by Sophia N. Kellman
The primary challenges facing the Barbados dairy sector are two-fold – internal and external. Internally, high costs, particularly high cattle feed costs, plague the industry.
For some farmers feed costs can be in excess of half of all costs. Farmers who lower their feed bills tend to sacrifice milk production in the process. Labour costs are also high.
Secondly, a lack of support infrastructure and independent economic institutions places the industry at a marked disadvantage. Herd management issues and long calving intervals are challenges at the farm level. Thirdly, lack of cohesion in the industry undermines trust and precludes collective responses.
An acute internal problem stems from the quota system. Unlike a true quota, it is not arranged as a contractual arrangement between the Pine Hill Dairy and the farmers.
Generally, quotas come with responsibilities on the part of the producers and of the processor. The rules (formula) for changing quota levels are usually clear and agreed upon by both parties. This reduces, but does not eliminate, friction between the parties involved.
Moreover, the quota system is not supported by import coordination and price support programmes which usually accompany supply management programmes. Externally, challenges associated with export-generation and promotion, and competition from milk, milk powder and evaporated milk imports, continue to strain the industry.
For the industry to move forward, price levels must fall on a national level. This might mean altering the currency structure. The current exchange rate structure places tremendous upward pressure on domestic prices, making exports too expensive and thus less competitive internationally.
Pine Hill Dairy was established as part of the move toward import substitution and export promotion. These were intended to stimulate economic development.
If economic growth continues to be a national priority, then the overall framework under which the dairy industry operates must change. In other words, institutional deficiencies must be corrected.
With respect to feed prices, commercial farmers need to move away from reliance on commercial feeds. Dairy nutritionists agree that high quality grass is the best nutrition for cows. Farmers should work together for a comprehensive grass-feeding programme. Where needed, the Barbados Agricultural Society and Barbados Dairy and Beef Producers Association could use collective bargaining to negotiate prices and facilitate bulk feed purchases, etcetera.
Teaching the public of the values of agriculture and encouraging youth to work in agriculture should also be encouraged, providing a labour base to draw from. Of course, the quota system administration must become more coherent and transparent. The rules of the game should be clear.
Without a shadow of a doubt, production costs are still too high. Milk and milk product imports are increasingly becoming substitutes for local production.
Some argue that, given that much of the milk sold on international markets is ‘dumped’, that is, sold at costs that are lower than and do not reflect the true economic value of the product, then, according to the theory of second best, making it more expensive to import such milk products actually corrects a market failure by removing that distortion.
‘Corrective’ tariff and non-tariff barriers would increase the price of imported milk, including milk powder, evaporated and condensed milk. Of course, the incidence of the burden of such policy measures might make them unjustifiable.
In any event, if the quota system stands, then it should stand on strong legs with the tri-fold arrangement of supply management, import coordination and domestic pricing working together.
This is hard work. Eliminating the quota might possibly be one way to move forward. However, any moves to eliminate the quota should be fair-minded, keeping promises made to farmers in mind.
That would depend on the long-term plan agreed upon. The industry is suffering and must be re-configured; and the quota system needs to be re-structured in a way that’s fair and keeps in mind promises that were made at its inception and over the years – the gentleman’s agreement, if you will.
Pine Hill Dairy tries to be flexible and outward looking – strengthening its foothold in regional markets.
This is good, but milk production is not as flexible. As one farmer once said: “A cow is not a faucet. You can’t just turn it [milk production] on and off.” It’s difficult, at best, to one day tell farmers “bring all the milk you’ve got, we’ll pay you top dollar” and the other day say,
“Sorry, plans didn’t work out as we expected, so we don’t want that much milk anymore. Your loss.”
Both parties are in business for economic reasons. Pine Hill expects farmers to produce otherwise it turns to plan B – imports. Farmers have nowhere to turn except to Pine Hill Dairy. In the middle of this, the consumer is affected due to uncertainty, and perceived pricing and quality issues.
To be strong in the future – if the industry is to survive, even – farmers and Pine Hill must have a long-term plan with reasonable expectations embedded in that plan. This would include contingency planning – ‘what if’ scenarios and how are such scenarios to be handled. Keep the consumer in clear focus.
As an example, if new products are being developed, Pine Hill should use random samples from the local population to “taste test”. Advertising should be part of its strategy. TV or radio ads may increase up front costs but might prevent unsold milk from stockpiling.
Cow milk production is in shambles in many parts of the region. If Pine Hill Dairy and local farmers work together as a team to supply the local and regional market, then supporting the industry as an emergency measure could contribute to a viable industry in the future.
Milk and poultry production were the only two sectors in which the Food and Agricultural Organisation found Barbados to be self-sufficient. If agriculture is important and if dairying is considered worthwhile, then policy makers might want to seriously consider how best to strengthen and re-vitalise the sector.
In any event, Government does not seem to be in a financial position to support the industry. It might be able to offer administrative support. At one point, farmers were not being repaid Value Added Tax since the Government had no money.
In the past, the domestic market was able to absorb a lot more milk. True, consumer tastes are changing and consumers are becoming savvier and more health conscious. The onus is on Pine Hill or any processor, to reach out to different segments of the market.
Farmers and Pine Hill should channel consumer preferences in their favour. High quality yogurts made with more fresh milk would allow PHD to emphasise quality. Farmers producing at required levels could underscore reliability of supply.
