Over production of milk only undermining prices

A 'tsunami' of milk, enough to fill 400 miles of tankers stretched bumper to bumper from Edinburgh to London, is flooding the dairy industry and compounding the downward pressure on farmgate prices, industry figures said.

NFU dairy board chairman Rob Harrison.

The average UK farmgate price for milk last year was 24.45 pence per litre (ppl), more than 7ppl less than the average in each of the previous two years, and the situation shows little sign of improving any time soon.

Arla has announced that it has frozen its price for its amba members for March and there is little uplift expected across the sector because of a damaging combination of global factors.

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Key among those issues is an oversupply of product following last year’s abolition of EU milk quotas, which had limited the volume of milk produced in member states.

The pressure on farmers across all sectors was discussed at this week’s annual NFU conference in Birmingham. During a session on dairy, market analyst Chris Walkland told of how there was an extra 1.2bn litres of milk being produced since quotas ended - the equivalent of 45,500 full tankers.

He said that dairy prices were currently at 60-70 per cent of where they need to be for most dairy farmers, with the Russian trade ban and global oil prices factors in the decline.

The NFU’s dairy board chairman Rob Harrison said the industry needed to adapt to the volatility.

He said: “We need to have better relationships than ever with our milk buyers. The only way I can see us align supply with the market is by mature producer organisations.

“What we have to do is have mature relationships to work closer together. Our next priority is over milk contracts. If we’re investing in a perishable product we need certainties over terms we’re trading with. We’ve seen farmers put on notice, contracts change and the introduction of volume management with very little planning and thought.”

He urged all dairy farmers to talk with their milk buyers.

There is support from shoppers, said Sian Davies, the NFU’s chief dairy adviser, and they want British dairy farmers to survive the current downturn.

Ms Davies said: “Consumers want British dairy. Their support for British farming and dairy farming has been clear. They are willing to pay more for British dairy. The Morrison’s Farmers Initiative has been positive and it shows that consumers are willing to back dairy.”

Confirming that Arla amba’s on-account milk price will remain at 21.81ppl throughout March, Ash Amirahmadi, head of milk and member services at Arla Foods UK, said: “The ongoing imbalance between conventional milk supply and demand is putting continued pressure on the on-farm economy, while the significant increase in production across northern Europe is resulting in higher cheese and ingredients stocks, resulting in sustained downward pressure on the markets.

“The GDT (Global Dairy Trade) auction has also mirrored this with a downward trend. In contrast, the market for organic products, mainly in Europe, remains strong and organic milk continues to be in demand.”