January 14, 2009

UK dairy farmers hurt over milk price cuts

New Year cuts in milk prices initiated by dairy firms have sparked off unrest in the UK's dairy industry.


NFU Cymru (National Farmers Union of Wales) said the price cuts initiated by milk processors Arla and Dairy Farmers are unjustified.


With falling oil, fuel and energy prices, the processors should be able to cope with the cuts required without having the farmers to bail them out, said NFU Cymru president Dai Davies.


Davies said Arla is dragging down a stable market in order to recoup its margin and that makes it difficult to speak of partnership in the supply chain.


Farmers are vulnerable and at the mercy of their milk buyer as contract allows price cuts to be imposed at will without requiring a period of negotiation or offering transparency on price calculation, said Davies.


The price cuts have come at a time when UK milk production is high amid soaring production costs, said Davies, adding that the industry is also facing low calf prices and worsening TB situation.


Fertiliser prices remain 75-percent higher than December 2007 despite falls in prices.


Arla, the largest dairy co-operative in Europe, is reducing its payment to farmers by 2 pence per litre and First Milk by 1.25 pence.


DEFRA figures show that the average milk farm gate price of 27.31p/litre in October 2008 was 0.80ppl more than the previous year.


However, rising costs in feed, fuel and fertilisers eroded profits, leading farm unions to ask for 30p/litre. Figures showed that profit margins fell 5 percent in the years leading up to 2007, while supermarket margins on liquid milk skyrocketed by a staggering 2,700 percent over the same period.


Poor market conditions had led to a mass exodus in the dairy sector - the number of registered dairy producers in England and Wales were more than halved to 13,914 in April 2006 from 28,093 in 1995.


Milk production from April to December 2008 was 242 million litres, down 2.6 percent on-year and nearly 5-percent below the three-year average, according to the latest Rural Payments Agency figures.