Opinion: Bumpy road ahead as dairy margins feel the squeeze

In his recent Farmers Weekly Talking Point, Graham Wilkinson, senior director at Arla, the UK’s largest dairy processor, declared that we are about to enter “the decade for dairy”. 

He claims that both farmers and processors have learned lessons from the challenges of the past few years, with contingency plans in place for extreme weather and supply chain disruption.

Branded products are cushioning the pressure from global commodity prices on the UK farmgate milk price, he says, while dairy products are now more closely aligned with consumer values around welfare, provenance, the environment, and healthy eating.

See also: Why the next 10 years will be the decade for dairy

Negative claims about emissions from dairy are being challenged, and farmers are reducing their carbon footprint.

If you are one of Arla’s 2,400 UK members (accounting for almost one-third of British dairy farms), it’s a fantastic story that gives great cause for optimism for the future.

The business has set a strategy for success, and the ship appears to be steaming ahead in the right direction.

But, with the cost of feed, energy, fertiliser, and labour (essentially everything needed to produce milk except the cows) soaring and milk prices climbing only cautiously, many dairy farmers are experiencing pressure on a scale not felt since the downturn of 2015-16, and are fearful for the future.

And, although dairy is less dependent on subsidies than some agricultural sectors, the government’s move towards environmental stewardship, reduced emissions and improved air and water quality will feel like big challenges for farmers who are struggling to make a profit.

The AHDB is working extremely hard to provide information and support, and protect the reputation of dairy through its marketing work, but it can’t solve the problems alone.

The truth is, there will be winners and losers over the next decade.

In 10 years’ time, I believe the dairy industry will centre around large-scale farming businesses that are either highly intensive or very low cost.

Smaller farms will have to add value to their milk directly, or sell to a processor who is able to do this through brands or high-quality products.

Sadly, there will probably be fewer medium-sized family farms, and fewer medium-sized milk processors.

By then, I hope the age of the average UK dairy farmer will have fallen, and the current labour shortages will have forced us to invest in a new generation of dairy workers who have the right skills to lead the industry into the future.

I also hope the decline in retail milk prices will have ended, and people will value milk properly.

Just as the trend for low-fat margarine has come full circle, with people now recognising the health benefits and superior taste of butter, I believe the current trend for plant “milks” will have stagnated.

And I believe we will be well on our way to reaching “net zero” and have taken great strides improving biodiversity and soil health. But those who were unable to do all this will have fallen by the wayside.

I think Graham Wilkinson is right to be optimistic, but we should be honest about the fact it won’t be a straightforward, upward trajectory.

There are painful times ahead, but those who come out the other side should be in a strong position to reap the rewards.

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