Wind down dairy industry at milk supply’s peril warns report

An independent report has warned processors and retailers to increase producer prices for milk or face losing a secure, long-term milk supply base in the future.

The report by Kite Consulting echoes comments made by Waitrose chairman Sir Stuart Hampson last week that unless dairy farmers are thrown a lifeline there's a real prospect the dairy farm sector will go into freefall. It also mirrors recommendations made in the NFU's Vision for the Dairy Industry.

The report estimates if milk supply continues to decline at the present level, it could fall below the level of 12.6 billion litres required to supply the liquid, fresh product and non-commodity cheese markets by 2011.

Once critical mass had fallen below that tipping point, it could, say Kite Consulting, take a very long time to recover.

In conclusion the report issues a ten-point plan which includes a need for:

· Longer term contractual agreements which fully recognise the true cost of milk production and closer working relationships between farmers, processors and retailers

· Retailers to develop dedicated supply pools and closer working relationships with their suppliers to secure their long term milk supply. Recent examples include the Waitrose and Marks and Spencer contracts, which pay the highest non-organic milk price in the UK

Milk prices need to rise to a sustainable level to encourage a core of milk producers to stay in milk production

NFU dairy board chairman Gwyn Jones said: "The recent comments by Waitrose chairman Sir Stuart Hampson were a wake up call for the industry about the risks of the current meltdown taking place on dairy farms.

"The Kite report demonstrates how a reduced milk supply could have a devastating affect on the wider industry and the UK economy as a whole. Meanwhile processors and retailers continue to make good profits on the back of dairy farmers.

"This is no time for prevarication – our NFU Vision for Dairy made clear the direction we need to head in if we are to stem the flow of farmers leaving the industry - greater responsibility, more rationalisation, exploitation of all market opportunities and greater processing efficiency. Progress is being made but there is an urgent need to accelerate this to avoid a complete melt down of the UK dairy industry."