With a further round of milk price cuts at farmgate level, the short term fortunes of dairy production continue to fall. Even with the direction of travel of global dairy markets meaning that reductions were anticipated by many, the latest cuts will further devastate dairy’s bottom line.
Depending on their milk buyer, and even contracts, some producers will have seen up to 11ppl knocked off their milk price since the beginning of 2014. For the average British producer[1], that would equate to a drop in milk revenues of £104,411 over a 12 month period.
With price movements pointing to a profitability squeeze across the sector, it is no surprise that the NFU’s latest confidence survey has recorded a dramatic downturn in confidence levels among dairy producers. Last year’s broadly optimistic outlook has been replaced and confidence in the sector is at its lowest level since NFU started the survey back in 2010.
Falling commodity prices and plummeting confidence coincide with a fiercely competitive retail environment. At the retail level, liquid milk prices continue to be cut with leading retailers competing for market share, and arguably the biggest question mark hanging over the industry is what retailers will do next.
Even though some retailers have pricing structures in place for their dedicated suppliers, retailers must be wary of the signals they send to the industry through their pricing tactics across the dairy category. Ultimately, do they see UK dairy products as a battle ground in a price war or as a valuable category that can thrive and prosper?
The omens don’t look great. The reality is that one retailer is selling four pints of milk for just 75p. In the past 14 years the average retail milk price has never been that low. Farmers will be wary of the last time retail prices really plummeted – in the four months between June and October of 2010 the average retail price for four pints fell from £1.51 to just £1. Currently the average is holding at 113p.
The latest DairyCo data already reveals the impact current prices are having. The number of registered dairy production holdings in England and Wales has dipped below 10,000 for the first time ever. More worryingly, the rate of dairy farmers exiting the industry in England and Wales is at its highest level since April 2009.
Farming didn’t instigate this price war, yet we’re seeing our dairy products on the front line and it’s our dairy farming members who are the casualties.
Source: NFU
