Fine supermarkets for low milk prices, MPs urge government

A group of MPs have urged the government to increase protection to dairy farmers who are increasingly vulnerable to fluctuations in prices.

The report, published today by the House of Commons Environment, Food and Rural Affairs Committee, urged powers to fine supermarkets for overly competitive milk prices.

Many farming businesses are under threat from an ever growing competitive retail environment. The MPs suggested extending the remit of the Groceries Code Adjudicator could be a major help for many struggling producers.

Chair of the Committee, Anne McIntosh said the vast majority of dairy farmers fall outside the protection offered by the adjudicator.

"She can only investigate complaints involving direct suppliers to the big 10 supermarkets and retailers. As most milk production is small-scale, that excludes most dairy farmers."

NFU dairy board chairman Rob Harrison, who gave evidence to the Committee, said: “We are all aware of the short term issues currently facing the UK dairy sector and the implications for dairy farmers.

"While none of these recommendations are new, I do believe that Defra now needs to deliver on these actions to help ensure a fairer, more sustainable dairy industry going forward.

“There are obviously short and long term recommendations and I’m glad to see that the EFRA Committee took into account our views in their report. Top of the agenda is a push for a review of the EU intervention price for dairy products – I’m glad that Committee members agreed with me that 17ppl is not a safety net of any sort and this could help the current dairy situation immediately.

“Longer term I agree that we need to develop an improved dairy export strategy which will help access new markets in future. This is of utmost importance when we look at where future demand for dairy will be from. In turn dairy products sold domestically and into export markets need to be correctly labelled with their country of origin. The NFU fully supports mandatory country of origin labelling on dairy products."

Glyn Davies, MP for Montgomeryshire, was told that depending on the milk buyer, some producers have seen up to 11ppl knocked off their price in less than 12 months.

"The consequences are to be seen far and wide," said NFU Cymru County Chairman, Jonathan Wilkinson.

"With devastating milk price cuts at farm gate level, the short-term fortunes of dairy production continues to fall.

"The latest cuts by some milk buyers in the New Year will be critical and we've already seen earlier this month a dramatic announcement from farmer co-operative First Milk and its inability to pay its farmers for their milk on time."

The NFU meets with Environment Secretary Liz Truss, it has also given evidence to the EFRA Select Committee and speaks regularly with local government.

Wilkinson said the union was 'quite clear' in its view that government must help on issues such as taxation, contractual transparency, labelling and maximising public procurement of British produce.

“We have also pressed home very forcefully the case for labelling on packaging to be clearer, to help consumers support British and make informed choices, and that UK Government support was essential to help persuade the EU Commission to support the export of UK dairy products to third countries to increase market opportunities.

“All of these things will help but we need Government support. What is obvious though at this point in time is the continued aggressive price discounting of milk on the shelves of retailers cannot continue. It is seriously under valuing the product that we produce. The time, effort and investment that we as farmers put in tirelessly, every day all year round, to produce a high quality product must be reflected.

“Poor returns on commodity prices worldwide are one thing but it coincides with a fiercely competitive retail environment here in the UK. At the retail level, liquid milk prices continue to be cut with leading retailers competing for market share. Arguably the biggest question mark hanging over the industry is where does this all stop?

“Let’s not hide the facts. Even though some retailers have pricing structures in place for their dedicated suppliers, by far not all of them do and retailers have to be wary of the signals they’re sending to the industry through their pricing tactics on dairy.

“The reality is that one retailer is now selling four pints of milk for just 75p. In the past 14 years the average retail milk price has never been that low. Farmers will be wary of the last time retail prices really plummeted when in the four months between June and October of 2010 the average retail price for four pints fell from £1.51 to just £1. Currently the average is holding at 113p. Farming didn’t instigate this price war, yet we’re seeing our dairy products on the front line and it’s our dairy farming members who are the casualties.

“Ultimately, do retailers see UK dairy products as a battle ground in a price war or as a valuable category that can thrive and prosper?”

“With the health and nutrition benefits that come hand in hand with a glass of milk, isn’t it obvious that this is a sector and product that should be valued, where milk is priced fairly, with pricing mechanisms that reflect the quality it offers and ensures a fair and rewarding living to those who work tirelessly to produce it every day all year round.

“After all, a bowl of corn flakes every morning simply wouldn’t taste as good without fresh milk on top now would it…?”

Dairy crisis overview

Dairy farmers are under pressure; they are being paid up to 50% less for their milk than 12 months ago.

Why? There is no single reason; price pressure is down to a mix of complex market issues impacting on every link in the dairy chain.

1, Global milk production is up, for example New Zealand production increased by more than 15% on the year, and European by over 5%. Farmers in the main dairy producing countries have been incentivised to produce more milk for a number of reasons – from meeting China’s growing demand, to preparing for an end to European milk quotas in March 2015, whilst in the UK farmers enjoyed an exceptionally good growing season. Added together and supply has grossly outstripped demand.

2, Global commodity prices - increased production has put price pressure on dairy commodities. By the end of 2014, the sector’s barometer, the Global Dairy Trade auction fell by almost 50%, from an all-time high in February 2014 to the lowest in five years.

3, UK commodity prices reflect global ones and since home production has also risen by 10% on the year, more UK cheese, cream and butter has been produced.

4, The Russian ban - the EU exported 23% of its dairy products worth £1.8bn, until trading was forced to cease in August.

5, UK farmgate price - the above trends have impacted on the price paid to dairy farmers which has been on a downward spiral our dairy farmers for the last 14 months. There is no apparent let up in the trend for the first nine months of this year.