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Getting the best from your buyer
Published 16 March 10
DairyCo analyst, Patty Clayton, who worked on the DairyCo Company Strategy and Performance Report with Bidwells Agribusiness, looks at the key points that farmers should consider when using the report.
The new Company Strategy and Performance Report published by DairyCo aims to help you the dairy farmer improve your understanding of, and relationship with, your milk buyer.
Researched by Bidwells Agribusiness, the report provides a detailed analysis of the seven largest milk buyers in Britain, giving information on their business strategies and how they are performing against them. The companies were selected by volume of milk processed, and, there being a significant drop between the seventh and eighth processor in volume terms (at the time of selection), this was chosen as the cut off point.
The report investigates the potential for these milk buyers in terms of milk price and security of demand. It provides valuable information to help you in your decision making both in terms of choice of buyer and your own future business development plans.
But it is a comprehensive report, so how can you best use it to get the information you need?
- Consider the markets your buyer is involved in
For each of the companies analysed, the Marketing section of the report provides a summary of its product portfolio and the extent to which it is involved in the different sectors of the market. The market sectors a buyer is involved in have significant implications for how susceptible it is to price volatility. Dairy commodity prices are largely determined on global markets, and are sensitive to small changes in global supply and demand. Those buyers heavily involved in the production of powders, commodity cheeses or brokering are likely to be more exposed to price movements than a buyer who supplies to the liquid milk markets or branded products.
If a buyer has a diverse product portfolio and operates higher up the value chain, then this can mean the farmgate price will be less susceptible to market volatility.
- Assess the growth potential of your buyer
A company can grow its business in different ways; through growth in the markets its supplies, by capturing a larger share of that market, or by developing and expanding its product range to supply new market segments. The potential for a company to expand has implications for the future demand for your milk, so looking at growth potential is vitally important. If you are considering expanding production in the future, will your buyer be able to buy your increased supply if it is not growing its market or product range? - Review your buyer's business strategy
The report contains a section summarising each company's business strategy, which provides information on future direction and development plans. Consider this strategy along with its ability to deliver. By reading the financial summaries provided for each company, and taking into account the market environment the company operates in, the feasibility of that strategy can be determined. Key questions to think about when examining a company's overall finances is whether it is stable enough to take advantage of opportunities as they arise, and whether it has the ability to remain competitive in the marketplace? Look for whether or not its market sector is growing, and whether thatcompany's long-term strategy allows for such growth.
- Review the processing facilities of your buyer
The report contains a section examining the current processing facilities of each buyer and recent investments and consolidations. In assessing this information, it is important to see if the current capacity of your buyer is sufficient to meet its needs now, but just as importantly, if it will also be sufficient for the future. Keeping in mind the market your buyer is currently operating in and its strategic plans, is there sufficient capacity available, and is it being used efficiently? Is your buyer able to remain competitive in light of what other similar buyers are doing? And, if there is a plan or a need to invest in new or replacement processing facilities, does your buyer have the financial ability to do so?
The report contains a great deal of information, and to assist you in using the report, we have written a short guide, which takes you through the main chapters, looking at the information provided and setting out which questions to ask to help you plan your own business activity as well as better understand the strategy and performance of your current buyer.
Both the Company Strategy and Performance Report and the accompanying guide can been downloaded from www.dairyco.org.uk.
DairyCo is keen to hear farmer feedback, so if you have any comments about the report, please email info@dairyco.org.uk.
