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What’s the outlook for dairy in 2022?

Promar International’s divisional director John Giles, who also serves on the Institute of Agricultural Management’s council, shares his views on what’s in store for dairy businesses in 2020, and emphasises the need for careful and thorough planning.

At the beginning of 2021, general consensus – and not just among producers – was ‘2021 can’t be any worse than 2020’. Yet with the ongoing challenges caused by Brexit and the COVID-19 pandemic many producers are, quite rightly, feeling nervous about the future, and about how best to plan ahead.

There are encouraging signs, but it’s important not to downplay the shorter-term challenges producers and others in the dairy supply chain will have to confront.

Many banks are predicting the UK economy will recover quicker than expected in 2022. GDP could be growing at up to 6% – a higher rate compared to many other parts of the world. UK producers’ future fortunes will be closely linked to a more confident economic recovery. This will, of course, be dependent on how the COVID-19 situation plays out during the next few months.

Global dairy demand has been buoyant and, in some markets, is back to pre-COVID levels. China has underpinned this demand. Prices are expected to remain relatively high into early 2022. Support for UK producers from major retailers remains strong. Consumer interest in how food is produced – by who, where and how – has probably never been higher. And this offers increased market opportunities for niche routes to market.

Volatile future

In terms of milk prices paid to producers, these will remain volatile for the foreseeable future. Much will depend on how and when the wider UK economy recovers from COVID-19 and, to some extent, if the trade friction we have seen between the UK and the EU is resolved. Farm-gate prices for producers did see some upward movement in early autumn 2021, but this could easily be eroded by increased costs of production.

None of the underlying issues that caused energy prices to spike so dramatically in the autumn will go away quickly, even if energy prices had been on the upward trend for most of the year already. Feed, fuel and fertiliser prices are unlikely to come down in the short term.

Producers on aligned contracts are in a better position than those who are not, but most will find the market environment challenging. This all reinforces the need to plan ahead.

Trade agreements

There has been trade friction with the EU during the past 10 months, but issues seen at points of entry will begin to ease. New trade deals with the Oceania countries still represent something of a double-edged sword. There are concerns about the ability of export-savvy producers and processors in Australia and New Zealand to supply the UK with dairy products.

Some of these fears could be reduced, particularly when we look at the major direction of trade for the Oceania countries during the past 15 years towards Asian markets. This won’t change and future focus on the UK might not be as prominent as first thought.

UK dairy exports will also have a better opportunity in these markets now. The recently launched NFU Export Strategy points the way forward here. There may be other opportunities in areas such as agri-tech too, all of which are likely to be joint investments and knowledge exchange projects, rather than the UK just selling to New Zealand and vice versa.

Turbulent times mean it is more important than ever to plan and have a clear view of the farm-business direction for the next three to five years.

The DEFRA Farm Resilience Programme, implemented during the past few months, is all about this. It helps producers understand where they are now – and where they are heading.

UK producers must have a strong sense of where they are going and what route they will take to get there. This may apply to the management system, investments in infrastructure required, or the need to focus on milk quality as well as volume.

Planning and direction also need to consider animal-welfare and sustainability/environmental standards and targets. What needs to be maintained and/or improved to meet any new requirements?

There are two forces at work here – a combination of ‘commercial pull’ and ‘policy push’. All the major policy initiatives, such as the Agricultural Bill, point to producers being incentivised to manage their businesses in a more environmentally-friendly and sustainable way.

Major food processors and retailers are all asking for both, and the future use of

agri-tech can play a key role in achieving these objectives. Sustainability and agri-tech are two key areas producers can expect to hear a lot more about in 2022.

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