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Combined Annual Report and Sustainability Report 2018

Dairy farming

At DMK, as a cooperative-based dairy company, the community of dairy farmers and the shared responsibility for the entire value chain “from grass to glass” are both firmly anchored in the structure. And the people in administration and production know and understand the challenges that farmers face. In the new corporate culture, the central focus for every employee is his or her personal contribution to the company’s success and therefore to the amount paid out to the dairy farms by way of the milk price. In 2018 the amount paid to the farms was around 1.835 billion euros (DMK eG), including DOC Kaas B.A. Around 2,114 billion euros.

Falling number of dairy farmers

The 5.3 billion kilos of raw milk delivered to DMK in the year under review correspond to an average milk volume per dairy farmer of 845,000 kilos, taking significant regional differences into account. This made up a considerable proportion of the total of 8.0 billion kilos of raw milk processed, which also includes purchases of raw milk and milk swaps. The number of dairy farmer fell once more at DMK in the year under review because of resignations and farms which discontinued their milk production. The wave of resignations, entailing the loss of 755 million kilos of milk (DOC Kaas B.A.: 169 million kilos of milk), finished at the end of 2018 and dairy farmers’ interest in joining Deutsches Milchkontor eG is once more on the increase. Nevertheless, DMK is assuming in its business plans, particularly in the light of the structural change, that the number of dairy farmers will continue to fall.

Number of dairy farmers 2018

New weighting of fat and protein

Fat/ protein content 2018 Ø Fat content  (%) Ø Protein content (%)
Deutsches Milchkontor eG 4,07 3,42
Vertragslieferanten DMK GmbH 3,48 3,39
Raw milk quality of Deutsches Milchkontor eG diary farmers and DMK GmbH contract suppliers; excluding raw milk quality of member diaries, subsidiaries, milk swaps and purchases of raw milk. Fat and protein are the constituetens of cows's milk that particularly determine the value, the fat content and protein content are of economic importance as well as being an important indicator of animal health and feeding that favours rumination.

As of 1 July 2018, Deutsches Milchkontor eG changed the valuation of fat and protein in its milk prices. After many years in which fat and protein were paid for in a ratio of 1: 2, DMK adjusted the ratio because of the new

processing situation in the market and the steady rise in milk fat prices over the past years to 1: 1.5 as of 1 July 2018. The company introduced a weighting of 1: 1 on 1 January 2019.

Amendments to Milk Delivery Regulations

DMK also made changes to the Milk Delivery Regulations in the year under review. These amendments came into force on 1 January 2019. Essentially, the changes in the area of milk collection relate to conditions set with respect to architecture and hygiene in and in front of the milk room and, for the consequences of infringements, to an extended definition of suspicion of risk and architectural measures when automatic milking systems (AMS) are used. Furthermore, the amendments established participation in milk volume planning as a condition for bonus payments from the Milkmaster Programme and a new cost contribution for increased expenditure associated with milk collection.

 

Hedging volatile milk prices

DMK sees it as a core mission to provide practical support for the concerns of members of the cooperative. For them, the rising volatility of milk and processing prices can lead to liquidity problems that threaten their survival. Because dairy farmers also have to prepare for unpredictable market fluctuations in the future, there in an increasing need for risk management tools for the raw milk. Against this background, DMK is giving deep consideration to new price hedging models to improve financial and planning certainty for the dairy farmers and for the company itself.

These models are based on hedging the milk price on the commodity futures exchange, which can help to reduce the risk of price fluctuations and the associated liquidity risks for dairy farmers. DMK first offered the dairy farmers seminars on the subject of milk price hedging back in 2016 and has been hedging individual transactions on the commodity futures exchange since July 2016.

Since more differentiated forms of pricing increase individual and entrepreneurial freedom, DMK is working on an exchange-based fixed price model for partial volumes, in which the dairy farmers are offered a fixed price for the coming months on a voluntary basis. The aim is to offer all dairy farmers the price hedging model before the end of the current fiscal year.

Climate protection on the farms

The topic of climate protection in agriculture has been gaining relevance for years – not least because stakeholders are displaying a steadily growing interest in the subject, since agriculture accounts for a high share of emissions. The fact that many dairy farmers have been in active in this field for years makes it easier for DMK to react appropriately to the changing demands. DMK will pursue the public interest here and champion climate protection on the farms in an even more energetic and targeted manner in the future. One measure that the company has taken for this purpose is to support the dairy farmers in a conversation about successful opportunities to boost climate protection on the farms.

The growing importance on a number of levels of sustainability issues on dairy farms was also evident in the period under review. Practical environmental protection is already firmly established on many farms. For example, in 2018 every second farm was already generating its own renewable energy. The majority of dairy farmers have installed photovoltaic plants, while biogas systems account for the largest share of energy generation. The use of energy-saving measures in milking and the cooling of the raw milk with plate coolers and pipe coolers or heat recovery equipment, for example, already comes as second nature to many dairy farmers.

