Deteriorating dairy commodity markets blamed for milk price cuts

Arla Foods and First Milk have both announced cuts to their January milk prices.

Arla said its milk price would be reduced by 2p/litre from today (5 January) taking a standard litre to 25p. First Milk’s cut was 1.25p/litre, with effect from 1 January.

Both companies blamed falling dairy commodity markets for the cuts.

“The economic environment has changed significantly over the past few months,” First milk chief executive Peter Humphreys said. “Likewise, conditions in the global dairy markets, which drove UK milk prices upwards in 2007 and 2008, have now deteriorated markedly. Milk prices in mainland Europe have declined over the past few months and this is now having an impact on the UK.”

But, despite the tough conditions, Dairy UK said the long-term fundamentals for the dairy sector remained strong.

“Dairy demand growth is still outstripping production growth in the developing world,” director general Jim Begg said. “Here in the UK and Western Europe, our consumers remain loyal and retain their appetite for new and innovative dairy products. As retailers must recognise, there is still strong demand for British dairy products made with high quality British milk.”

Cost relief from lower oil prices should also start to feed through this year, he said.

Production gap growing
Analysis of milk production data for 2007/08 by DairyCo showed the production gap is growing between larger and smaller producers, with just a quarter of Britain’s dairy farmers producing over half of the year’s milk supply.

Some 26% of farmers produced over 1m litres of milk, accounting for 57% of the total in 2007/8. This was a 5% increase on the 2004/5 milk year, where 21% of farmers produced over 1m litres, 48% of the total milk production.

Analysis also revealed that since the 2004/5 milk year, the number of British dairy farmers producing over 2m litres of milk has increased by 30%. Figures vary between countries though. In Scotland, 6.5% of dairy farmers produce more than 2m litres a year, while in England it is 5.7%, and 2.8% in Wales.

Data also showed that 43% of farmers, a total of 6300, produced less than 500,000 litres in the same year, contributing 15% of the total British milk supply.


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