Shortage of dairy products looms

Warning comes as unhappy farmers cut back on production in row over farm gate prices

The “unreasonable” price paid to the UK’s dairy farmers could lead supplies of butter and cream to dry up before Christmas.

Warning about an extreme disparity between current levels of demand and supply, Peter Tuborgh, chief executive of one of Europe’s biggest dairy producers, Arla, said the shortage is being driven by “insufficient” levels of milk being produced across Britain by unhappy farmers.

The boss of the farmer-owned cooperative, which owns some of the UK’s best known dairy brands including Cravendale, Anchor, Lurpak and Castello, said consumers should expect the price of dairy products to rise “very sharply” as a result.

According to Mr Tuborgh, dairy farmers “put the brakes on” production, in the wake of a previous over-supply, which hit farm gate prices hard. While leaders of the farming unions both north and south of the border warned against “scaremongering”, they said the news of potential shortages has come as “no surprise”.

They said although the value of wholesale cream and butter had reached “record prices” over recent weeks, the price paid to farmers had failed to keep up and that remains an “extremely concerning” scenario.

George Jamieson, policy manager for NFU Scotland, said there is evidence to suggest some supermarkets are already “rationing” butter.

“Dairy commodity prices have been rising dramatically since last summer, illustrated by the objective market indicators AMPE and MCVE, which reflect wholesale price of butter, SMP and cheese and cheese by-products respectively.

“These have risen by 17ppl, while farm gate has risen by 7ppl.

“This clearly is not reasonable,” he added.

While Mr Jamieson said the challenge of volatile markets is very clear, equally clear is the issue that primary producers should not have to shoulder the risk on behalf of the supply chain – and consequently the consumer.

“The supply chain must work together to resolve this as farmers who have faced unprecedented losses over the past two years will lose faith due to an inability to plan ahead nor have any faith in investing for the future, even those who can raise the funds,” said Mr Jamieson.

He said dairy farmers are “weary” of the simple lack of fairness, respect and collaboration when it comes to market volatility and “wafer thin or non-existent margins”.

“It is fundamental to build trust, introduce much better contracts, pricing and volume transparency, and obtain longer-term planning across the supply chain,” he added.

“We need much smarter mechanisms that treat the primary producer as a valued partner, who, like processors and retailers, need as much business certainty as can be achieved.

“In a country so exceptionally well placed to produce milk, it is shameful that the dairy supply chain and government cannot develop constructive solutions, beyond farmers taking the hit every time the going gets tough.”

Mr Jamieson said the wider and associated industries need to help to shape a “modern” and “progressive” dairy industry, as dairy farmers will no longer “carry on regardless”.

A spokesman for industry body Dairy UK confirmed there had already been “significant increases” in wholesale butter and cream prices.

Recent research, carried out by The Grocer, showed the price of butter in supermarkets has jumped by as much as 53% over the last 12 months.

Picture: Rob Stothard. The UK could face a shortage of dairy products as farmers put the brakes on over-supply.