Milk prices fail to cover production costs

A high level dairy meeting is to be held by the RABDF.  Pic: Anna Gowthorpe/PA Wire
A high level dairy meeting is to be held by the RABDF. Pic: Anna Gowthorpe/PA Wire
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Farming leaders have urged more supermarkets to help dairy producers after a worldwide glut led to a 20 per cent fall in the price paid to farmers for milk.

Rob Newbery, chief dairy adviser for the National Farmers’ Union (NFU), told the BBC that the cost of production now outstripped the price farmers were receiving for milk.

He said the falling value of dairy commodities, which are traded globally, was the cause of the problem, explaining that they went to a “very high” level at the end of last year but had dropped down again, pulling milk prices to a “very low, unstable level”.

The average UK farmgate milk price has steadily fallen since a high of 33.99 pence per litre (ppl) in February. Anecdotal evidence suggests that the latest average price is around 27ppl.

Teresa Wickham, former adviser to Safeway and a retail and agricultural analyst, told the BBC that farmers who are close to the retailers and in one of the farmer groups were more secure.

But she said: “It’s the farmers who are outside those groups that are having more problems now.”

Mr Newbery said: “It’s important to point out it’s not a UK thing. All around the world production is up because of the higher value of dairy products, and that’s meant there are more commodities on the market, but also there’s less being bought.

“We’ve got the issue of the trade ban in Russia, China is buying fewer products. I guess it’s a bit like the stock market, when the price gets high it then starts to drop, and then when it gets low people think ‘OK, we’ll start buying again’ and it will come back up. We expect prices to return but it does just take some time.

“What we’d like to see is more supermarkets covering the cost of production and also more consumers buying British Red Tractor dairy products.”

Whitby farmer Tom Cummins, a member of the NFU’s regional dairy board, runs a 200-strong dairy herd. He said the current situation was hard to take.

“All the indicators earlier in the year were for better prices and a growing appetite for dairy products. We all saw our production rising and people invested in new buildings and encouraged family members to come on board.

“We have just recovered from the 2012 slump and the price got to where it needed to be. Now, people are struggling. There will be a huge amount of mixed emotions out there and some people won’t survive this (as dairy farmers). It will make a decision for them because they can’t see the light at the end of the tunnel.”
He said he would be taking a hard look at his own herd to remove the lowest producing cattle to make efficiency savings.

British retailers are committed to working closely with British dairy farmers for the long term, according to Andrew Opie, director of food and sustainability at the British Retail Consortium.

Mr Opie said: “Unfortunately due to many reasons outside the control of either British farmers or retailers global prices are much lower than last year and processors have had to drop the price they pay farmers.

“UK retailers will continue to give support for British dairy products, through sourcing, clear labelling and promotions but the global market will have a depressing effect on milk prices.”

But NFU president Meurig Raymond believes retailers can do more.

“We’d like to see more retailers take the lead of the likes of Tesco, Sainsbury’s, M&S and Waitrose, whose pricing mechanisms give farmers some certainty over price.”

In the long term, he added, the dairy industry’s prospects were positive and the NFU remained committed to fighting for functioning markets and fairer contracts.

“This ultimately is the best way to achieve farm-gate milk prices that fairly reflect the value of milk,” Mr Raymond said.