At the HomeCamp Party I was talking with James (@monkchips), and a small group, discussing my experience of technology over my various work places from the past. Having been around for a while the cycles of life have travelled past me several times, a bit like Hales Comet. Themes such as the regular company re-org's which swing from Horizontal to Vertical organisation and back, Booms and Busts, and the popularity of Miniskirts, and then a backlash of Maxi ones have revealed their cyclic nature to me.
It is easy to think, in these days of info everywhere, all digitised and archived, that everything that was known in the past is still known, and those that have come along since have that knowledge already. What came out of the chat we were having is that this is just not the case.
A particularly interesting job that I had early in my career was working for the Milk Marketing Board in their main milk testing laboratory.
While I was describing my work a feeling of deja-vu wafted around us.
James’ eyes lit up *** Milk is just like Energy *** he exclaimed, and he asked me to write a post on the subject and so here it is. I use Farmer and Milk Producer interchangeably in this post.
So how did this revelation coalesce?
Milk is a commodity that is 'sort of natural' like energy, and like many natural things it must be harvested and processed before being available to the consumer.
Milk is a necessity of life and the only choice the consumer has is how much and what brand to use. Even then, brand availability may be restricted in particular markets.
The processor of milk is a separate business from the producer, and a supply chain links the producer and the consumer.
The price that the producer gets for their product is determined by the processors along the chain, it is also influenced by market price and market ‘adjustments’.
Milk Producers were paid a price per litre that was applied to the bulk tank supply of the milk, the price was modified by factors of Fat, Protein and Sugar content. The Milk Producers were not provided with information about the component content of the aggregate product until payment time.
Consumers pay a fixed price rate for their energy, the cost to the supplier is modified by factors of Source (wind, gas, coal, nuclear, wave, solar). Consumers are not provided with information about the component content of the aggregate product even at payment time.
What changes distorted the market for milk?
The Milk Marketing Board (MMB) was a pseudo state agency funded in part by milk processors and producers.
The role of the MMB was to manage the supply of milk for the good of the UK consumer, and to do this they managed the market between Milk Producer and the Milk Processor. Supply security was an important element of the management given the experiences of the UK during the 2nd World War.
Over this time the Producer end moved from milk into churns taken to creamery daily, to chilled, wheeled tanks taken every 3 days, to larger wheeled tank for 10 days production and then to bulk tanks collected from the farm. These moves were prompted by, and in turn caused, the consolidation and increased herd numbers per farm, more automation and new technology.
The MMB service I worked with was providing data about Fat, Protein and Sugar content on a per cow per day basis to the milk producer. This ‘added value’ data allowed the farmer to manage the milk resource (i.e. the cow) within the Milk Production business.
Why do this?
Fresh milk is difficult to store, it can be processed into dried and UHT forms, but this is expensive and was un-popular in the UK.
Fat content is important to the Creamery (Processor), Gold Top milk was high in fat (~4%), Silver Top was lower in fat (~2%) and for cheese, double cream etc, fat is removed, leaving low fat milk (ironically sold at a premium compared to Silver) and the Fat for additional products (also sold at a premium).
The constituent parts of milk depend on three variable factors, the cow, the grass & the feed. The grass depends on location, season, fertilizer, weeds, etc. The cows output depends on breed, health, feed, age, etc.
If Daisy produces 10x the milk quantity at 3.1% Fat, while Ermintrude’s milk is 4.2% is it better to exclude or include Daisy’s milk in the bulk tank?
The answer is, of course “it depends”. Being a geek, even then, I had to work on a matrix arithmetic programme (using a Commodore PET BASIC) to get the answer In fact, it is the same problem faced by food oil processors, to use palm oil or peanut oil, etc, etc? But that is another story.
Back to Milk…..
Around the same time that milk supply management moved to EU level, the MMB was dissolved, maybe pressure from the commercial market was a major factor or maybe it was mostly political, I do not know which was most significant.
Because milk production was subsided by the EU, the market distortions this introduced had to be managed by the EU. The EU sets overall rules, but the application of these rules is left to each EU State.
As milk was considered a ‘staple’ and a minimum supply was always to be available, the EU introduced a subsidy to producers. Milk production subsidies are not unique to the EU, I understand that Switzerland set the subsidy to give milk producers the same income as a factory worker, and then had to introduce punitive import restrictions, which limited a person to importing less than a litre per day, very difficult for a country with so many EU borders. The USA, Australia and New Zealand offer similar support schemes too.
In the EU milk Quotas were introduced to control supply when the world market price fell too low. Together with import restrictions, this would control the minimum price. Quota was given, free of charge, to the milk producers at the time of introduction, the size was based on the size of herd. I believe the calculation period varied between EU States, but was based on previous number of years returns giving the number of cows per farm. There was a notice period before the introduction that allowed milk producers to ‘prepare’ for the Quota system. This notice period inevitably created an uneven calculation system that enabled ‘planning’ or even gaming to occur.
To deal with the milk producers retiring, transferring of farms to siblings, the sale of farms, etc, the quotas were made transferable, and thus a market in Quota trading was created and where there is a market there is a broker.
This led to Quota leasing, sales and purchasing, not only from retiring farmers, but from those who were attracted by a high market price for Quota compared to their milk price, some to leave and some to enter the milk production business.
Because different milk producers get a price determined by their buyer not the market, the price is often lower for the small producer, the producer in a remote location, and producers in an area where there is only one buyer.
Well, that is as far I have got, I hope this post stimulates the comparisons to the energy trading systems that were brought to James’ mind in such a flash. I will be interested to see your comments.
(Disclaimer: These are 'facts' purely from my experience, the reader should verify the truth of anything I have said for themselves before reusing them)