Industry reports released this week confirm that UK dairy farmers are suffering at the hands of processors and retailers, who have been blamed for the UK’s miserable position at the bottom of the European milk price league table.

Although worldwide prices for dairy products such as butter and milk powder have soared and cheese consumption is at an all-time high; the UK now boasts 700 varieties of cheese, UK farmers are struggling to get by, with farmers leaving the industry at a rate of one a week.

Furthermore, the retail value of the 13 billion litres of milk produced in Britain over the past 12 months has grown by a remarkable 31 per cent, whereas farm-gate prices have risen just 5 per cent. When looked at in the context of rising raw materials prices (7 per cent in the last year alone), farmers are making losses on the milk they produce.

The price paid for milk in the UK is currently 3 pence per litre below the cost of production. Worcestershire producer Michael Oakes explained that his greatest expenditure was feed for his animals. He said feed prices had risen to the extent that “The cost of the feed we give our cattle is rising continually. It really is negligible if we make any profit. It’s almost frightening at the moment.”     

Mr Oakes, who supplies to Milk Link, said that the ruthlessly competitive nature of the market, where farmer-run cooperatives like Milk Link have to “compete with PLCs and supermarkets,” has driven prices down. He lamented that, although global conditions for milk products were optimal, there has been a market failure within the UK, which he blames largely on retailers.   

Reports reveal optimistic vision of future

Nevertheless, DairyCo has revealed, in its Dairy Supply Chain Margins 2010-11 Report that the actual milk price equivalent (AMPE), which currently stands at 9p above the farm gate price, will be caught up and that a new wave of producer price increases can therefore be expected in the very near future. DairyCo said such an elevated AMPE cannot last forever. If growth continues at the current rate, global demand for milk is expected to outstrip supply within the next decade.

It was these circumstances which, although UK farmers are currently trapped in contracts with one processor, led Kite Consulting to state that over the next few years dairy farming will "be profitable enough to give farmers just rewards for their efforts and support reinvestment and expansion.”

However, the report also predicts that a further 5,000 farms will go out of business before that time. Inflexible contracts and an inefficient supply chain, which has been too slow to pass on the profits garnered from improving price conditions, are almost certainly to blame.