1 September 2000

Dairy farmers must be paid more to avoid milk shortfall

By Robert Harris

DAIRY processors must pay farmers substantially more for raw milk to avoid a shortfall this winter, warns Scottish Milk chairman John Duncan.

Speaking to farmers weekly after the recent inaugural board meeting of the newly-formed Federation of Milk Groups, of which he is also chairman, Mr Duncan said the depth of the crisis facing dairy farmers was highlighted by numbers at the meeting.

"Representatives came from the north of Scotland, the south-west, the East and West coasts and Northern Ireland. Everyone believed that the industry is facing a watershed this winter.

"Bank borrowings are the highest that many farmers have had to endure, and the supply trade say they are still carrying debt from last winter. The general view is that those continuing to produce milk have been living off any surplus they may have," he said.

Unless there is a substantial price rise, many farmers will quit, and those staying will not chase production. One survey by a feed company showed that supplementing mediocre silage would cost an average of £26/cow this winter.

Costings show dairy farmers need to be paid 20-21p/litre, he added. Yet last months farmers weekly/Wye College Milk Price Review averaged just 16.4p/litre, ignoring seasonality payments.

Recent Scottish Milk monthly spot sales have achieved 22p/litre. "That certainly leads us to believe that commodity markets are currently able to support these prices. And liquid milk buyers have always said they will pay what it takes to get their milk."

Negotiations between Scottish Milk and major buyers have just started, says Mr Duncan. Although at a sensitive stage, he noted that predicted rises of 0.3-0.5p/litre were too little. "Our customers are aware that we are looking for a price increase. But its the size of that increase that we are talking about at the moment."

The federation has agreed to an exploratory meeting with the Dairy Industry Federation, which represents milk buyers, next month.

However, Jim Begg, DIF director general, says milk pricing is unlikely to figure highly in proceedings. "This is not an issue we can talk about. It is an exploratory meeting where the FMG can explain its aims and objectives. As two trade bodies, there might be subjects we can tackle together, including legislative issues.

"Clearly, milk supply and pricing are issues that concern all of us in the industry. But milk prices in a deregulated market are for direct discussion between individual processors and farmer suppliers."

&#8226 The Federation of Milk Groups now represents more than 60% of milk produced in the UK. Several non-quota-holding groups joined recently, including the Association of Dairy Farmers and the Tamar South West Dairy Group. &#42