Policy Markets Processing

Calls For Government to Address Milk Crisis

ANALYSIS – Frequent, sharp and unpredictable peaks and troughs in milk price are driving UK farmers out of business every week and the government should act now.

20 January 2015

6 minute read

This is the assessment of the Environment, Food and Rural Affairs (EFRA) Committee Chair Anne McIntosh MP in the UK, where, along with much of the world, there is outrage once again at farmgate milk prices.

EFRA has called on the UK government to extend protection offered by the Groceries Code Adjudicator to include all dairy farmers and to fine retailers over rapid cuts to milk prices.

Pig Swill: Over production has crashed global milk markets leading to milk being dumped or fed to pigs in China

Figures show England and Wales has lost nearly six thousand dairy farmers since 2004, with numbers below 10,000 to start this year.

A similar story is being told across Europe, where farmers are being paid less by buyers for each litre than what it costs to produce.

In its dairy prices report, published today, EFRA has chronicled the “rollercoaster ride”, in the words of farming minister George Eustice, which saw prices drop to 26 pence per litre (ppl) in June 2012, lift to record highs and then fall from 35 ppl in 2014 to the current lows of 23 ppl.

Elsewhere, government action has been warranted by paltry milk prices in China.

China's northern regions have reported milk dumping and herd culling amid the price crash. Some farms have been marketing liquid milk as pig swill.

Dairies operating in the north - principally Yili and Mengnui - have been told to buy and market more milk to stabilise prices.

New Zealand dairy giant Fonterra has revised its price forecast down NZ$2 per kilo of milk solids. The forecast started at $7.00 in May last year, dropping to $5.30 in September and reaching a $5 payout by December.

Are Farmers Angry?

Rather than being angry, dairy farmer Eddie Andrew says the industry is giving up.

Cuts have resulted in farmer campaigns across Europe. European Milk Board lobbying has warned of the “catastrophe” many rural communities will face and repeatedly called for market intervention and support from the EU commission, some of which has been forthcoming.

Concern was echoed by Scottish NFU President Nigel Miller who, in his New Year blog, wrote of the "catastrophic impact" global dairy markets and the Russian ban are having on Scotland's farms.

UK group Farmers For Action (FFA) has continued organising protests and blockades throughout the tumult of recent years after forming in 2000.

Last week an FFA meeting brought farmers together to discuss action against retailers.

In attendance was dairy farmer Eddie Andrew of Our Cow Molly, a dairy farm that sells its own milk and ice cream directly to consumers, enabling a degree of control in the retail price.

He told TheDairySite that bottling the milk produced on the farm has kept the business going and that, judging by the crowd, farmers have had enough with cuts.

“I don't think they are angry - it's more fed up or giving up,” he said. “The public seem more than happy to blindly support the crazy supermarket milk promotions.”

He suggested that consumers can be educated to make “smarter choices” when purchasing milk but it may be for the farmers to do themselves.

This includes naming and shaming those that aren’t paying a fair price and those that are.

He added: “Farmers For Action want to communicate the reality of what it means to a farmer when a shopper choose supermarket milk, they have a new website coming on line & plans to seriously ramp up the message to the 64 Million shoppers.”

“We have customers who choose our milk because it tastes better, some who like to support local farms, coffee shops that choose ours because of the way it steams & parents who love it because it's nutritionally better as it's super fresh. They all understand the true value of milk isn't judged in pounds, so the price is never the deciding factor.”

Why the Cuts?

EFRA blames volatility for farmgate price cuts of around 30 per cent. Current prices of 23/24 ppl are around 10 pence below production costs on many operations.

Supply is exceeding demand across the world, with Argentina the only exception in recent months to a production spike seeing output higher in all the major exporting countries.

The widely acknowledged problem is that there is too much milk around. European Milk Board officials admit: “the notorious milk lakes are back: supply far outstrips demand.”

Coinciding with this has been a shift in demand trends from China and Russia, the world’s first and third biggest dairy importers, accounting for a fifth of world dairy trade.

China reduced imports by more than 50 per cent in the first half of 2014 which was followed by Russia’s import ban on food from Australia, Canada, Norway, the US and Europe.

Meanwhile, production has lifted massively in New Zealand, five per cent in Europe, and two per cent in the US due to a range of factors ranging from improved production conditions, lower feed prices, anticipating European quota removal and herd expansion in certain countries bullish about demand projections.

All these factors were summarise by the Royal Association of British Dairy Farmers last week, outlining four points that have hurt UK farmgate prices.

Global milk production is up and has “grossly outstripped demand”
Global commodity prices have fallen almost 50 per cent to a five year low from a record high in February
UK commodity prices reflect global markets – UK production has risen 10 per cent on the year
EU exported 23 per cent of it dairy products to Russia – worth £1.8 billion

RABDF estimates that the Russian ban has probably cost in excess of two pence per litre to UK farmers - £350 million across the UK farming sector.

Steps to be Taken

Recommendations have been given in EFRA’s report starting with calls for stronger exports internationally and producer organisation domestically. This will increase the market for UK milk and the bargaining power through the creation of collectives with “bargaining power and influence”.

The report said an EU intervention price of 17 ppl should be reviewed before quotas end in April and said country of origin labelling should be made clearer, showing where items were born/grown, as well as processed.

The committee recommended broader powers of the Groceries Code Adjudicator to incorporate more suppliers in the chain and repeated that a statutory instrument should set the level of fine the GCA can levy.

The report added: “We seek a clear explanation of why the GCA has been left so long without the teeth she needs to do her job.”

This includes the ability to launch pro-active investigations as well as responses to complaints.

In terms of the voluntary code, it recommends lessons are learned when it comes to its annual 2015 review.

It stated: “Neither a statutory nor a voluntary code can set or regulate prices in an open market.

"None the less, the instability of current pricing within the dairy industry in general and for milk in particular implies that closer attention is needed in the next review of the code to the damage that sharp and rapid shifts in price do to the industry, not least in forcing the exit of producers for whom short-term market fluctuations may prove fatal.”