Retailers urged to support British dairy farmers

Support for British dairy farmers from retailers and the government is 'vital' after farmgate milk prices have plummeted following the trend on world markets, according to the National Farmers' Union.

Ongoing global market volatility has seen a 50% reduction in prices in recent months, resulting in a farmgate price drop for dairy farmers of between 20-30%.

It has driven many farmers to organise a protest tonight in Somerset.

"As predicted the cuts keep coming, getting more severe each time with more and more excuses 95% of them not even justified, but if farmers keep accepting them, then who can blame the buyers for taking the money," Farmers for Action said in a statement.

NFU President Meurig Raymond said the current times were ‘extremely worrying’ for farmers and called on all areas of the supply chain to ensure the pain being felt was minimal and short-term.

Supermarket retailer Morrisons issued a letter to the NFU saying they were 'really concerned' about the impact on dairy farmers suffering from recent price cuts.

"We are therefore really concerned about the impact on dairy farmers suffering from recent price cuts and particularly so for those farmers who have invested heavily in their businesses.

"The degree of price volatility we have seen in dairy is not helpful for any business, and the recent movements in global dairy commodity prices have been unparalleled. World milk powder prices fell by 11% last month — an unprecedented drop.

"Therefore, new mechanisms to help the industry cope with this level of price movement must be developed. We at Morrisons are committed to doing this and are well advanced, as evidenced by our cheese contract which the NFU welcomed last year."

NFU's Raymond said: “As a dairy farmer myself I know what farmers up and down the country are going through. These are extremely turbulent times.

"That is why it is absolutely vital that everyone in the dairy supply chain shows commitment at this time. Milk processors, retailers and dairy farmers must work together to minimise the impact of the current price falls on dairy farmers and look to the future by opening up new markets for milk and creating new products.

“In 2012 the UK milk price languished at the bottom of the EU league tables while world prices continued to rise, which caused a major problem for British dairy farmers. The market then was completely dysfunctional. That is why the NFU led the way with SOSDairy holding peaceful protests, and taking that campaign to retailers and processors. We engaged directly with the public and their support continues to stand us in good stead today. This work led to the coalition that worked with government to form the Voluntary Code, giving much confidence back to our farmers.

“Two years on farmers are rightly angry and frustrated about their current situation although we’re not bottom of the EU league tables, the drop in UK milk prices is putting major pressure on our dairy farmers. The NFU continues to hold regular meetings with all the main retailers and processors to hold them to account, ensuring any price rises go back to farmers and any prices falls aren’t used as an excuse for unfair behaviour. We continue to lobby Government at the highest level on issues that impact on our members, such as CAP and TB, and we remain committed to continue the work we started with the voluntary code, implementing next steps. Fighting for functioning markets and fairer contracts is ultimately the best way to achieve farm gate milk prices that fairly reflect the value of milk.

“However it is absolutely vital that retailers and processors live up to their visible commitments and back British dairy farming to ensure we have a sustainable dairy industry in the future.

“We urge the public to also back British farming by buying British milk and dairy products that carry the Red Tractor logo. British dairy farmers know and appreciate that ongoing consumer support, so to them I say, thank you.”

The latest dairy company to issue cuts to their milk price was First Milk, who announced a cut for its manufacturing pool by 0.3 pence per litre and for its liquid pool by 1 pence per litre.

Chairman Sir Jim Paice MP commented: “Since the start of September there have been three Global Dairy Trade auctions. Two of these auctions, including the one yesterday, have shown downward trends.

“Additionally, our milk production shows no sign of slowing down, and we are up 10% over the last few weeks alone. With our main sites operating close to maximum capacity, the vast majority of this additional volume is ultimately going into Westbury where net returns are below 20ppl.

“As well as maintaining our focus on doing whatever we can within our influence to mitigate the impact of these negative market conditions, we will continue to keep our milk prices in line with our projected market returns."

Arla Foods recently announced a cut of 1.67ppl for its milk price paid to UK farmers, Tesco Sustainable Dairy Group (TSDG) members will be paid a reduced 32.01ppl for their milk. And Dairy Crest will close two factories, in what it called a 'challenging trading environment', which will put 260 jobs at risk.

