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The quantity that the majority UK farmers are paid for milk has plunged beneath their manufacturing prices, exacerbating considerations over the viability of small dairy farms.
Arla and Muller, Britain’s two largest dairy processors, lower their “farmgate price” for 5 consecutive months, with Arla holding the price at 35p a litre in June and July, down 29 per cent from 49p in February. Muller pays 38p a litre in contrast with 47p 5 months in the past.
The fall within the quantity paid by dairy processors, intermediaries between farms and retailers, is a results of a world oversupply and drop in demand for dairy, in addition to the worldwide downward development available in the market price of agricultural commodities, which shoppers have but to see mirrored on grocery store cabinets.
But farmers and industry our bodies warned that the sustained drop was compounding an already troublesome enterprise local weather and that clients must pay extra for milk if farmers have been to interrupt even.
“We’re at the mercy of markets,” mentioned Chris Wood, a dairy farmer close to Penrith, Cumbria, who provides Arla. “Everybody is on about food inflation but we’ve got inflation too. We’ve got to live.”
The authorities is more and more involved in regards to the excessive price of meals price inflation, which stood at 18.3 per cent in May. The Treasury introduced on Wednesday that it might scrutinise the profits of companies in the food industry supply chain.
Amid widespread price rises, milk is without doubt one of the few staples displaying indicators of deflation, elevating hopes that customers will quickly profit from plummeting commodity costs.
In April, the common value of 1 pint of milk fell by 2p to 68p, in response to the Office for National Statistics, the primary decline since Russia’s full-scale invasion of Ukraine in February final yr led costs to soar. The price remained unchanged in May.
Andrew Opie, director of meals and sustainability on the British Retail Consortium, a commerce physique, mentioned milk’s brief provide chain meant decrease vitality and commodity prices might be handed on extra shortly to customers than for merchandise made with a number of components or requiring manufacturing.
But marginally cheaper milk in outlets is not any comfort for farmers, who’re contending with the lower in revenue from dairy processors in addition to traditionally excessive enter costs.
Wood mentioned that whereas his fertiliser costs had halved, he was paying £310 a tonne for cattle feed. That is up from £214 earlier than the Ukraine conflict, based mostly on a contract signed in October final yr when costs have been beginning to drop from their peak of £1,000.
Farmers benefited from the surge in milk costs in March final yr when feed and fertiliser prices soared, forcing processors to pay extra to make sure a gradual provide. At the market’s peak in December, farmers have been paid greater than 50p a litre, however provide has now recovered.
Susie Stannard, dairy analyst on the Agriculture and Horticulture Development Board (AHDB), an advisory physique to British farmers, mentioned falling costs have been being pushed by “a slight increase in global supply and a decrease in global demand, each of less than 1 per cent”.
Ash Amirahmadi, Arla’s outgoing managing director, mentioned UK demand for dairy dropped final yr due to excessive meals inflation however was displaying indicators of restoration.
“The current price we are paying our farmers is below the costs of production . . . And because a proportion of the milk goes into the globally traded commodity markets — it’s those that have crashed — that’s having a drag-down effect [on prices],” mentioned Amirahmadi. He added {that a} extended dry spell in addition to the tight labour market was including to stress on the dairy sector.
Muller mentioned its price reductions have been a results of “market pressures coupled with supply being ahead of forecast”. But industry figures cautioned that if costs stayed low, farmers would have little incentive to feed their cows to supply extra milk, inflicting volumes to fall.
“We’re anticipating that dairy production will slow and go into negative,” mentioned John Allen, managing guide at dairy adviser Kite, including that costs weren’t more likely to fall additional within the coming months.
The variety of dairy farmers in Britain has fallen 4.8 per cent prior to now yr, in response to information from AHDB, leaving about 7,500 by April. Most vulnerable to closure or being subsumed into bigger companies are small and medium-sized farms that wrestle to make effectivity financial savings as a result of they lack the money to reinvest into their operations.
Robert Craig, a associate in three farms throughout the north of England and vice chair of processor First Milk, mentioned greater farms have been solely simply breaking even. “We are not being sufficiently rewarded to keep things as they are . . . the only thing you can control is efficiency, which results in more intensive dairy farms and bigger operations,” he mentioned.
Stannard mentioned processors would in the end must pay extra for milk with a view to safe a gradual provide as volumes drop. Allen, in the meantime, predicted the emergence of a two-tier market wherein processors paid extra for agricultural merchandise with higher environmental credentials as meals producers took steps to chop “scope three” emissions, or greenhouse gases produced alongside a product’s total provide chain.
Some processors already reward farmers with a premium price. Muller pays extra to farmers who meet sure situations on provide chain collaboration, herd well being and reductions in environmental affect. Arla will this yr launch environmental incentive funds for farmers.
But Craig mentioned farmers wanted surplus money to grow to be sustainable in the long run. “When my grandfather started out there were a quarter of a million farms,” he mentioned. “When my dad took over that had halved. When I took over it had halved again. Is that good or bad?”
