Blog: Dean BestCrisis and consolidation

Dean Best | 8 June 2009

The international dairy sector is facing a state of crisis. Oversupply and waning demand have caused prices to plummet on the global market for dairy commodities, while the cost of production has continued to rise.

Profitability across the sector has been put under extreme pressure and globally we are likely to see increasing consolidation at all levels of dairy production, as weaker players fall by the wayside.

Indeed, last week in the UK came the news that Dairy Farmers of Britain had entered administration.

Efficiency issues at the farmer-owned cooperative, which supplies 10% of the UK’s milk, meant that the group found itself unable to remain competitive as its larger rivals slashed prices. DFB was also unable to digest its 2004 acquisition of Associated Co-operative Creameries, the Co-operative Group’s dairy business. The Creameries business required investment – cash that DFB was unable to raise.

DFB’s move into receivership leaves the future of the co-operative's 2,200 staff and 1,800 farmer members up in the air.

According to DFB’s administrators, PricewaterhouseCoopers, there has been “strong interest” in the group, news that will be welcome for DFB’s farmers, who must now find new buyers for their milk.

Across the channel, French dairy farmers and processors were able to reach a deal on milk prices, brokered by the French government.

The agreement brings an end to several weeks of protests by farmers, who succeeded in disrupting industrial production and distribution.

However, as a spokesperson for Lactalis told just-food, the dairy companies were forced to offer farmers considerable concessions, raising prices to an annual average price of EUR280 (US$396.29) per 1,000 litres.

"I suppose one can say it's a compromise and like all comprises no one is left entirely satisfied…. That said, French dairy firms are going to be paying around EUR20/1,000 litres more than their counterparts in Germany and the Netherlands, for example,” the spokesperson said.

However, the deal provided little respite for the beleaguered French dairy industry, it seems. News reached us today (8 June) of further disruption to France’s dairy supply, with farmers in the west of the country – particularly in the Finistère, Sarthe, and Loire-Atlantique – blockading retailers, who they blame for the low price of dairy goods.

Meanwhile, on the international stage, the row over dairy export subsides took another turn this weekend. On Sunday, Australian Trade Minister Simon Crean said the country would protest “very strongly” the export subsidies put in place by the US and EU.

With no easy solution to the problem of dairy oversupply, we can expect to see more turmoil and increasing levels of conflict in the dairy sector in the months to come.

Katy Humphries, Deputy Editor


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