Looking at the global dairy industry today, there is much to be cheerful about.
Commodity prices are at high levels based on strong and growing demand from both developed and developing countries. Within the EU, policy makers are looking at stabilising and strengthening the supply base for sustainably produced food through EU legislative proposals on dairy contracts, and consumers seem to be connecting with farming and food production.
However, despite this, I don’t need to speak to many dairy farmers to know this isn’t translated into positivity about the future at farm level.
When I was involved in the family dairy farm through the nineties up until 2004, a key issue facing the sector was farm profitability and capacity of producers to survive at or below 20ppl. The fact for many was that they could not – investment costs meant these low prices were simply prohibitive and drove many of the next generation away from farming. This is probably why we are left with only 10,851 dairy farmers in England and Wales in July this year.
Today the industry is in a situation where the average price is nearer 27ppl and the best retail liquid aligned price (as I write) at almost 32ppl, yet the future seems no more certain for many farmers. Latest milk production costs are above 30ppl, due to high input prices. At the same time ramping up of standards, NVZs and environmental and animal welfare demands are putting significant capital expenditure demands on farm businesses.
The key question has to be why our average farmgate milk price is at the bottom of the EU league table? If the symptom is low milk price, what is the diagnosis? At the NFU we believe problems with our milk market are complex, but we’ve isolated a few issues that are tangible and must be addressed. A key issue for us is the power farmers have in negotiations and the terms that exist in their milk contracts. How is it that our marketplace allows farmers to be exploited and paid a price that doesn’t even cover costs? Meanwhile their near neighbours, such as farmers in Ireland are paid a full 2.64ppl more for milk to produce cheese, which then ends up on our UK supermarket shelves – despite their currency handicap.
The NFU wants to see contracts across the board – not just for liquid retail groups – that offer balance between duration and price determination transparency and also between volume and exclusivity. In practice we believe if a farmer is to be committed to supply for say 12 months, then he should have the security of a price mechanism set out in advance. Furthermore if a processor wants exclusivity of supply, then that cannot be in conjunction with price penalties for production over a certain level. This isn’t asking a lot, but would add equitability to milk contracts while still offering processors the security of supply they need, but in return for a fair price.
I’m confident that by addressing equitability, we can focus on a future of farmers working together in partnership with dairy processors to make the most of the market place and make more profit for all. There are clearly opportunities to get more value from export opportunities and in the first instance our co-ops are probably the key to achieving this.
I see a positive future ahead for the dairy sector, but it isn’t one based on the status quo. The supply chain needs to fairly reward farmers for their work and investment and it needs to capture the value from markets beyond our shores and in the short term stop cutting its own throat for the local market. This is a key point in time for our industry and the NFU is working with all involved to secure a sustainable future.