Dairy products of ‘sustainable milk’. They tumble over each other in the Dutch dairy land. Almost all milk factories are investing heavily in extra sustainable milk flows. Problem: not every dairy farmer can join. And those who are left behind will lose a lot of money. Sjoerd Hofstee reports.
The average milk price for the Dutch dairy farmer in 2018 was €34.80 (NZ $60) per 100kg of milk. A few years ago the difference between the different milk factories was at most two or three eurocents per kilo. Today, however, the dairy landscape is changing drastically. And not so much because of the “bare” milk price, but because of the many premiums that can be earned by the farmer.
First there is a premium for grazing. Anyone who lets the cows graze for at least 120 days a year, six hours a day, receives a premium at all Dutch milk factories. This varies from one to two cents per kilo. This meadow premium was introduced a few years ago under pressure from public opinion. Meanwhile, partly due to these premiums, the number of farmers who let their cows graze has increased quickly to more than 80% of all Dutch dairy farmers.
In the Netherlands, around 10 different milk factories operating on a reasonable scale collecting milk from dairy farmers. Almost all offer some of their members the opportunity to deliver GMO-free milk. In practice, that means: not purchasing concentrates containing soy from (South) America.
‘The top customers and markets demand these sustainable milk flows. The question is therefore not whether we can and want to come along, we have to. If we lose those customers, we lose way too much revenue and margin.’
Three milk factories have already switched 100% to non-GMO. The farmer is paid a premium of €1/100kg (almost NZ$2) as compensation for the slightly higher feed costs, because the soy must be replaced.
One of the next steps to be taken now and next year is the prohibition of glyphosate, in other words: Round Up, which is under severe pressure throughout Western Europe. Dairy factories state that their customers no longer want to be associated with it. At least not the customers who buy high-quality, relatively expensive dairy in prosperous Western Europe.
The sustainability requirements for participating farmers are diverse, but always involve increased cost. On the other hand there is a premium ranging from two to four euro cents/kg. In 2018 there was already a gap of €7.50/100kg between the best and lowest-paying milk factory, including sustainability and grazing premiums. The fact is that difference will only increase further in coming years.
The premiums for more sustainable milk are often at least cost-effective. There is therefore a lot of interest. It is estimated that already nearly a thousand Dutch (7-8%) dairy farmers are participating in such a programme. This growth has been achieved in a year and the growth in the market is definitely not over yet, say the milk factories. It is estimated that within two years 15% of Dutch dairy farmers can meet the reward of increased milk price.
However, there are some major challenges. For dairy factories, it is enormously expensive to create and maintain such milk flows in the market. At FrieslandCampina they say: “The top customers and markets demand these sustainable milk flows. The question is therefore not whether we can and want to come along, we have to. If we lose those customers, we lose way too much revenue and margin. ”
In addition, the requirements are tightened every year for the participating dairy farmers. Anyone who is no longer able or willing to participate will drop out and also lose the premium. Perhaps more importantly: in Western Europe the standard requirements for all dairy farmers will increase rapidly in the coming years.
Many dairy farmers argue: if I have to incur more costs, it would be better for me to also join such a concept and receive the premium. Those who really cannot get involved know they have to farm very efficiently, because the gap in milk price between them and their colleagues will continue to grow.