Brighter news for milk farmers

For more years than I can remember milk farmers have complained of low prices, falling profits and a retreat from the land because returns have not justified the investment required to be competitive and commercial in the industry. Perhaps the mood is starting to change. The prices that farmers are getting for milk-related products such as powered milk and cheeses has risen markedly in the last year and incomes have grown as a result. Will it be enough to stimulate renewed capital investment in the industry? It is certainly needed if Britain is to avoid a structural shortage of milk in the coming years in a world where global demand is already outstripping supply.

The milk processors raise their prices

The price of milk is set to climb higher again after one of the major milk processors claimed that it was impossible to avoid passing on higher costs to final consumers. Robert Wiseman dairies supplies around 25 per of the UK’s milk and produces over 1.5 billion litres of milk each year. Higher prices are needed to maintain operating profit margins.

Diesel prices have increased transport costs

The price paid to milk famers has risen substantially over the last year (a welcome development for a domestic milk industry on the point of despair in recent times)

The benefits of an increase in producer prices for milk farmers has to be tempered because higher cereal prices (and cattle feed) and fertiliser costs have jumped over the same period. And there remains the burning issue of the power relationship between the major milk buyers (such as Robert Wiseman and ARLA dairies) and their suppliers at grassroots level. For years the milk processors have been accused of exploiting their monospony power to drive down milk prices at the farm gate. Farmers have responded by shifting milk production into cheeses and yoghurts where commercial returns are slightly better. Many local farmers have also opted to join together in producer cooperatives to give themselves more leverage in the market.

The fear has been that low prices and operating losses has led hundreds of dairy farmers to quit the industry to the point where there is now insufficient capacity left for the current milk demand.

A global shortage of milk?

Globally milk consumption is growing at 2.8 per cent annually, while production is expanding at less than 2 per cent. And if these trends continue, the outlook for milk price inflation is positive.

In December 2007, Sainsbury’s and Asda and others were fined a total of £116m for fixing prices of milk, butter and cheese.