Why is the price of milk falling?

British consumers say they want to back dairy farmers after learning that the price they are paid has dropped significantly in the past few months. But why has the price of milk fallen?

"Just think the problem is they are little fish in a very big pond and the likes of the multiple retailers have got bigger flippers in this big pond," Farmers for Action said.

"But you see when you keep getting excuse after excuse to drop the farmgate milk price, sometimes we may reach the wrong conclusion. If we had transparency within this industry which after all is a supply chain, we may well sort out the ongoing problem."

There are a lot of farmers across the UK producing milk

In England and Wales there are more than 10,000 dairy farms, supplying a variety of dairy companies processors,who market their products in a number of different ways. Processors then sell this to shops and the food industry who then, in turn, sell it to consumers.

Not all milk is sold as liquid

Just over half of the milk produced by dairy farmersused by processors who supply fresh liquid milk through retailers, corner shops and cafes. This is almost exclusively British and is not traded globally, but is subject to a competitive tender process where people bid for the contracts. Most of this milk is sold as skimmed and semi-skimmed, so liquid processors end up with a surplus of cream to be sold as retail, wholesale, or to be made into another product, such as butter.

The value of butter on international markets affects the value of milk

Butter, which can be stored, and bulk cream are traded on domestic and international markets. The recent fall in the value of these products has reduced the value of this part of milk.

The cheese market is very competitive

Another large portion of our milk produced is made into cheese. In the UK this is mainly cheese, as well as a lot of other specialist cheeses from expert cheese makers of all sizes. This cheese is internationally traded and subject to tenders, so there is a lot of competition from other countries across Europe and the rest of the world to sell cheese in England. If you want to back British farming you can buy British and look for the Red Tractor on the label.

Milk is made into all sorts of products... and the marketplace is, again, very competitive

The rest of UK milk is made into a variety of products, including yoghurt, milk powders and a lot of other tasty and nutritious products.

All of these are subject to competition from global markets and the rest of Europe. When one segment of the dairy industry is more profitable than others, it is often possible for processors to change the amount of each product to meet demand from consumers and to try and generate higher returns. Because of this highly competitive marketplace, all parts of dairy are affected by international dairy markets.

As farmers are at one end of the supply chain they get paid what is left and can be put under pressure when global markets drop in value.