Milk Procurement

Dairy Crest’s Milk Procurement team is responsible for providing an efficient and sustainable source of British milk for the company’s requirement of 2.2 billion litres of raw milk per annum. Around 70% of this milk comes direct from 1,350 direct supplying dairy farmers located across England and Wales

A strong relationship with our farmers is fundamental to our business as we work to capture new market opportunities and improve efficiencies. Our aim is to continue to develop and enhance this relationship with our suppliers and find new ways of working together.

Over the past year we have undertaken an extensive consultation programme with all groups of our suppliers to gain feedback and debate new ideas. Together with Dairy Crest Direct (DCD), who represents our direct milk suppliers, we have reviewed and challenged all aspects of our operation and jointly identified the key priorities for action.

In comparison to previous years, 2009/10 saw relatively little movement in UK milk prices. However we have seen in the past that dairy markets and milk prices can be subject to significant short-term price movements and the value of price stability is recognised by both our suppliers and ourselves. We have worked closely with DCD to deliver stable, market related milk prices to increase confidence and therefore future investment on farm.

By taking a partnership approach with our farmer suppliers, we are building a shared strategy to deliver sustainability and drive efficiency throughout the supply chain for the benefit of all parties.

Considerable progress has been made over the past 12 months

Milk supply contracts have been a major focus. In reviewing the terms under which we buy milk from farmers we have responded to their requests for greater flexibility and choice. We are working to introduce a portfolio of contract options to suit different farm business models. The first new initiative was the launch of an innovative contract aligned to our doorstep delivery initiative ‘milk&more’. This has provided a fixed price option to liquid suppliers seeking additional price stability and security. This has been very well received with over 100 of our suppliers opting to sign up to this opportunity.

Adding Value – the development of our retailer pools continues as we work with supplier representatives to explore how to implement on-farm initiatives to improve efficiency and demonstrate best practice in agriculture, particularly in animal husbandry and the protection of the environment. In addition to the ongoing development of existing milk pools, our aim is to maintain our approach to add value and introduce further alignment of suppliers to customers, products or services.

Milk Supply – total UK milk production has declined in recent years. Although this trend has not been seen within our direct supply pool, the market for direct supply remains competitive. We continue to work to develop new contract opportunities and establish clear points of difference for both existing and potential news suppliers. The volume of milk we purchase from direct suppliers has grown to 70% of the business’s total requirement and our aim is to increase this further through a staged recruitment process to reduce our exposure to third party supply.

Supporting Suppliers – the operational service we provide to suppliers centrally and through local field based managers is a key feature of the Dairy Crest offer. We also provide additional benefits and support including the funding of the unique and independent White Gold Service, which provides individual advice on how to maintain farm assured status and meet legislative requirements efficiently. We aim to communicate regularly and openly with suppliers, through activity including routine publications, meetings and events. Work continues on improving the speed and quality of communication channels through new technologies.

The Direct Supply Managers are highly valued for their operational expertise and as part of our strategic review their role has been developed - enabling them to provide individual business support based on efficiency and optimum contract performance.

In addition, we are working to promote awareness of environmental initiatives on farm as we continue to explore how we can reduce the environmental impact of dairy farming and our milk collection operation.

Agri assist is the innovative new joint venture established with DCD. This was launched in January 2010 with the specialist carbon measurement tool, which will specifically focus on generating farm efficiencies and improved profitability. Agri assist represents a first for the dairy industry as it brings together a farmer group and a plc in a relationship outside of the traditional milk operation.

Consumers are becoming increasingly interested in where their food comes from and how it is produced and we recognise that we have to maintain their confidence in the dairy supply chain. We continue to work with industry organisations, including DairyUK and DairyCo, as well as our suppliers and customers to meet our consumers’ expectations.

Looking forward we will continually challenge how we operate and seek to develop innovative solutions for the future. Over time we intend to increase the amount of milk we buy direct from dairy farmers. We also have a role to play in developing the next generation of dairy farmers and we are involved in a number of training initiatives and awards for young people, along with educational and business skills for farm managers and their employees.

In summary, we aim to develop and maintain aspirational partnerships with our direct supplying farmers, with shared benefits and positive outcomes for all.

Direct Supply Manager (DSM), Chris Mayo, with long-standing supplier Andrew Farrant on his farm in Oxfordshire. Our DSMs provide advice to our suppliers on how they can optimise the returns from their supply contracts