Milk Price Cuts Herald Gloomy Start to New Year
06/01/09

The decision taken by several milk purchasers to cut the price paid to dairy farmers for their milk has brought a gloomy start to 2009, according to NFU Scotland.

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In the past few days, First Milk and Arla have informed their farmer suppliers of their intentions to immediately cut the farmgate price for milk by 1.25p per litre and 2p per litre respectively. Although both companies highlighted the falling value of dairy commodity prices as the driver behind the price falls, the Arla UK cut is particularly damaging given that it largely supplies the premium liquid milk market. Other major milk purchasers are expected to make milk price announcements in the coming weeks.

These cuts will once again challenge Scottish dairy farmers to consider their future in milk production. NFU Scotland’s Milk Committee chairman, Willie Lamont said:

“Milk purchasers have spent several months warning farmers of likely milk price cuts but now that these are a reality for many Scottish producers, the air of gloom and despondency will have deepened.

“With the milk price now falling, then for many the costs associated with producing milk will significantly outweigh the price that some dairy farmers receive for their efforts, forcing them to once again consider their future in milk production. The main input costs for a dairy farmer of feed, fertiliser and fuel may have dropped back in recent months but these still remain historically high. The reality is that some Scottish dairy farmers will be in a position to sit tight and ride out this difficult period and some will feel that enough is enough.

“Those outside the dairy sector will find it astonishing that milk price cuts are happening against the backdrop of a 30 year low in UK milk production. However, there is no escaping the fact that commodity prices for products like butter, cheese and milk powder have weakened considerably at UK, European and World levels. While the huge depreciation in the value of sterling is offering UK companies considerable protection from cheap dairy imports, any company with exposure to these commodity markets will have been affected by the falls in values.

“We would have expected that those involved in supplying the growing demand for fresh liquid milk in the UK should be largely insulated from the turmoil in commodity markets. All major retailers now have direct arrangements in place with processors and groups of farmers to secure their liquid milk requirements. This makes the scale of the Arla price cut difficult to comprehend. Arla is a significant supplier of milk to Tesco, Asda and Morrisons and we will be seeking further justification from Arla Foods UK and its Scandinavian parent company in the coming days.”

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