‘20p a litre – farmers are being milked dry’
As shoppers gain from a price war, farmers’ boss warns...
Competition has been good for consumers – but there is a true cost of production
BRITAIN’S dairy farmers are facing a battle for survival, says Meurig Raymond, president of the National Farmers’ Union. Intensifying price wars between the major supermarkets coupled with a dramatic collapse in demand from overseas have brought the cost of milk crashing down to its lowest level since 2007.
It is a boom for consumers. Milk now costs as little as 44p a litre, making it cheaper than bottled water.
‘I think that is a ridiculous situation,’ says Raymond.
As well as ridiculous, it is – for dairy farmers at least – a disaster. According to many it is the worst crisis the dairy sector has ever faced. Many are having to sell their milk to retailers and milk processors at rock bottom prices. With other costs – notably animal feed – rising, it means they make a loss on every litre. Raymond is warning that more farmers will go bust or quit the industry as a result.
‘Farmers tend to be fairly resilient,’ Raymond declares. ‘They can ride the trough for a very short period, but there comes a point in any business when you have to question why you are carrying on milking cows and losing money.
‘It costs the most efficient farmers about 30p to produce a litre of milk. The vast majority are paid less than this and a sizeable number are getting just 20p a litre. At 20p a litre a farmer with a typical dairy herd of 1,000 cows is losing hundreds of thousands of pounds a year.’
The price war between food retailers is a key factor.
‘There’s a bloodbath going on in the high street with major retailers all chasing footfall and volume sales. They have been devaluing milk in particular.’
Perhaps surprisingly the big supermarkets are not the villains of the piece, according to Raymond. Many of them guarantee to pay farmers at least the cost of production.
‘About 15 per cent of those farmers would be on these cost-plus contracts with four supermarkets – Tesco, Sainsbury’s, M&S and Waitrose,’ says Raymond.
‘They sit down, they work out the cost of production on their producers and then a profit margin is built in.’ Raymond estimates that fewer than one in five dairy farmers is lucky enough to be in this position.
‘You’ve got a band of producers that probably range from 24p to 27p per litre. That would be about 60 per cent of producers. Then you’ve got others, nearly 20 per cent of producers, who are getting less, maybe as little as 20p per litre.’
Raymond, who took over as president of the NFU last year, is himself very much in the front line of the dairy crisis.
The 62-year-old and his twin brother inherited the family farm in Pembrokeshire when they were teenagers.
Since becoming NFU president last March some of the responsibility for day-to-day running of the farm has been passed to his son and nephew.
The farm includes sheep and beef cattle, but there is also a herd of 620 dairy cattle. ‘We are losing money,’ a dejected Raymond says plainly.
While some retailers are paying farmers enough to cover their costs, Raymond insists that more must be done by the stores groups.
‘I challenge the retailers to recognise the importance of dairy farms to the UK economy, their continuity of supply to keep their customers happy. This is my challenge to them – to start understanding the cost of food production. Otherwise they will destroy an industry.’
Raymond warns that potato and vegetable prices are also under pressure, which is causing a squeeze on arable farming.
Might shoppers have to recognise that ultra-cheap food is not sustainable? ‘Possibly in the longer term, yes. We’ve seen while we’ve had this competition on the high street that it’s been good for consumers, but there is a true cost of production, whether it’s a kilo of beef, a litre of milk or a kilo of potatoes.’
The number of dairy farmers in England and Wales has halved since 2002 when it stood at a total of 20,000.
Raymond adds: ‘We saw 60 farmers exit the industry in December alone. So we’ve now dropped below 10,000 in England and Wales.’
Last week, one leading milk co-operative, First Milk, announced that it would have to delay paying some of its supplier-members.
Raymond argues that First Milk had little choice, but the move created a short-term cash crisis for about 1,100 dairy farmers and resulted in Raymond having to embark on a tour of the banking industry. ‘We have gone out and spoken to all the key people – the main banks that support British dairy farmers – to convince them how important it is to keep their customers at this hour of need.’
Dairy farmers have also been hit by problems on the international stage. A burst in demand from China a year ago was followed by a sudden drop and tensions between Russia and the West prompted President Vladimir Putin to place a ban on EU food imports.
‘That was a political decision which impacted milk values by at least 2p per litre,’ says Raymond.
The other international issue he is focusing upon is food labelling.
‘There are one or two cheese brands on sale where you see a Union Jack on the package and it says “packed in the UK” but you can bet your bottom dollar that the milk used to make it has not been produced in the UK.’
The solution is so-called ‘country of origin’ labelling, which would require such packaging to show where the original milk came from.
‘We have won the argument with Defra and the Secretary of State has taken the message to the European Commission,’ Raymond says.
‘Country of origin labelling has worked in red meat and in white meat and we are arguing for country of origin labelling for dairy products.’
Surveys consistently show the public saying they want to support farming. The question is whether we as shoppers are willing to put our money behind that sentiment and whether retailers are prepared to gamble that we will do so.