Dairy processors will not be able to pay more to farmers until global markets improve, Dairy UK has warned.
The organisation, which represents the dairy supply chain, said there was no doubt farmers were struggling with rising feed costs and the bad weather – and that recently announced farmgate milk price cuts had hit them hard.
“It’s not difficult to see where farmers are coming from with their protests,” said Dairy UK director general Jim Begg (pictured). “But this is a market-driven situation and it will require a market-driven solution.”
While farmers had been hit by unfavourable commodity markets, so had the processors, Begg stressed. He pointed out prices at the Fonterra dairy auction were 42% lower than in March 2011, Dutch butter prices had fallen by 38% since March 2011 and bulk cream prices dropped form £1,800 a tonne in June 2011 to just over £1,000 now.
“This drop in cream price is equivalent to processors making 6p less per litre of whole milk,” Begg said. “It’s seriously damaged the profitability of dairy companies and it’s really difficult to see how processors can find more money until the markets move.”
But Begg added that although short-term prospects for dairy markets were difficult, the industry would pull through its difficulties in the longer term.
“We will see a recovery and we will get through this,” he said. “But until the markets improve, the ability for processors to pay more will be seriously limited.”
Aside from the need for better returns from the market, it was also important the public debate about milk prices did not focus unduly on the major multiples, Begg said.
“We need more money coming into the whole supply chain,” he said, stressing that almost 40% of the UK liquid milk market was accounted for by players other than the big supermarkets, such as the foodservice sector.
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