26 August 2010

3 minute read

Europe

Regardless of whether a producer’s milk is destined for the fresh liquid market or is used to produce cheese, butter or yoghurt, all dairy farmers will face a significant hike in their costs in the coming months. This is because the prices of key inputs such as feed, fertiliser and bedding are all currently rising at a dramatic rate.

The UK’s biggest supermarket, Tesco, has a crucial role in setting the tone for the next six months as the only major retailer to recognise the importance of production costs. The price it pays to those farmers who supply it with its liquid milk requirements is determined by a ground-breaking price formula that takes into account the costs involved in producing milk, as determined by an independent advisor. The Tesco liquid milk contract price is to be announced shortly.

NFU Scotland’s Milk Committee Chairman, Jimmy Mitchell said: “The reality is that all dairy producers are facing one of the hardest winter’s in recent times. All milk purchasers and retailers need to quickly take on board the need for farmgate milk prices to lift substantially in the next few months if the huge surge in the costs involved in producing milk is to be covered. Failure to send out a positive price message and the decline in the number of dairy farms in Scotland will continue.

“I have done the sums on my own dairy unit and I am budgeting for my cost of production increasing by as much as 3p per litre of milk. That is based on the additional money I will need to spend on feeding and bedding my herd this winter and looking after my grassland to feed the cows next spring. All producers, regardless of whether they are on a liquid or cheese contract, will be facing the same headache as I do and we need buyers to react quickly and positively or face a further shake out in the number of people producing milk.

“Tesco, as the biggest retailer of milk and dairy products in the land, is of huge importance to the industry and also has the opportunity to set the tone for the whole market. The imminent announcement on the price to be paid to those supplying Tesco with its liquid milk requirements will set the trend. Since it started, the Tesco contract has to its credit fulfilled its commitment to recognise the costs involved in milking cows and we expect that to continue. The crucial point is that others in the supply chain do likewise and that the higher production costs are factored into all retailer-pricing schedules and contracts whether for fresh milk or dairy produce.

“Their record on this is poor as many milk purchasers have, for several months now, chosen to largely ignore the current strength in dairy market which have justified significant price increases this summer. It would be unforgivable if those same companies also chose to ignore the very expensive winter that their producers now face where even the most efficient will find it extremely difficult to deliver any margin. Dairy producers need to see significant price movement now if they are to have any confidence in taking on the next six months.”

TheCattleSite News Desk