Crunch time for milk prices

NFU Scotland is calling on retailers, processors and co-ops to factor an immediate and sustained milk price increase to dairy farmers in to the current re-tendering exercise being undertaken on milk and dairy product contracts.

By The Newsroom
Wednesday, 23rd June 2010, 12:35 pm
Updated Wednesday, 23rd June 2010, 12:35 pm

The Union is aware that a significant re-tendering process is underway, looking to capitalise on the current strength of dairy markets. It is adamant that this must not solely benefit the top end of the dairy supply chain but deliver a fair share of the current profit margins back to dairy farmers. An immediate improvement in milk prices over the coming months is needed to allow the farming element of the milk industry to better plan for the autumn and winter ahead.

Wholesale prices for products such as cheddar, butter, cream, and milk powder are now substantially above last year's prices yet dairy farmers have seen virtually no benefit and the average price being paid to farmers still languishes well below the true cost of producing the milk on farm (see notes to editors). At the same time consumption of fresh milk, which accounts for roughly half the milk produced on UK farms, continues to grow.

A proportion of the market for fresh milk is in the so-called 'middleground', which refers to local shops, garage forecourts and the like. While the vast majority of fresh milk is purchased through supermarket stores, NFU Scotland has asked the industry's levy body to investigate the impact that the competitive middleground market has on farmgate pricing.

Sign up to our daily Berwickshire News Today newsletter

Speaking after a meeting of the Union's Milk Committee, chairman Jimmy Mitchell said: "We are at a critical time for farmgate milk prices. The current opportunity to assist dairy farmers must not be lost in the huge re-tendering exercise involving retailers, processors and co-operatives on contracts for liquid milk and dairy products. This contract merry-go-round must not be used as an excuse to deny hard-working dairy farmers their fair share of the obvious margins that currently exist for milk and dairy products.

"The market place in the UK is clearly malfunctioning as the huge hike in wholesale prices for cream, powder, butter and cheese have failed to produce any real benefit at our farm level while in other countries around Europe milk prices are jumping. There is undeniably sufficient profitability in the marketplace for all retailers and milk purchasers to deliver a meaningful uplift in milk prices to farmers from July through to August and September. A number of small increases are filtering through but these are offering fractions of pennies per litre when pennies are justified.

"For those making or selling cheese, butter or milk powder or trading in cream, there is a huge difference between the wholesale prices for these products compared with a year ago yet the average farmgate price being paid to farmers involved in these sectors has altered little over the 12 months. That situation must change.

"On liquid milk, the majority of our major supermarkets have their milk volume supplied by dedicated groups of farmers and the price paid back to those producers is relatively transparent. However, milk processors regularly cite the competition in the middleground market for fresh milk as a stumbling block to better farmgate prices. We need to get a handle on what impact this truly has on the returns farmers receive and have asked DairyCo to look into this.

"Farmers are in the process of organising themselves for the winter ahead, planning their feed purchases and buying in fertiliser and fuel. They need the confidence to know that the price they will be receiving in the autumn will justify that level of planning and expenditure.

"The marketplace is in the position to deliver that confidence and milk purchasers need to get on with the job of delivering meaningful milk price uplifts immediately and continuing over the next few months."