October 25, 2006


UK milk producers to see brighter 2007



Pressure on UK milk producers might ease off next year, noted a new supply chain report, which followed new moves to monitor and improve earnings in the sector.


The year 2006 might prove to be a gloomy year for UK-based dairy farmers owing to several cuts in farmgate milk prices. However, stability might return next year, according to the Milk Development Council's (MDC) new Supply Chain Margins Report.


The news came in the wake of Britain's No. 3 supermarket, Sainsbury's, announcing partnership with farmers, and the country's National Farmers' Union (NFU) agreeing to collect invoices to disclose the true extent of producer losses.


There have been concerns over the current milk supply system putting unsustainable pressure on farmers.


Prices got more volatile this year as a result of reduced market support and prices under the EU Common Agricultural Policy reform, said Ken Boyns, head of economics at MDC.


However, the period of intense change might be nearing an end in the short-term and those focusing on improving their farm productivity and maximising the price of their milk might get to see better returns, he added.


Dairy Crest , leading UK dairy firm, announced Tuesday, Oct 24 it would raise the price it paid to direct milk suppliers by 0.2 pence a litre.


The move came after Sainsbury's decision to work directly with 450 farmers, linked to processing firms Robert Wiseman and Dairy Crest, in a new Dairy Development Group.


Both dairy firms, the MDC and NFU welcomed the move as a way of bringing the supply chain closer together. Dairy firms, too, had faced significant margin pressure due to soaring input costs, retailer pricing and CAP reform.


Sainsbury's' project followed growing criticism among retailers for their part in maintaining low earnings in the dairy supply chain. According to MDC figures, retailers increased profits on liquid milk by a quarter in the last 10 years, and more rapidly since 2003.


The main message from the NFU was that there was clear evidence of abuse of power within the supply chain and that the major retailers were in a dominant position, said NFU director general, Richard MacDonald.


The NFU later asked its milk producer members to fill in specially sent, blank invoices so it could better document the gap between milk prices and production costs.