Monday, June 22, 2015

The dairy farming crisis

The chairman of the NFU's south-west dairy board, Mark Oliver, has announced that he is selling his herd and quitting agriculture. He has seen the milk price he receives from his dairy fall from 33-34p a litre a year ago to 25p a litre today, with the prospect of further drops. The break even point is thought to be around 28p a litre, although this can vary by farm.

The price farmers receive does vary considerably. A number of big supermarkets such as Tesco, Sainsbury's, Marks and Spencer and Waitrose pay an agreed amount above the cost of production. This would work out at around 32p a litre. However, fewer than 15 per cent of farmers have the protection of these contracts. Typically, prices in the UK have dropped by 25 per cent over the past year, producing a price of around 20p a litre, although some farmers receive even less.

The underlying drivers are supply and demand. Global milk production is rising by 5 per cent a year while demand is growing by just 2 per cent. The average cow in England and Wales produced 14 per cent more milk in 2013 than a decade earlier.

China's economic slowdown has reduced its demand while Russia imposed a ban on EU dairy products last year. The two countries account for not far short of a third of globally traded dairy products, so have had a significant impact on prices.

Chinese imports have jumped 14 times in the last decade. This is, of course, from a low base with milk and cheese being relatively new to the diet.

The number of dairy farmers in England and Wales has dropped by half over the past 12 years to just under 10,000. However, this means that the remaining farmers have better economies of scale, are generally more efficient and better able to compete internationally.

It's not all doom and gloom in the long run. The International Farm Comparison Network reckons that the world will need 30 per cent more milk by 2024. The demand would come from population growth and per capita dairy consumption rising by 14 per cent.

The Middle East and North Africa have seen rapid expansion of their dairy markets. While world trade of dairy products has doubled in the last decade, Middle Eastern imports have trebled and Maghreb countries have seen a 3.5 times rise. One of the main attractions of the region is the scope for processed dairy products such as cheese. In Asia the market has been mainly focused on milk and powdered milk.