November 23, 2010

UK's dairy sector faces crisis on probable price hike

Milk and cheese prices could rise and the country could become reliant on imports unless action is taken to create a sustainable British dairy industry, warned farmers' union leader Peter Kendall.

Kendall, president of the National Farmers' Union, complained that the market had been warped by direct contracts between retailers and a minority of farmers who are guaranteed a premium to the farm-gate price for their milk. The union says the majority of farmers are left out in the cold, and it has also raised concerns about excessive supermarket promotions on other major dairy products such as cheese.

"There is a gaping hole in the middle. The farmers without contracts are picking up the bill for those who do," said Kendall.

Tough economic conditions have seen the big grocers resort to record levels of promotions - often funded by suppliers - to win customers, with low prices for staples such as milk, cheese and bread. In September, Robert Wiseman Dairies, the UK's biggest milk processor, issued a profit warning that it blamed on the supermarket price war.

About 3,000 out of the UK's 13,500 dairy farmers have special deals with the likes of Sainsbury's and Tesco. The relationships are judged to have been good news for farmers, but the cost of production, at GBP27.5 (US$43.82) per litre, remains GBP3 (US$4.78) higher than the average retail price of GBP24.5 (US$39.04). "This means the majority of dairy farmers are losing money on every litre of milk they produce," said Kendall.

In England and Wales, 470 farmers quit the agricultural industry in the last year and the NFU calculates that if current production trends are married with expectations of rising demand, the UK could be importing 53% of its dairy products by 2030.

"Greater reliance on imports could mean higher food prices," said Kendall, adding that such a situation would make guarantees on food traceability much more difficult to offer.