More milk price misery ahead

With all Scottish dairy farmers facing further milk price cuts this May and June, NFU Scotland has called on milk processors and retailers to accept a greater share of the costs and risks involved in producing milk or cause irreparable damage to Scotland’s production base.

All major milk buyers in Scotland – Muller, First Milk, Lactalis, Arla, Grahams - have now announced further milk price cuts to come into force in the coming weeks. Many Scottish dairy farmers are now well into a second consecutive year where milk prices are substantially below the cost of production with little likelihood of any uplift in the months ahead.

NFU Scotland remains adamant that most of the burden of low milk prices has been foisted onto producers, and this must be addressed by milk processors and those selling dairy products.

Speaking from Brussels, where he is attending European meetings on the dairy crisis, NFU Scotland’s Milk Policy Manager George Jamieson said: “While we can accept that the collapse in dairy commodity prices is a global issue, there is a strong argument that other parts of the chain are forcing a disproportionate share of weak market prices onto producers.

“Milk processors, while under competitive pressure, continue to use their power of discretionary pricing to manage their margins, as they compete for market share. While at the retail end, there is little sign that consumers are benefitting from some of the weakest dairy markets in living memory as retail prices remain virtually unchanged.

“It may be simplistic, but retail prices for cheddar have only reduced marginally to around £5.85 per kg while wholesale prices are down below £2000 per tonne. Regardless of the complexities in pricing that is a huge margin being made at the retail end.”

“Those in the dairy supply chain who have the power to exert downward pressure on milk prices must display a greater degree of empathy or rational understanding that their behaviour has very serious long term consequences for supply.

“While we cannot dodge the fact that the market is the market, the consequences of extended periods of low prices must be addressed. There is a fundamental need to share the risk which is currently being carried by the producer, while the rest of the supply chain manages their margins at the expense of those producing the milk.

“Long term food production is too important to leave totally to the market. A dysfunctional and short-sighted supply chain, if allowed to carry on, will severely compromise primary production.

“Without retailers and processors waking up to the damage they are doing, we run the risk of this prolonged price crisis taking out some of our most efficient and well invested dairy farmers and not just those producers deemed less efficient or contemplating leaving the industry. The dairy supply chain cannot assume this is a producer problem which will be resolved by a natural ‘wastage’ as they may find that there are too few dairy farmers left who are willing to be abused by a supply chain that is no longer fit for purpose.

“While NFUS continues to challenge the supply chain, government must also address this issue as matter of urgency. Government, farmers and progressive processors and retailers must seriously consider the weakness and deficiencies of poorly thought out milk contracts and engage with the voluntary Code of Practice. If that fails, then a compulsory option that delivers a collaborative, efficient supply chain in the dairy sector must be considered.

“Beyond this, a priority for NFUS is to work with government and stakeholders, including banking leaders, in an active, focussed working group, to help Scotland’s dairy farmers navigate through the very challenging months ahead.”