Having different types of milk products geared toward different consumer segments says, “Hey, we know what you want and we will work to give you what you want.” While a certain consumer prefers fresh milk, for drinking, in cereal or as a supplement, another consumer wants a small packet of shelf-ready, long-life milk that he can take to work or school and use in tea or coffee or on-the go.
Consumers want choices, not gimmicks. Incorporating cheese or yoghurt- making in the schools’ home economics programmes, teaching such skills to home-makers or other individuals or community groups could also create a market for local milk products. Some consumers want organic products. If some farmers would expand into this area, they would be able to fill a market vacuum.
The Caribbean region continues to be a viable market. Once Pine Hill Dairy overcomes its labeling and negotiation challenges, expanding regional exports should not be a huge problem. The classification structure it works under needs to be updated to make exports to some of the other islands easier.
Least Developed Countries and More Developed Countries have become almost meaningless terms and using such classifications as a basis for trade today seems somewhat archaic.
Nationally, Barbados produced more than 14 million kilogrammes of milk between 1990 and 1992. Pine Hill Dairy bought less than half of this milk. In 2011 national milk production was at its lowest level since 1976 (with the exception 2006’s milk shortage.) Pine Hill Dairy now buys about three quarters of all milk produced in Barbados. But national and regional numbers indicate room for expansion.
The Cotonou Partnership Agreements (Economic Partnership Agreements between the European Union and African Caribbean and Pacific States), and specifically the CARIFORUM EPA, imply that it should be easier to export to the EU.
However, the Official Journal of the European Union of October 30, 2008 pages 132-136 indicates that most milk and milk products are excluded from entry into the EU. The milk industry is heavily protected in Europe. At present, that would not be an easy market to break into so Pine Hill Dairy needs to continue more of what it’s already doing – it is keeping its eye on the region with a view to expanding regionally.
In terms of imported milk, the impact varies. During the 1980’s, imported milk complemented locally produced milk. They both followed an upward trend. Government invested more in Pine Hill Dairy and it operated dairy farms.
Just prior to and during the structural adjustment period of the late 1980s and early 1990s, domestic production fell drastically as farmers, consumers, and Government were all forced to tighten their belts.
From 1989, Government support to the industry began to falter. By 1998, Government had no financial interests in Pine Hill Dairy. Barbados Shipping & Trading became the primary shareholder with a financial interest that exceeded 83 per cent of shares. During the 80s, although imports rose, they didn’t affect production much. Government continued to use policy tools – embargoes, licensing, etcetera. to control how much milk product came into the island.
By the mid to late 1990s and, certainly, by the turn of the 21st century, imports were becoming more impactful at various level. Moves toward trade liberalisation caused Government to convert non-tariff barriers into tariff barriers.
World Trade Organisation commitments resulted in lower tariff levels over time. The initial impact was that imported evaporated and condensed milks began to compete with Pine Hill Dairy for market share.
Fresh milk and milk powder imports depend, not only on tariff levels, but on consumer spending and consumption patterns. Both have been relatively flat under the recent downturn. This appears to have tempered import levels.
There are number of pertinent questions which need to be examined in terms of the central concerns facing dairy and agriculture and agriculture’s role in economic development. Is it important to the country, or not? If so, how will it be strengthened? Is self-sufficiency important? Is there the will for the industry to survive? If yes, in what form and under what conditions? Can farmers provide Pine Hill with a reliable supply of quality milk? Will Pine Hill stick to its commitments?
Once upon a time, sugar was strong. In fact, it was king. Now it is a memory more than a reality. Dairy could go the same way unless it becomes “indigenised”. The industry is at a crossroads but it remains something of a mystery to many and a somewhat “privileged” sector. This could work against it.
As cow numbers decline, so will milk production. Entry costs are prohibitive and only a select few can even afford to own a cow today. If disinterest in agriculture, and high prevailing prices (land, labour, and feed costs) continue, it is almost certain that the dairy industry will collapse. We need only look at the sugar and beef industries for examples.
High domestic price levels put a strain on all sectors of the economy – but particularly on those that compete in any way with the international market. “Cadillac” cows strain farming. They hold the promise of (potential for) higher milk output, but they also mean increased costs of care as the high-producing cows are usually not suited for tropical climates so they have to be kept cool, etcetera if they are to produce milk.
Some areas will take time to address. Others measures can be taken almost immediately to strengthen the industry. Steps that can lead to a stronger industry would be to: * Encourage private investment in the industry (can milk be converted into powder form locally?); * Develop a comprehensive high quality grass programme; cow nutrition experts agree that, where, available, grass (supplemented with concentrate feed and supplements) is ideal; * Encourage local milk use in as many sectors as possible: hotel, tourism, school- feeding, home economics, “cottage” industries, etcetera; * Encourage an “indigenisation” of the industry; * Expand product range (specialty cheeses, high quality yogurts, home-made butter kits…) * Re-evaluate the exchange rate structure; * Encourage farmer cohesion (bulk purchases, etcetera.) * Focus on feed development that uses local inputs (and therefore not as much subject to the whims of the international market, shipping and port conditions, etcetera.); * Educate and collaborate with the public to manage perceptions about agriculture, in general and dairying, in particular; * Increase farmer/processor collaboration. * Sophia N. Kellman is a Barbadian Agricultural Economist based in Irvine, Carlifornia who has researched the local dairy industry.†