Shameful state of Britain’s dairy sector

Posted: June 29th, 2012 | Author: | 1 Comment »

 

MILK price cuts that have wiped £66,000 off farm incomes illustrate the shameful state of Britain’s dairy sector.

With another 1.7p per litre (ppl) cut by Robert Wiseman Dairies on Friday (29 June), the price of a standard litre will fall to just 24.73ppl from 1 August.

The processor has described the cut as a major disappointment. Its own farmer suppliers have gone further, describing it as devastating.

To reinforce how significant this is, Wiseman processes and delivers over 30% of the fresh milk consumed in Britain.

English: Robert Wiseman Dairies Milk processin...

Robert Wiseman Dairies: Milk processing and distribution plant, opened in 2008. (Photo credit: Wikipedia)

Other liquid processors will almost certainly announce similar reductions.

And before I’m accused of talking the market down, we only have to look at recent events to see how likely this is.

A 2ppl round of cuts initiated by Dairy Crest last month was matched within days by reductions by Wiseman and then Arla.

Taken together, farmers have seen prices plummet by 3.7ppl in a few weeks.

With milk costing more than 30ppl to produce on many farms, a significant number of dairy farmers face losing more than 5ppl on every litre from their cows.

Annual income for the average dairy farm has now fallen by over £66,000 since March, according to Rob Hitch, partner at Dodd Accountants.

Everyone in this game – including farmers – accepts that milk prices can go up and down. But there are two sides to the equation and so too can input costs.

Too many milk contracts are one-sided, reflecting only the value of milk. They fail to take into account production costs.

Farmers are often locked into 12-month agreements where the buyer is able to drop the price with little notice.

These contracts are forcing dairy farmers to produce milk at a massive loss, threatening the viability of rural livelihoods up and down the country.

Yet other contracts, which take into account costs, show there is a better way.

These contracts have been developed by supermarkets – more often accused of using their buying power to push down prices than doing anything right.

Yet 324 farmers belonging to the Sainsbury’s Dairy Development Group will receive an extra 0.26ppl from 1 July, taking their standard price to 30.56ppl.

That’s because Sainsbury’s pays its farmers based on a tracker formula which reflects the fluctuating cost of farm inputs such as feed, fuel and fertiliser.

The formula – which is used to review prices on a quarterly basis – also includes a provision for family labour and capital investment.

Developed in conjunction with dairy consultants Kite Consulting, it is similar to a tracker model developed by Promar for Tesco.

The Tesco tracker uses budgeted production costs for the year ahead, which are then reviewed on a six-monthly basis.

They might only be available to a few farmers, but these tracker contracts are much fairer than one-sided agreements that undermine farm livelihoods.

Farmers shouldn’t be forced to produce milk at massive loss.

Producers should be allowed to walk away from contracts when faced with price drops that their businesses cannot sustain.

And within a reasonable timescale too.


One Comment on “Shameful state of Britain’s dairy sector”

  1. 1: Chris Conder said at 12:56 pm on June 29th, 2012:

    It is all a disgrace, and its no wonder our youngsters are leaving to get ‘proper jobs’ is it?
    So the skills of generations will be lost. All our food will be imported. And then there will be a big panic on when we’re held to ransom by other countries. All our land will be uncared for and full of trees and weeds. We’ll be sorry. Oh yes we will.
    As long as supermarkets keep selling our products as loss leaders farmers will pay the price. The old farmers are used to it. The young ones won’t tolerate it, and will leave the industry.