"The biggest cut so far, not yet made public is Muller Wiseman with a massive 1.9ppl due to appear to its producers sometime next week. Muller apparently are very aggrieved that Farmers For Action got this information so early and are accusing their Farmer Board for the leak," the FFA said.

Wyke cheese cut again 1.5ppl, in what it described as a weak market.

Commenting on the reductions, Ash Amirahmadi, Arla UK’s head of milk and member services said: “Globally, milk production has increased by circa four to five per cent, which is out of sync with a lower increase in global demand of circa one to two per cent. This imbalance is resulting in large stocks and, as a consequence, markets have dropped sharply.

“Furthermore, Chinese demand continues to be sluggish and the Russian import ban is continuing to have an impact on European industry prices. This negative pressure is having a significant effect on Arla’s milk price.”

Many dairy farmers are feeling financial pain following a downturn in global dairy commodity prices and retailers have been urged to look for ways to support them, according to the National Farmers' Union.

Speaking ahead of the South West Dairy Event, NFU dairy board chairman Rob Harrison said: “Dairy farmers will be anxiously watching global markets for signs of an upturn and when it happens it is important that farm gate milk prices respond quickly and positively.

“It is more important now than ever before that food businesses and retailers pull their weight when it comes to delivering a sustainable price for dairy farmers and back British farming. Some, but by no means all, retailers have determinable milk pricing mechanisms. We’d like to see more retailers take the lead of the likes of Tesco, Sainsbury’s, M&S and Waitrose, whose pricing mechanisms give farmers some certainty over price. There are a number of opportunities for business in the supply chain to do more in liquid, cheese and other contracts.

“While more can be done proactively, it’s also important to remind retailers now is not the time to take advantage by applying pressure for price cuts as any volatility in the market could put a huge strain on the whole supply chain which would make the situation even worse.”

But Mr Harrison said the long term outlook for dairy farmers was still very positive.

“The UK dairy industry is operating competitively in a growing global market – the future remains bright, but we need to work together to ensure the foundation of the industry, our farmers, have a future.”

NFU Scotland’s Dairy Policy Manager George Jamieson commented: “If milk buyers are genuinely paying as much as they can, which is the case with co-ops, then the performance of the business must be challenged. Are private buyers genuinely sharing risk and reward, or setting prices based on competitor’s prices?

“This should not be the case anymore. Arla for example base its price on an objective mechanism based on performance of the business, which is now global, and only indirectly influenced by the UK market, therefore it should not be green light for UK processors to drop prices per say.

“Over 2013, commodity values were historically high. UK farm gate prices rose too slowly and not to as high as should have. Last summer when market indicators very clearly and consistently rising up to 39ppl indicating that 37 ppl should have been achievable by at least some buyers, but we did not get close, with 34ppl the best.

“So when farmers are told that 30ppl is in line with the ‘market’ then why should this not be the case when wholesale prices are at their peak?

“The argument that these levels of prices are not achievable should look at the prices received by our European competitors, who did reach higher prices and at faster rate.

“Farmers should judge their milk buyer based on performance over the longer term. Dairy companies, whether a co-operative or PLC, must be judged on their performance, not on their competitor’s performance.

“We are now in a global market, but the UK farm gate price still largely remains below European, even New Zealand prices.

“In an increasingly competitive dairy world, UK dairy farmers, who are genuinely competitive, must ask their processors if they are.

“Elected farmer representatives, whether co-op or private must ask their milk buyers exactly why prices have dropped. Individual milk processors who value their supplying farmers must explain exactly why they are dropping prices, and farmer reps must be professional and able enough to challenge this.

“Tit for tat prices moves are not acceptable as this is pricing based on competitor’s performance and not on their, which is clearly an issue farmer reps should address.”

Chairman of the FFA, David Handley, said: "As Chairman of FFA, I cannot see how any other body can say we have to put up with this situation. With more meetings scheduled and in the pipeline, we may get close to 1/3 of milk representation in the UK. Despite all our efforts so far, without protest, I fear today or tomorrow could be gloomy on the price front as we think Arla are going to announce a further milk price cut. On a slightly positive note in reality it should only impact on 3,000 dairy producers as the other 7,000 are not on a global price contract."