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5 July 2012 15:33:53 |Dairy,News

A few pence, make or bust for dairy

Robert Sheasby, NFU North West regional director

Robert Sheasby, NFU North West regional director

When we’re shuffling around the supermarket it’s very easy to drop that two litre bottle of milk in the trolley and not give the price a second thought.
An extra couple of pence on the till though could be the difference between a North West dairy farmer staying in business or not.
As shoppers we’re all facing difficult buying choices and cost is a big factor especially given that we all have to stretch that cash a little further.
For North West dairy farmers, however, price is everything and seeing just a few pence cut off the milk price at farm gate by big processors, before the milk heads off to the supermarkets, makes a big, big difference.
It’s the difference for farmers of being able to pay the bills or not, invest in the business or not, have a secure future or not.
The NFU has drawn a line in the sand, we are negotiating hard and building relationships, but dairy is at a crisis point and farmers are taking a battering from those passing their losses on.
In the past seven days Robert Wiseman Dairies, Arla Foods UK and Dairy Crest announced cuts to their milk prices of 1.7 pence per litre, two pence per litre and 1.65 pence per litre respectively. Knock on effects of the cuts have already started, with First Milk cutting its milk price by 1.7ppl for its liquid pool and 0.9pl for balancing.
This comes on the back of further significant cuts in recent months and the latest round will hit our dairy farmers hard. Let’s be clear, this is not about grumbling farmers this is about a real problem which has the potential to rock the rural economy.
North West farmers are a high-tech, efficient bunch working professionally, producing great produce to high welfare standards but even the most efficient farm business will struggle given the average current milk price being passed back at farm gate.
We know there is big profit for others in the dairy sector.
More than 175 farmers left the UK dairy industry last year, that’s more than three a week and North West dairy farmers, according to the latest statistics from the Government, are also under the cosh.
The region has always been a dairy stronghold but sadly in 2009 there were just 1,913 dairy farms, in 2010 there were just 1,841 – a drop of 4%.
This cannot go on and the NFU is working tirelessly to make sure we have a strong sustainable sector in the future.
More than 550 farmers turning up to an NFU dairy meeting this week to discuss the issues shows how serious a problem there is.
The farmers were there less than 24 hours after the meeting was called and hopefully it sent a powerful message, a real wake-up call that the industry can take no more and action is needed.
Nationally the number of producers took a dive from more than 16,500 in 2003 to just 10,724 last year.
At such a rate, which will be further added to this year if the retailers and processers don’t return to paying a fair price, the future of the industry is undoubtedly hanging in the balance.
People often say well that’s business, that’s capitalism, however, unfortunately farmers are trapped in contracts which are often one sided, offer no clarity on price and they are locked into one buyer with long notice periods.
This needs to change and efforts are being made.
Most dairy farmers get paid well below the break-even point, production costs are estimated at around 30 pence per litre, and the outlook gets worse and worse with every price drop.
Some retailers though are doing what they can and Sainsbury’s, Tesco and Marks and Spencer, through dedicated supply routes, have milk price formulas designed to give some dairy farmers a milk price to cover costs of production.
This is not widespread and is the kind of relationship and fairness that is needed elsewhere to address the problem.
So what is the crux of the issue and what can be done?
Firstly it is critical to highlight the reasons and justification being sighted by the major liquid milk purchasers based here in the UK.
All of them have sought to blame the recent deterioration in dairy commodity markets, most notably the decline in the price of commodity or bulk cream (which is a by-product of skimming liquid milk).
On the surface, the value of bulk cream has indeed come down drastically but not only did they not pay dairy farmers a true value for the milk, when cream hit an all-time high they made no mention of the returns from their primary liquid milk business.
The true issue or ‘expose’ is the aggressive and deflationary nature of price negotiations between retailers and milk purchasers.
It is these negotiations and the resulting actions of the milk purchasers as they seek to undercut one another on price to secure business with the retailers which are really hurting. The risk and failure is essentially passed on to farmers who have little or no option of supplying someone else.
Until all retailers and milk purchasers commit to a fair and transparent supply chain, one that ensures a fair return for farmers, we will never break free from this vicious cycle of crisis after crisis in the dairy sector.
We now need more milk purchasers to take responsibility and own up to the fact that they have been selling milk so cheaply in the first place and have become too reliant on the price of by-products like cream for their income.
They need a new strategy, one that broadens their product and market base so they can negotiate fairer milk prices.
Secondly the Government needs to do everything it can to back and assist the NFU as we push to sort out the mess that is dairy contracts.
Practices like long notice periods, retrospective pricing and volume capping must be scrapped.
Contracts between farmer and milk buyer must offer certainty of price or allow the farmer the option to get out of the contract much sooner, 12 months is unfair and will only allow the exploitation to continue.
North West shoppers can also play a part, enjoy a great, healthy product but question how much of that milk price you pay is being passed back to the farmer down your road.
This is not a moan about prices but North West dairy farmers fighting desperately for their future survival.
The NFU will now be calling urgent meetings with the Government, and both the milk purchasers and retailers. Continuing to pass unsustainable prices on to farmers knowing they have to continue the supply is fundamentally wrong and is crippling the dairy sector.
We have also not ruled out direction action.

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