EU exit could raise concerns over dairy pricing

Leaving the EU could hamper future investment and pricing in the UK dairy industry, The Dairy Group has warned.

Consultant Nick Holt-Martyn said the UK dairy industry was significantly linked to the EU through Muller and Arla, and any move to exit the union or renegotiate Britain’s membership within it would raise concerns over future investment and milk pricing.

It was hoped any renegotiated deal would be in the form of a “coalition of sovereign currencies” including Scandinavian and eastern European countries – this would provide a level playing field for dairy businesses to operate, he said.

“The prospect of unfettered free trade with the EU without market support makes for a daunting horizon,” said Mr Holt-Martyn.

The Arla Milk Link merger was a prime example of the link between UK dairy farmers and their European counterparts.

“Amid great optimism, the marriage of Milk Link and Arla sailed through all checks and was well supported by the members and the industry at the time, but more recently it has turned a little sour,” he said.

“The exchange rate-led cut in milk price has left the Milk Link members’ price languishing at the bottom of the price league, while the non-member suppliers enjoy at least a 2p/litre advantage.”

During the past 12 years the UK milk price had underperformed against the Danish price by 12.5% on average, with the exception of two brief periods in 2007 and 2009 and most recently the past six months, he said.

“At the time of the merger the question being asked was how would Arla Amba members feel about subsidising UK members during periods of significant lower UK returns,” added Mr Holt-Martyn.

“The answer is now the opposite. How long will UK members tolerate propping up the milk price league due to exchange rate difficulties when UK returns are probably higher?”

Mr Holt-Martyn suggested that the outlook was positive and by suffering pain now, former Milk Link members should see prices well above the level of UK returns once the Danish Arla price resumed its normal relationship with the UK.

“At its highest level during the past 35 years, the difference [between Danish and UK average milk prices] was +85% in 1990, although that is not likely – the highest since 2007 was +30% in 2008,” he said.

“With so many UK contracts linking to production costs, more modest differentials are likely, but even so, Arla, although exposed to commodity markets, is likely to benefit more often than not.”

More on this topic

‘Leaving the EU would ruin Welsh farming’

Arla Milk Link members facing price drop

Gemma Mackenzie on G+