Milk Price Reductions Are Not Sustainable

Milk Price Reductions Are Not Sustainable
2009-08-04

The Tenant Farmers Association has expressed its dismay at the recent round of cuts by a range of dairy processors in the prices they pay to dairy farmers for the milk they produce.

TFA National Vice-Chairman, Stephen Wyrill said, "Confidence in the dairy sector is at a low ebb and these recent price reductions will only make matters worse. We are currently losing 5% of our dairy farmers every year and in historical terms milk production is at its lowest ever point. It is difficult to see how this fits with the need to address the long-term issues associated with food security. It is simply unsustainable to continue cutting the price received by farmers. It will only accelerate the extent to which farmers leave the industry”.

Tenanted dairy farmers are particularly vulnerable. Many tenanted holdings have seen little investment by landlords over the past 25 years. These holdings are now in desperate need of modernisation but also have to factor in the heavy capital costs associated with Nitrate Vulnerable Zone compliance which will see many dairy farmers having to install brand new slurry storage facilities suitable of containing up to five months slurry at a time. A conservative estimate of the average cost to a dairy farmer for this is £50,000 or just over 3 pence for each litre of milk produced.

"The investment needed to comply with the Nitrate Vulnerable Zone standards will simply allow the businesses of dairy farmers to mark time. It will do nothing to add to their efficiency or productivity. It is disgraceful that, at least in England, the Government has not seen fit to provide any assistance to farmers in meeting the extra cost involved in complying with the new regulations despite the fact that for many such assistance could mean the difference between staying in business or giving up milk production altogether. Producers in Scotland and Northern Ireland have had grants whilst Hilary Benn's hands remain firmly in his pockets," said Mr Wyrill.

Despite the reduction in prices to farmers, there appears to have been no reduction in retail prices. In fact since last September retail prices have gone up, on average by 5 pence per litre. There is clear evidence that over the past 10 to 15 years retail margins on milk have grown significantly at the expense of farm level margins. Despite this, retailers have been busy using their dominant market position to drive producer prices down. Processor margins have remained fairly constant as they have been able to pass the price reductions directly onto farmers who have seen prices drop by around 5 pence per litre.

"The producer price reductions coupled with retail price increases mean that retailers have gained an extra 10 pence per litre amounting to £150,000 per dairy farmer. It is quite clear that retailers are only concerned about the short term. If they were at all concerned for the long-term they would be ensuring that there was a fair return to all parties in the dairy supply chain. Consumers are not best served by forcing producers to receive the lowest price. They may soon find that there is little left of the dairy industry in Great Britain which I'm sure is not what they want. There is no doubt of the urgent need for a retail or food industry ombudsman with broad powers of investigation to ensure a fairer balance is achieved in the future," said Mr Wyrill.

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