Market Update

Prices and Protests

Dairy farmers across the EU have hit the headlines in recent weeks with protests against falling farm gate milk prices. In the UK some farmers protested by leading cows into supermarket aisles to highlight the losses made per litre of milk produced, and the fact that the retail price of milk. is often lower than that of bottled water.   Other protestors have blocked distribution centres, emptied supermarket shelves of milk and given it away. DEFRA reports that the average UK farm gate milk price in June 2015 was 23.7 pence per litre, a drop of 25% on June 2014, however this was down from a historic high of 34.6 pence per litre at the end of 2013. Farmers estimate that the costs of milk production in the UK average between 30 and 32 pence per litre.

The public response to the protests has on the most part been sympathetic, and some concessions have been won from retailers. Morrison’s a leading UK supermarket agreeing to launch a new ‘Milk for farmers’ product, giving consumers the option of paying more in order to give more money directly to the farmer. It remains to be seen however exactly whether the general public will be willing to put their hands in their pockets, and actually spend the extra money. Other retailers have also announced increased in the prices paid to farmers in the wake of the protests.

The root causes of the crisis are however low international milk prices, with slowing demand from China, the impact of trade restrictions by Russia, and increased production in key milk producing countries.  Milk production in much of the EU increased sharply in the run up to the abolition of milk quotas in April.  Peak milk prices in 2013/2014 lead to many farmers to plan for expansion, and this production is now entering the market. In addition the strength of Sterling relative to the Euro is also impacting on UK producers. UK dairy farmers are not alone, French farmers have also protested by spraying cars with chopped (or manure according to some of the tabloids in the UK).  The problem is global, US All Milk Prices for  Q3 were 29.7% down on Q3 2014.  The FAO World Food Price Index for July was at the lowest level for six years, driven down by falling prices for dairy and vegetable oil commodities.  The World bank is currently expecting agricultural prices to decline by 11% during 2015. Low prices for beef and lamb are also impacting on the UK farm economy, and are also likely to impact on farming incomes in 2015/2016.

Farming is a business like any other to survive farmers need to be able to survive volatility, managing risk will become more and more important. It should also be pointed out that Farming still receives generous support from the taxpayer – as Sean Rickard a former NFU Chief Economist has stated that it is “unrealistic” for farmers to believe that they should be paid “whatever price they think is needed”.

With reports of farmers quitting milk production at an accelerated rate,  it is also true that the retailers will eventually have to set a more sustainable price for milk, in order to guarantee domestic supplies. The dairy industry in the EU is entering a new era with the abolition of quota’s which to some extent would have limited production in many countries (although not the UK as production was consistently below quota), increased volatility is to be expected and all in the milk supply chain will need to learn to manage it.

Leave a Reply

Your email address will not be published. Required fields are marked *