Monday, 12 August 2013

Milk Prices

The Rural Payments Agency reported that in June the average farmgate milk price increased by 0.8p/litre to 30.77p/litre. This is probably the highest average price that has been recorded but according to DairyCo, the price farmers are receiving for their milk today is in real terms about the same as that which they received over 20 years ago in 1992.

DairyCo is a not-for-profit making organisation working on behalf of and funded by Britain's dairy farmers. Its remit is to solve 'market failure' in the dairy industry by tackling issues not currently being dealt with sufficiently well to meet the needs of the industry. Its four main strategies to achieve this are by:
  • The provision of a world-class information service
  • Helping dairy farmers meet and manage environmental needs and regulatory requirements
  • Helping dairy farmers increase their profitability through better business management
  • Promoting the positive perception of dairy farming with the general public I suspect most readers will have never heard of DairyCo and so it may be failing to engage with the general public as well as it could but it is certainly an excellent resource for information on the dairy industry and so when it comments on matters such as milk price I think we should all sit up and listen.

Thus in their recent report it was stated that "Although actual prices are the highest on record, in real terms they are lower, which may explain why many farmers feel under pressure despite the current high price level." This pressure is evidenced by the fact that 22 dairy farmers ceased production in the last month and 1.8% left the industry in the last year.

The pressure comes from a whole variety of factors including milk price, increased regulation and increasing input costs. As far as milk price is concerned, one factor which comes in to play is world commodity prices which are currently strong and many dairy farmers will be frustrated that their milk price is not going up sufficiently to reflect this. But equally many of the milk processors are being squeezed in the middle, having increased the price they pay to farmers by on average 17.8% over the last year while retailers are holding down the price they pay at the other end to maintain their margins.

This seems to be evidenced by another recent report released by DairyCo on Cheddar Cheese Supply Chain Margins where it was found that retailer’s margin before deduction of their fixed costs accounted for nearly half (49%) of the average retail selling price of mild Cheddar in 2012/13. In contrast, processors have seen little change to their margins.

What this all goes to show is that the milk industry is a complicated business. But what concerns me is that the dairy farmers themselves seem to be at the bottom of a supply chain in which retailers in particular are in a strong negotiating position and are therefore able to secure a disproportionately high proportion of the profit that can be secured from a litre of milk. While this remains the case I fear dairy farmers will always feel under pressure.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

No comments: