Supermarket milk price war leaving a sour taste for UK dairy farmers

The shelves holding milk cartons of various shapes and sizes in British supermarkets, including everything from full-fat, low-fat and skimmed to homogenised and organic, are emptying more quickly than usual.

The extra sales are hardly surprising. Tesco is now selling four pints of whole, pasteurised milk for £1 (€1.20), rather than £1.39. Sainsbury’s and the Co-operative cut the price of one-pint and two-pint bottles. Waitrose followed suit.

Morrisons, the Bradford- based retailer run by Irishman Dalton Philips – which yesterday announced that years of low profits lie ahead as it seeks to tackle Aldi and Lidl head-on – is selling two-litre cartons for 84p, down from 97p.

For now, the prices are getting ever nearer to those given to farmers, and obviously do not even take into account the costs of processing, packaging and transport to the shops.

Figures from the department of environment, food and rural affairs show that in January farmers were paid 33.8p per litre – a 13 per cent increase on the sums paid out in January 2013.

Prices to farmers, who complained that the price they were getting did not even cover basic costs, rose on the back of increasingly vocal protests outside milk processors’ premises throughout 2013.

The National Farmers’ Union (NFU) is worried, but supermarkets insist price cuts in shops will not affect farmers. “What we want to see are decisions on pricing that ensure the longer-term sustainability of food production,” said NFU president Meurig Raymond.

Last year’s protests, even if they did not solve dairy farmers’ ills, did drive home the message to Westminster that Britain’s food security is being threatened by ever-tougher pressure from supermarkets and customers.

In 1995 Britain had 30,000 dairy farmers and 2.3 million cattle. Today, just 10,500 dairy farmers remain. Production has remained the same. Interestingly, the number of cattle has fallen to just over 1.5 million.

In 1995, the average British herd had 77 cows, each producing 5,320 litres per year. Today, the average herd has increased by 65 per cent to 127 cows, while yield has grown by 40 per cent to 7,480 litres, according to a report for DairyCo, a not-for-profit organisation working on behalf of Britain’s dairy farmers.

However, the quota figures are even more revealing. Eighty-five per cent of quota is now held by farms producing more than 500,000 litres a year; while two-thirds of it is held by farms producing more than 1 million litres.

“The smallest category of producers has declined almost to the point of extinction,” notes the report by the Andersons Centre and University of Nottingham, adding that the quota they hold has fallen by an extraordinary 11 per cent every year since 1995.

As in Ireland, British farmers are looking ahead to the removal of EU milk quotas in 2015.

The report says global milk production could rise by 5 per cent, though prices may fall by up to 6 per cent. Life for the least-efficient farms could become even tougher.

The differences between farmers are striking. Each litre of milk produced by the top 25 per cent of farms (in terms of profitability) costs 27.2p, giving a net margin of about 6p per litre – compared with those in the most poorly-performing quarter, who are losing nearly 6p on every litre.

A Voluntary Code of Practice was agreed in late 2012 between farmers and processors, giving farmers the right to back out of contracts in three months if the price for milk falls without just cause.

Prior to that, farmers supplied milk on 12-month contracts, but buyers could change terms mid-stream. Now both sides must honour commitments.

Bigger farms do not automatically get better prices, the DairyCo report says. Nor are they always the most efficient, or the most likely to stay in business.

If anything, inheritance is the single most important reason that farmers quit. Farms with a younger generation waiting in the wings are more likely to stay in the business.

Meanwhile, milk production in Britain is shifting westwards, following a particular fall in dairying numbers in the east of England, southeast and midlands. Dairying in the West Country, on the other hand, has risen significantly.

Because of rainfall, the West Country and Wales – like Ireland – has better grass growth, and thus lower costs. Meanwhile, dairy processors have increasingly moved their operations westwards, too.

“(They) are located along the major transport routes, wishing to be located within extensive ‘milk fields’ to minimise transport costs. Once the plants are in place, however, they are a fixture and may, in turn, encourage greater milk production,” says the report.