The goals set in the context of the DMK 2020 strategy also include five concrete projects to drive forward climate protection on the farms. In this context, DMK successfully set up a differentiated raw milk flow with an industry customer which is a leader in sustainability. In cooperation with selected dairy farmers, this flow ensures that milk is collected in compliance with particularly strict sustainability criteria. The criteria include pasture grazing, animal welfare monitoring, self-generated energy and the implementation of business improvement plans. In the context of this project, DMK is conducting a pilot project on climate protection on the participating farms together with the customer.

 

  • Own estimate based on self-assessment 2018 and an additional survey regarding tie-stall housing in summer 2018. Farms, which did not participate on the self assessment, had been interviewed directly on this subject. 2018 figures are therefore not fully comparable with the previous year's. Depending on regional conditions and the size of the farm, pasture grazing can be offered.

More sustainable feed

Fedstuffs used 2018 Share %
Farms with only regionally produced feed components (100%)* in the total diet 14,4
farms with mainly regionally produced feed components (>50%)* in the total diet 82,2
Farms with less than half regionally produced feed components (<50%)* in the total diet 3,4
*regional erzeugten Futterkomponenten in der Gesamtration

Around half of the dairy farmers were using soya feeds which were certified as sustainable in the reporting period. Almost 20 percent of the farmers use no soya at all. The use of sustainable feedstuffs in DMK milk production has therefore risen further in past years. More than 85 percent off all dairy farmers grow more than half of their feed components themselves or procure them from their own region. Over 14 percent actually used only home-grown or regionally procured feed.

In the Milkmaster Programme, participating dairy farmers submit a self-assessment every year in which they also state what feeds they use. In past years, the analysis revealed an increased share of GMO-free feedstuffs because farmers had switched to the VLOG standard (VLOG is the association for non-genetically modified food). For the remaining feed components which are not home-grown or procured in the home region, DMK obtained SFAP (Sustainable Farming Assurance Programme) certificates in the year under review. These correspond to the guidelines set by FEFAC, a recognised standard in the market for sustainable feed.

Eco-balances for agricultural production

DMK has completed several eco-balances, or life cycle analyses, for agricultural production in the past years. This means that robust data are available for the key correlations and impacts from which DMK can work out its own opportunities to influence its ecological footprint. DMK does not perform regular surveys for all dairy farmers. The effort would exceed the boundaries of the farmers’ resources and be of relatively small value, since the structural change in the sector allows for only limited comparability of such data. Previous data surveys by DMK show that clusters with comparable eco-balance typologies can be identified and that more eco-balances would not deliver any deeper insights.

Essentially, DMK focuses in this area on dairy farming, since it determines around 70 percent of the ecological footprint of dairy products. Important influencing factors include the type of feedstuffs used, the application of fertilisers and the milk yield. The positive ecological effects of pasture grazing, on the other hand, cannot be confirmed consistently. This is because such grazing is beneficial in certain regions, but tends to have a negative impact in others.

Dairy farmers opt for transparency

Not least due to consumers’ heightened need for transparency, active public relations work has now become part of everyday life for many farmers. DMK dairy farmers also open their farm gates and give consumers and stakeholders insights into their work through a variety of channels, particularly social media. This way, farmers make a valuable contribution to giving the public a positive impression of the sector as a whole. DMK supported the dairy farmers in such measures in 2018 and integrated their activities into the social media presence of its own brands.

Players with whom DMK works to improve the public image of the dairy industry include the regional dairy industry associations, which are co-financed by the dairy farmers. With the “My KuhTube” project, they provide consumers and other interested parties with transparent insights into everyday life on dairy farms. Several DMK dairy farmers are also involved in this project. The videos can be downloaded from YouTube, Facebook and at “My KuhTube”.

  • Average, estimated on the basis of the milk volume in the self-assessment

Strong roots in the regions

Regional roots play an important role for DMK as an important player, both at the 20-plus production sites across the country and in its eight large, most rural dairy farming regions. Dairy farmers form a central element of rural communities and help to shape them actively. The farmers are engaged in a variety of ways beyond their day-to-day business and thereby strengthen agriculture in the regions.

The Milkmaster Programme’s self-assessment included an extra section with questions about public relations on the farms again in 2018. Since a good 5,349 dairy farms took part in the self-assessment, the data provide an interesting panorama of their activities in the regions: almost 30 percent of farms supervise apprentices or agricultural students. Around 40 percent of them received groups of visitors in the year under review. The "Open Farm Days" organised by the Federal regions' farmers' associations play a particular role here. Around 240,000 consumers and interested professionals were able to obtain a picture of modern agriculture and the dairy farmers' valuable work through these events in 2018.

In addition, a good 200 DMK farms offer the public holiday options in various forms. According to the self-assessment, around 40 percent of the dairy farmers also engage in voluntary work for the industry in professional associations or other organisations, and invest a considerable amount of time in these activities.

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Dairy farming