UK dairy farmers squeezed by plunging milk prices and supermarket monopsony power

Britain’s dairy producers, such as the Johnstones in SW Scotland, are feeling the squeeze as farmgate milk prices slide well below their cost of production amid an oversupply and weak demand, leaving many operating at a loss and risking exit from the industry. With dominant dairy processors like Arla exercising monopsony power in buying milk and supermarkets using their retail clout to keep consumer prices low, farmers lack bargaining power and face downward pressure on margins. In the short run, this forces producers to cut costs or sell at a loss; in the long run, sustained low prices threaten supply as smaller farms exit and industry capacity contracts, reducing competition and potentially increasing the call for policy intervention.

Dairy farm crisis: The money we earn from selling our milk doesn't cover our costs - BBC News

1. Using a demand and supply diagram, explain why milk prices have fallen so low.

2. Discuss how the monopsony power of companies, such as Arla, affects dairy farmers in the UK.

3. Discuss how the government could intervene in the milk market to ensure farmers do not exit the industry.