw record prices at farm-gate level, with some units seeing prices above 50ppl, and soaring inflation, as feed, energy, fertiliser and labour costs also rose to record levels. Margins increased overall, but inflation is eating into milk-price gains, and producers will be under pressure if prices head south.

As we look forward we are currently facing a combination of global, regional and local challenges that directly and indirectly impact UK and international dairy producers and processing. These include: the strength of the US dollar; the war in Ukraine; energy issues; the on-going impact of Brexit and COVID-19; and our own UK economic/food policy, local food culture and industry capacity/capabilities.

We have also experienced unprecedented political change with three prime ministers occupying Number 10 since the summer. This could change again if the Government succumbs to pressure to hold a general election.

So, what’s in store in 2023? It will be a difficult year for the UK economy, and we are about to enter a recession. The overall economic situation will remain volatile and uncertain, and all major dairy categories – milk, butter and cheese – have seen significant increases in consumer prices.

Consumer spending

While dairy remains a ‘good value for money’ product, there will inevitably be some impact on consumer spending. The latest government forecast is that inflationary pressure may begin to ease in the middle of 2023, and this is good news for producers and consumers.

Supply-chain margins are still too thin, and so the ability of the industry to withstand further shocks, as experienced during the past few years with Brexit, the COVID-19 pandemic and the war in the Ukraine, is questionable. The industry has already reached a tipping point with the supply-chain shocks seen recently. The UK and international supply chain is often ‘transactional’ and/or commercial in its nature, but is increasingly being required to consider issues around sustainability, which test producers’ ability and willingness to invest just not for profit, but also for resilience.

Producing top-quality dairy products, with high standards of animal welfare and a low carbon footprint, while also remaining price competitive is a challenge that’s here to stay.

Sourcing labour

All major food retailers are committed to achieving net zero and this won’t change, even if aspects of government policy do. But during 2023 government policy should become clearer. Everyone will benefit from reduced uncertainty. Sourcing labour has also been an ongoing issue for much of 2022, and this is set to continue for the next 12 months. Producers must make themselves as attractive a proposition as they can, if they want to secure and then retain the best staff. This may be the basic salary offered, but also extends to housing, working hours and training. How this all fits in to the efficient running and management of dairy units will be part of a fundamental review of the wider business, including the potential use of robotics, parlour technology, genetics, and renewables. The requirement to do this during 2023 will be more urgent than ever.

Demands on dairy producers appear to be unrelenting. The Government, processors, retailers, NGOs and consumers all have a strong ‘pull or push’ to see more sustainable methods of production. Some demands are not controversial and are willingly accepted. However, many wish-list items appear to be in potential conflict with each other.

Factor list

So, in 2023, understanding a whole range of factors, from the technical aspects of running a dairy unit and the costs of production, to how best to reduce GHGs, increase biodiversity, mitigate the impact of climate change, as well as understanding the nuances of consumer and customer behaviour and changes in the structure of the retail market, will all be incredibly important. That’s quite a list.

And it all starts with recognising that supply-chain demands are actually highly compatible – not in conflict with each other. Key players’ interests are the same. These are that high-quality products are available that are affordable, nutritious and produced sustainably. Getting to grips with this may well be what defines 2023 as we move into 2024.

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