Food Chain: Adding value to the milk supply chain

Building relationships with retailers and understanding their requirements can bring benefits to all involved, as Paul Spackman discovers

What would you do if your milk buyer went out of business and you no longer had someone to sell milk to? Few would opt to go it alone and set up their own milk business – but that’s exactly what West Country dairy farmer Mike Bennett did back in 2000.

At the time, his family’s farm was milking 800 cows on two units. When his milk buyer, Wessex Dairies, went into administration, he decided to take the marketing into his own hands and, instead of switching to another buyer, he set up Milk Direct, now part of the Farmright Group.

Mike Bennett (right, with Farmright member Mike King) has proved that working with retailers can provide real benefits.

“At the start, we were handling about 7-8m litres annually from our own farms, which quickly increased to 60m litres within two or three years from farms within the Gloucestershire/Somerset area,” says Mr Bennett.

The first supply contract was with Axis milk – son of Milk Marque – and, since then, volumes have increased steadily. The dairy side of the Farmright Group now handles 200m litres of milk each year from 70 farm businesses around the country and works with many of the large processors.

“A big change for us was the move into our own processing at the Plymouth site 18 months ago,” says Farmright business development director Rob Cumine. “We don’t ever see ourselves developing to be a major processor, but we have at least got the flexibility to try different things and fill that gap between the super-dairies and farm-based dairies.”

How has this growth been achieved?

Farmright’s suppliers are split into two main groups. The large farm business – “elite” – group has about 15 members, supplying 100m litres, while the rest are smaller-scale family farms supplying 1m-2m litres each.

Key to the business’ growth is the way it has forged relationships throughout the supply chain, from these farm groups through to retailers, allowing it to adapt to changing consumer demands, says Mr Bennett. “Our plan is to get as much of our milk into added-value markets as possible and create a dedicated supply throughout the chain, based around long-term contracts, which give farmers more certainty.”

But retailers and regulators increasingly want traceability throughout this chain, so that is an area on which the group has focused, he says. All members of the large business group follow the farmright management and recording system, which uses existing on-farm software to record everything that is happening on the farm – from individual cow fertility and feed intake to veterinary treatments and condition score.

The information is updated continuously and collated and backed up by Farmright. It can then be passed back to farmers via various reporting options, depending on which specific area of performance each farmer is interested in. “Rather than benchmarking farms at a generic level, we can tailor information much more easily,” he says. “My ideal would be to get down to an individual ‘per cow’ basis for profitability.”

In addition to the farmer-supplied information, input suppliers (including vets and feed companies) also provide data about supplies to Farmright farms. “If there was ever a problem with feed, for example, and you wanted to know where it had come from and where it had been used, we could find out very quickly,” says Mr Bennett. “It also brings more discipline to the way farmers record information.

“We’re trying to take retailer requirements and turn them into a benefit for the farmer by allowing them to use the information as a real-time management tool.”

Farmright works closely with a number of major retailers to develop markets for its value-added milk products. One example is the launch of naturally-enhanced Omega 3 milk with Marks & Spencer in 2004/05. After lengthy research and discussions with experts and the retailer, a dietary protocol was developed to manipulate milk quality through changes to the cows’ diet. Although it is more prescriptive than standard supply contracts, Mr Bennett says farmers ultimately get paid a higher price – typically about 29p/litre, compared with a conventional milk price of 26-27p/litre.

Farmright’s Plymouth processing plant claims the only machines in the world that can fill milk into sticks aseptically.

Another key part of the milk business is the production of individual 12ml milk portions, called Dairy-stix, which were launched in 2007 and now account for about 20% of the single-milk-portion market. “We started processing Dairystix 18 months ago and are now supplying most of the major supermarket café areas, plus some rail companies and airlines,” says Mr Cumine. “Our Plymouth processing plant, Farmright Foods, has the only machines in the world that can fill milk into sticks aseptically.”

The plant also processes milk into two-pint plastic pouches for Waitrose and Sainsbury’s on behalf of Dairy Crest, and other milk goes into standard polybottles.

Where next?

Mr Bennett believes smaller-scale added-value markets are a more viable way forward for the business than trying to compete with the large-scale milk processors and he is keen to see some of this make its way back to farmers.

The company is looking at using Omega 3 milk in butter production and is developing milk that has 10-20% lower saturated fat. “For liquid milk, which is relatively low fat anyway, there’s not a lot of benefit, but if we can use this milk in butter or cheese, there’s significant potential,” says Mr Cumine.

With nearly 50% of UK beef coming from the dairy herd, Mr Bennett says there is potential to develop this side of the business. “With all the management information we already have, we know when calves will be born and the sire of that calf sthat creates an opportunity to manage the consistency of supply – something all retailers want.”

He also sees opportunities for a similar system for lamb.