In the spotlight: Dairy farmers lay down gauntlet over pricing
In a summit organised by farming groups in London today (11 July), farming leaders are calling on processors to reverse cuts to milk prices
UK dairy farmers have warned they are prepared to take action if processors push through recently announced price cuts. However, Katy Askew writes, it seems likely their demands will carry little sway with processors and retailers.
Dairy farming businesses in the UK have been hit by recent moves to reduce farmgate milk prices. In May and June, the country's largest dairy processors - Dairy Crest, Robert Wiseman Dairies and Arla Foods - cut the base price they pay farmers by two pence per litre. Then, earlier this month the three companies announced another round of cuts, which look set to take the price farmers are paid for milk down by a further 1.65-2ppl.
In a summit organised in London today (11 July), farming leaders called on processors to reverse these cuts.
According to farmer representatives, by lowering the price paid for raw milk, dairy processors are pushing producers into a loss-making situation.
"The cuts [in May and June] were cuts to the bone and beyond. They were farmers' investment, margin and profit... These latest cuts [to come into effect 1 August] are the feed bill, the wages, the housekeeping. These cuts will take us into massive loss-making territory," Meurig Raymond, deputy president of the National Farmers Union told the capacity crowd at Westminster Central Hall.
The divergent farming bodies present in London today, including the NFU, NFU Scotland, NFU Cymru, TFA and Farmers for Action, were united in their call for dairy processors to reverse their price cuts by 1 August.
According to David Handley, chairman of Farmers For Action, the attendance of over 2,500 farmers at the protest was evidence farmers are prepared to take action if processors do not reverse the recent milk price cuts.
"[We demand] the reinstatement of monies that have been taken from us since April 1st and no contemplation whatsoever of a further decrease... The clock is ticking - 20 days to go [until 1 August deadline]. If somebody doesn't do something in 20 days - including this buy-one-get-one free government we have got - we will have no option but to show them what we are capable of," he said, to cheers from the audience.
It seems that, rather than following the lead of outraged dairy farmers in France who poured tankers of milk down the drain to dramatic affect, any protest action in the UK this summer will be decidedly "British" in flavour.
A spokesperson for the NFU told just-food the union would "support and facilitate" protests outside retailers and processors, in an effort to "name and shame" and gather support from consumers.
The spokesperson added the group would stop short of disrupting the milk supply or Olympics. It is unclear whether other farming bodies would be prepared to take protests a step further.
While the farming community is clear in its goal to reverse price cuts, it seems these demands will gain little traction with dairy processors. A spokesperson for Robert Wiseman Dairies said the group is unwilling to reconsider its price cuts.
"We fully understand the strength of feeling amongst dairy producers, but we are not in a position to fund a milk price at the level that it was prior to the collapse of cream. The collapse in the value of cream is the whole issue here: if we don't have that income we are not in a position to maintain the milk price at that level," the spokesperson said.
Likewise, Dairy Crest indicated the company will not reconsider the price it pays for milk until market conditions improve. "Regrettably, the continuing impact of tough market conditions has resulted in a milk price reduction for some of our milk supply contracts. Farmers on a standard liquid agreement will see their milk price fall by 1.65 ppl from 1 August 2012," the spokesperson said.
"However, a commitment has been given to these farmers that there will be no further reductions this year. This latest price cut will be a great disappointment but we have assured our farmers that if and when market conditions improve sufficiently we will be looking to increase the price again."
According to the NFU's Raymond, cream prices have been "subsidising" low liquid milk prices since 2010, when the retail sector embarked on a price war that meant processors "gave away farmers' margins" as they battled one another for volumes.
However, Wiseman rejects this conclusion. "Britain is a nation of fresh milk lovers, but in the main shoppers are picking up semi-skimmed milk... Companies like Wiseman, like Arla, like Dairy Crest, for that reason produce an awful lot of cream. The majority of that cream is sold for export. It is a commodity and the value of that commodity rises and falls. Unfortunately we have to reflect the value of cream in our milk price. We can't continue to fund a milk price when we don't have a revenue from that market," the spokesperson said.
According to the assessment of the UK's largest milk processors, the pressure on pricing comes as retailers respond to the depressed consumer environment.
Indeed, when Dairy Crest pushed though its first wave of price cuts, the group cited "downward pressure on pricing" in a "tough consumer environment" as one of the primary factors forcing its hand.
"Supermarkets are pricing very competitively... retail milk prices are cheaper now than they were this time a year ago. I think the reason is consumers are finding it pretty tough going at the moment and retailers are competing between themselves," Arthur Reeves, external affairs director at Dairy Crest, told just-food last month.
While the country's big retail multiples have cut the selling price of milk, many of the country's largest retailers have dedicated liquid milk supply chains where a premium is paid to secure volumes.
Raymond highlights the help that supermarkets including Tesco, Sainsbury's, Marks and Spencer and Waitrose are offering farmers by issuing payments to farmers based on a cost model. Nevertheless, he insists that there are those who could do more to ensure that they have a sustainable supply of liquid milk.
In spite of this criticism, a spokesperson for Asda tells just-food the company is "extremely proud" of its relationship with farmers.
"We pay a premium above and beyond the Arla base price - and that premium benefits each one of the 300 dedicated farmers who supply Asda with milk," the spokesperson said. "We are continuing to have discussions with the farmers who supply us with our milk."
Meanwhile, a spokesperson for the Co-op insists the group is doing "everything we can" to alleviate the pressures facing dairy farmers.
"The Co-operative Dairy Group (CDG) operates a market price plus premium mechanism, providing a secure, long-term partnership with our members and delivering benefits that go beyond simply what we pay for milk. We are proud of the CDG and our farmers make a positive choice by working with us."
The UK dairy industry is faced with a conundrum. If dairy farmers are not paid more for their milk, many of them will go out of business. While this would result in a shortage of supply and ultimately push up the milk price paid to those who remain in business, all in the industry agree that this would not be the preferred outcome.
To avert this situation, it is clear dairy farmers need to be paid a price for their milk that covers the cost of producing it. What the industry is unable to agree on is where this additional cash should come from.
From a sustainability standpoint, 2012 might be characterised as a year when the world went backwards - or at a pinch stayed still - but the food industry moved forward, writes Ben Cooper....
- Nestle's 2014 results: 10 Things to Learn
- Why "simple" and "real" will be industry buzzwords
- Maspex: M&A opportunities in eastern Europe
- Why US Dietary Guidelines report deserves praise
- The just-food interview: Bega Cheese CEO
- Kerry Group CEO expects more M&A in 2015
- Gruma FY earnings surge as margins improve
- Glanbia FY profits beat analyst forecasts
- Kerry sales, earnings rise but food weighs
- UPDATE: Mondelez confirms Irish plant changes