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Increased supply and reduced domestic demand is putting downward ­pressure on suppliers’ prices

Freshways and Arla have announced big drops in their latest farmgate milk prices, amid growing concern many farmers are now producing milk at a loss.

Mid-market processor Freshways will cut its July price by 3p per litre to 38ppl, while Arla is reducing its on-account conventional milk price for June by 2.65ppl to 36.99ppl.

The two processors cited an increase in global milk supplies, coupled with reduced domestic demand, for putting downward ­pressure on their prices.

Freshways said the recent retail price cuts initiated by the mults was also a factor, heaping further pressure on the business. MD Bali Nijjar described the price cut as “necessary in order to maintain our competitiveness in the marketplace”.

“The dairy industry is a complex and interconnected system that is influenced by many different factors, both within and beyond our control,” he said.

Break-even price

Average farmgate prices now look to be below the average break-even price for dairy farmers this year, which was estimated by Kite Consulting to be around 43ppl last month. Defra’s latest UK average for March stood at 45.98ppl, but Kite estimated the true average current price – following a raft of subsequent price cuts – fell to 40.05ppl last month.

And it predicts the average cost of production for 2023 to be higher than 48ppl due to the impact of input cost inflation, which could ultimately threaten production due to the losses incurred by farmers.

The recent retail milk price cuts saw most of the major mults cut four pints of milk by 10p to £1.55, while a host of other supermarket milk lines saw similar reductions. 

“We’ve seen some cost price deflation for milk across the market in recent times, and we want to take this opportunity to pass that reduction on to customers,” said Tesco UK CEO Jason Tarry in mid-April.