The NFU has cautioned over the “constant boom and bust dairy market cycle” amid warnings of an impending “butter crisis” in the UK by the autumn.
Despite record prices for cream and butter at wholesale, and warnings from Arla CEO Peder Tuborgh last week that there could even be shortages of butter towards the end of the year, the NFU said the fact farmgate prices had failed to keep up and the lack of a strong upward movement in milk prices were “extremely concerning”.
“The constant boom and bust dairy market cycle helps no one, most of all farmers, who at the bottom of the supply chain are facing the biggest volatility risk,” said NFU chief dairy adviser Sian Davies.
“Farmers need to be demand-led, they need better market signals. Only a few months ago farmers were being told there was too much milk. It’s now gone full circle. This isn’t sustainable from a farmer point of view, and we need to find a better mechanism to work together with the processors.”
It comes as analysis from AHDB Dairy warned that the proportion of dairy enterprises unable to cover cash costs of production almost doubled between 2016 and 2017 to reach 40% of 328 farms it analysed in March.
The number of herds able to remain profitable throughout the downturn experienced by the sector between 2015 and 2017 (without the use of other income streams such as basic farm payments) was less than 20%, AHDB said.
The average cost of production in the year to March 2017 rose by 1% compared with the previous year, while yields fell 2% due to a reduction in feed use.
‘While prices on dairy product markets saw considerable recovery throughout the year, farmgate prices achieved only marginal gains,’ the analysis said. ‘As such, the average price achieved over the 12 months was 0.5% lower than the previous 12 month average,’ it added. And while the immediate cashflow situation on most farms would have improved since March off the back of higher milk prices, the long-term impact of the severe downturn in the dairy sector was still being felt by many.
‘A reduction in the investment on farm, an extension of credit from suppliers and increased borrowings will all take time to unravel. Farmers need an extended period of profitability to reverse the impacts from the last couple of years.’
Confidence within dairy farming was at an all-time low, the NFU’s Davies added. “Mistrust in the market dynamics and suspicion about how milk buyers are treating their supply base, coupled with the lack of direction on the impact of Brexit on the dairy sector’, had all taken their toll on dairy farmers.
“This is why the NFU is calling on government in the first instance to regulate on the need for better market information - for collated data on milk volumes and traded prices for our main milk products. This should at least provide more trust in the market and allow farmers to better plan their production going forward.”