Recent comments by First Milk chairman Bill Musto about commercial challenges facing cheesemakers, made me ponder the current state of cheese supply chains and the lessons learned in other food supply chains in the last year.
The summer of 2012 was a crunch time for liquid milk. Intense competition among processors to secure liquid market volume at any cost led to the erosion of whole chain margin. When cream values fell back from 2011’s historic highs, processors lopped 4ppl from farmgate prices at a time when some cost-of-production retail-aligned contracts were awarding price rises.
Today the cheese supply chain faces similar problems. Industry estimates suggest the cheese make will be down 17% for January to March. So, already, creameries are reducing production as a result of insufficient market returns, and with milk supplies down at farmgate, this will only get worse.
The effect of this is impaired processing asset utilisation and economies of scale as well as lost market share to imports.
The cheese supply chain must learn lessons from milk and beef. The liquid milk supply chain failed to build and maintain a sustainable margin for all parties and the result was a revolt at the farmer and consumer ends of the chain.
The businesses that avoided this were those that had built long-term relationships based on value creation through brand development, corporate responsibility and security of supply.
You only have to look to the recent pressures on the beef supply chain to appreciate the value of long-term but short-chain relationships.
The challenge for cheese is to stop the rot before it’s too late. retailers and foodservice buyers need to recognise that short-term margin building with no regard for whole chain margin creation is forcing the cheese processing sector to reduce cheese production, which is damaging capacity and will add cost to the chain.
Reduced efficiency in the UK cheese supply chain is bad for the consumer, retailer, processor and farmer. Cheese buyers need to realise that a stitch in time saves nine.
Robert Newbery is chief dairy adviser at the NFU