August 17, 2006

UK milk council warns against cutting production to raise prices

Reducing milk supply in Britain so as to raise prices for farmers would be detrimental to the dairy industry, a Milk Development Council report warned.

The move could put between 20 and 40 percent of the country's dairy farmers out of business, the council's "New Routes to Profitability" report said.

The industry has been struggling to find ways to raise earnings in the UK dairy sector and a popular notion holds that one way would be to cut production to prop up prices.

Current proposals would see milk production cut by 1.5 billion to 3 billion litres, largely from supplies used for lower value commodity dairy products.

Some farmers are holding back on investments because such talk is resulting in a lack of confidence that the industry can push itself forward without resorting to production cutting measures, said Ken Boyns, MDC's head economist.

The report also warned that any organised attempt to cut production would be viewed as an illegal cartel in operation by Britain's Office of Fair Trading and would be dealt with as such.

It would be much more sensible, says the MDC, to concentrate on efficiency, innovation and business relationships in the supply chain to boost profits.

As one of Europe's most efficient dairy industries, Britain should be able to continue supplying commodity markets if it develops more added value products, the report suggested.

Britain has the lowest farmgate milk prices in Western Europe, and some producers are receiving less for their milk than it costs to produce. Meanwhile, dairy firms argue they have had to bring down farmgate prices due to high input costs.