‘Significant step forward’ towards milk price agreement

National Farmers Union dairy adviser Luke Ryder said that following the meeting at the Royal Welsh Show, a deal had been agreed on the prinicples of a new dairy code of practice.

Crucially, the new deal would allow farmers contracted to supply milk to give three months’ notice if the price was varied at short notice, rather than the current 12 .

Mr Ryder told Channel 4 News: “We welcome today’s heads of agreement. The voluntary code (of practice) is something we’ve been working on for over 12 months. Today’s agreement strengthens the position of the producer.” But he warned that despite this “significant step forward”, legislation would probably still be necessary.

The meeting between Dairy UK, representing the dairy supply chain, and a coalition made up of representatives from the National Farmers Union (NFU), Farmers for Action (FFA) and the Tenant Farmers Association (TFA), was chaired by Farm Minister Jim Paice.

Speaking to Channel 4 News Mr Paice said the agreement was a step towards resolving “some very fundamental structural problems” in the dairy industry.

Dairy farmers say that following recent drops in the wholesale price of milk, they are being paid less per litre (some 25-26p) than it costs to produce (around 30p per litre). Mr Paice described this price level as unsustainable: “What matters is that there is milk on the shelf, not just today but into the future.”

On Sunday night a third blockade saw more than 2,000 farmers gathered outside milk processing plants in Somerset, Worcestershire and Shropshire. FFA member James Badman said “this is a last resort.”

Since the demonstrations began, both the Co-operative and Morrisons supermarkets have annouced they will raise prices paid to producers.

Demo at asda twitter.com/Lucybeattie/st…

— Lucy Beattie (@Lucybeattie) July 23, 2012

Asda has announced a 2p price rise from 1 August which will offset a cut previously announced by the milk processor Arla and maintain prices for Asda’s 272 Dairylink farmers at 27.5p a litre. Asda has pledged not to pass the price rise on to its customers.

Farm minister Jim Paice described the current prices as unsustainable and said

Although there has been an inexorable downward trend in milk prices for some years, the current low rates are wiping out famers’ profits altogether, driving them out of business, with a knock-on effect on the local economy, according to George Dunn, chief executive of the Tenant Farmers Association (TFA).

Mr Dunn told Channel 4 News that he hoped the summit would mark three achievements for farmers: an immediate reversal of the price cuts since May; the ability for farmers to leave contracts if the price moves against them at short notice (currently they are locked in for 12 months, whatever happens to the price); and a voluntary code of practice.

Scottish Farming Minister Richard Lochhead said on Sunday: “There was recognition from all three ministers (from England, Scotland and Wales) that there is an imbalance in the supply chain. It was clear that the preference of all three ministers is for a robust code of practice which will deliver transparency in milk pricing and a fair price for milk producers.”

Warning that legislation could not be ruled out, Mr Lochhead added: “The success of this code will of course be whether we find ourselves back in the same position in the next few months, and it is important the code delivers a long-term solution to this unfair and emotive issue – not a quick-fix.”

Added value

Virtually all the fresh milk consumed in the UK is from British farms. But with other dairy products such as cheese, yoghurt and cream accounting for half of the dairy products consumed in the UK, the government is keen for the dairy industry to find profits beyond the supply of fresh milk.

Writing in the Daily Telegraph on Monday, the Secretary of State for the Environment, Farming and Rural Affairs, Caroline Spelman, warns that for future sustainability, the dairy industry as a whole has to do more than “squabbling over contracts to bottle liquid milk for supermarkets and focus on the wider, lucrative market for dairy products”.

It is an argument that Dairy UK, which says it represents “the interests of the dairy supply chain” from farmer to processor, agrees with. Simon Bates, of Dairy UK, told Channel 4 News there are three ways to bring more money into dairy farming: more exports; fewer imports and building stronger brands.

Mr Bates, citing the example of the company Dairy Crest, which has invested a large amount of money in promoting its Cathedral City cheese, points out: “By moving from commodity to brand, you can bring added value to the supply chain.”

George Dunn at the TFA agrees that “we need to be smarter about ensuring the consumers buy British”. But he points out that farmers remain at the mercy of the processors when it comes to producing those added value products for consumption at home, or in the burgeoning foreign markets that the Secretary of State is keen to break into: “processors in this country have been quite insular .. dairy farmers are beholden to them in terms of how they process the milk.”

When it comes to the farmgate price for fresh milk, over the last 20 years, the margins going to farmers have plunged and the margin for retailers has soared. But processors – who hold the ring – have maintained their margins almost unchanged.

As George Dunn says: “We want to see the dairy market expand, but everyone must be properly recompensed.”

When Farm Minister Jim Paice meets supermarkets on Wednesday he will looking for answers:

“as one of the best grass producing countries in the whole of Europe, why we are importing vast quantities of youghurts, cheese, butters and things like that, which we ought to be able to produce more efficiently and cheaply here and still pay a sensible price for the milk?”