A low milk price has been a common feature of the last thirty years. Used by the supermarkets as a loss leader, it is essentially a wholesome food that sells for a fraction of the price of a bottle of water.
Cash flows have been quite tight for dairy farmers, and many businesses have not had the means to invest in themselves. Consequently, many small dairy farms have ceased production, while others who have had the means, have expanded and bought cows from smaller herds to try and gain benefits of scale contributing to a rise in production levels over the last eight years.
“Now everything is going in the wrong direction at the same time,” says Andrew Fuyk, Director General of the Provision Trade Federation, the body that represents companies who trade or manufacture dairy products. Input costs are rocketing; fertiliser up over 400% if you can find some, feed up 60%, fuel up every time you fill the tank. Labour costs are rising plus the extra burden of increased National Insurance rates. At the same time, the annual Basic Payment Scheme continues to decrease as the scheme heads into oblivion in 2027.
Drop in milk production
After eight years of increased production the pendulum has swung. In February production fell 2%. In March production fell a further 4%. The processors now fear milk supplies could be at risk as farmers are forced to rein in production in an attempt to cope with higher costs of production.
As a result, all dairy commodity prices are rising:
- Cheddar and mozzarella surge to £4,250/t and £4,100/t respectively.
- Cream is over the £2.50/kg threshold, the highest level since 2018. Still below EU levels.
- Butter has rocketed to £5,900/t, its highest level since 2018.
- Spot liquid milk @ 50p/ltr.
Non-aligned prices are soaring above retailer aligned pools as several supermarkets stick to their Cost of Production Formulas which cannot keep pace with inflationary pressures and milk price rises from other processors.
The end of the small family dairy farm?
With the prospects of a global shortage of milk it should become a sellers’ market. But questions remain: will the increased ex-farm price of milk be sufficient to absorb the huge increase in the price of inputs, and still leave an increased margin for the producer? Do we have to accept in the future the dairy industry will be centred on fewer but larger herds, rather than the smaller local dairy farm?
Right now, the family dairy farm is still a major force within the agricultural industry but needs support if it is to survive. We have helped fund family dairy farms to buy more land, improve their buildings, implement better waste water systems. Consumers can play their part by supporting locally produced milk, if we don’t support our local milk producers than this trend towards bigger and fewer diary producers will continue.