Farm groups lobby MPs over milk price crisis

A former chairman of the Farmers' Union of Wales milk and dairy produce committee is to lobby MPs at Westminster today about imminent cuts in farmgate prices for milk being sold for cheese.

The National Farmers' Union said dairy farmers expect milk buyers to seek markets that maximise the value of milk and dairy products, in order to secure future supplies.

Significant changes have been achieved to the environment in which the British dairy industry operates since the events of the summer of 2012. Around 85 per cent of milk procurement volume is now signed up to the Dairy Industry Code of Best Practice for Contractual Relations, major milk buyers are developing modern dynamic milk pricing mechanisms and the general public has a much better understanding of the situation facing British dairy farmers.

On some value and branded lines of cheddar, figures show that supermarkets are making as much as 49 percent gross margin on shop shelf values.

Despite that margin being made at the retail end, those same supermarkets are believed to be preventing wholesale cheese prices from lifting to levels that recognises both the cost of production of milk on farms and the rising world demand for dairy products.

That attitude from retailers is leaving those companies who produce cheddar with stark choices to make. These include reducing the volume of cheddar being made, manufacturing milk into alternatives such as milk powder and cutting milk prices to producers.

"Welsh dairy farmers who supply milk for cheese production are seriously concerned following reports that major cheese processors are planning milk price cuts for farmers of around 2p per litre within the next few weeks," said Eifion Huws, who represents north Wales on the union's finance and organisation committee.

He plans to raise the issue during Anglesey Day, hosted by local MP Albert Owen, at Portcullis House where MPs will be invited to sample dairy products produced on the island.

“Last year dairy farmers across the UK held noisy protests against the slashing of liquid milk prices by 2ppl and the price being paid to those on cheese contracts is also under pressure,” said Mr Huws.

“Retailer profit on cheese is even higher than that for milk and DairyCo estimates that the retailer gross margin on mature cheddar stood at almost 50 per cent between 2011-2012.

“We are not suggesting a rise in the costs paid by consumers for cheese. Instead we advocate that retailers reduce their overly large profit margins and pay fairer wholesale prices in order to more equitably distribute supply chain profits. The share left for producers in the cheese supply chain is currently unsustainable.

“These cuts will be disastrous for the Welsh dairy industry which is already suffering from lower milk volumes following a major delay in the start of the spring grass growing season due to the recent cold weather. The future viability of this sector is under threat," added Mr Huws.

According to Welsh Government statistics the number of dairy farms in Wales reduced by over 800 from 2,727 in 2006 to 1,908 in 2011.

Farming groups said milk price cuts for those supplying cheese contracts would be wholly unwarranted and avoidable were retailers to pay fairer wholesale prices for their cheddar. That can be achieved by shaving the huge margins they currently make on cheese without pushing consumers to pay more for the product.

“Despite retailer pledges made last year about supporting dairy farmers, the stark reality is that the retailer mark-up on cheese is substantial – significantly ahead of the money they make on fresh milk – and the processor and farmgate share of the value left in the cheese supply chain is not viable and unsustainable" said Nigel Miller, NFU Scotland President.

"Despite the considerable cost burden of producing milk being carried by all dairy farmers, the milk price paid to those supplying cheese contracts is under pressure and, in most cases, is below that of those supplying the liquid milk sector.

Retailer attempts to drive value out of the liquid milk chain were exposed last summer and opposed by both the farming industry and the general public.

"Those same retailers are now resisting rises in wholesale cheese prices, pushing cheese processors to consider changes to their business strategy and denying the dairy farmers supplying them a fair return. That is a high risk approach from supermarkets that could ultimately rob the public of a product that they clearly value should milk processors start to look at alternatives to cheese.

“While there are export markets that must be grown for Scottish and British cheese, the major retailers have the dominant role in sourcing and buying farm assured product for the home market, giving that appropriate shelf space and giving the customer a range of products and prices.

"Our Shelfwatch campaign shows that is happening to a greater or lesser extent in all retailers, although it is disappointing that in some, value and everyday cheddar lines are dominated by non-assured, imported product.

"At the same time, supermarkets have a responsibility to ensure that their buying policy is supportive, balanced and fair – a position that many were keen to reinforce recently on red meat following the horsemeat debacle. While industry is well aware of the current problems in the cheese market, I suspect the general public will be disappointed to hear that, at the moment, the rewards from cheese production are largely filling retailer coffers. Without that balance of margin in the supply chain, both milk producers and processors are under threat.

"This pressure is focused not just on major milk fields such as South West Scotland but is undermining the viability of milk production in more remote cheese-making areas such as Kintyre and Orkney where milk is a vital pillar of the local economy. Given that in Scotland 40 percent of our milk is processed into cheese, it is crucial that the current dysfunctional cheese market is resolved for the sake of consumers, milk processors and milk producers."

NFU dairy board chairman Mansel Raymond said: “I’m not here to speculate; I want to focus on the facts, specifically one important fact.

"There is an insatiable and growing demand for dairy products globally. The GDT/Fonterra auction alone has seen values of dairy commodities rise by almost 40 per cent since early March.

"Nearer to home, European auctions have seen Gouda and Emmenthal values climbing and the UK dairy indicators AMPE and MCVE have reached 32.4 and 33.0ppl respectively for March, up 34 per cent and five per cent on the year. In fact we estimate that recent cream valuations would put AMPE above 35ppl today. So there is only one way in which the price of milk should go - and that is up.

"The backdrop to all this is that farmers are emerging from one of the hardest farming years in decades. Recent industry estimates put feed cost alone up by over 2ppl this winter as a result of higher inclusion rates and costs.

"Our message is a simple one to all those who buy, use and sell the milk that farmers produce. Farmers need and deserve a market price that fairly reflects the growing value of raw milk, that allows them to reinvest and that gives confidence for the future. Any part of the UK market that fails to achieve that risks losing supplies of dairy products to those companies who are taking the future of the British dairy industry seriously; that will be my message to retailers and food service companies in forthcoming meetings."