UK dairy sector to suffer price fluctuations over next five years

The UK dairy industry will be experiencing price fluctuations over the next five years, between 15 percent and 30 percent, according to an expert at the Dairy Event.

In fact, the UK's dairy market is already experiencing the price fluctuations, said Pat Tomlinson, the head of agriculture at the bank HSBC.

The causes for it include global commodity prices for milk, exchange rates, the premiums offered to British farmers, the relative negotiating strength of milk companies and the strategic moves these large companies are making, he said.

But the industry is now enjoying the benefits of the current exchange rates, which could have seen prices much lower if they had stayed at their levels of last year, he said.

However, there is little dairy farmers can do to influence these outside price drivers and the farmers should look at costs to ensure a sustainable production, said Tomlinson.

He noted that farmers can influence the cost of production through technical performance and economies of scale, and that they need to look at technological developments and employ best practice principles and benchmarking to ensure efficiency.

Farmers must also have careful financial management controls to allow for sustainability and a profitable business, he said.

Tomlinson concluded that farmers should look at cost of production as a management tool rather than a marketing tool, as the starting point for success is the control of costs rather than prices.