Milk shortages predicted if farmgate prices plunge

Dairy experts are warning of a possible milk supply shortage similar to the recent crisis that left supermarket shelves empty of eggs.

Photos emerged on social media this week of supermarket shelves running empty of milk, although this was blamed on logistical issues rather than a shortage in supply.

However, as milk futures this week point to prices dipping as low as 32p/litre within 12 months, dairy industry commentators fear a milk supply shortage could happen.

See also: Outlook 2023: New year to bring dairy profit challenge

Empty shelves in milk aisle at an Aldi supermarket in the UK © Enya Mountford

Parallels are being drawn with the egg industry, where retailers were warned about a shortage months in advance of that becoming a reality.

That warning by farmers, that they could not continue producing eggs at well below the cost of production, was ignored.

Multiple milk price cuts have been announced for January and February, largely due to sluggish global demand, particularly in China, which is emerging from three years of Covid lockdowns, and an increase in European milk production.

John Allen, managing partner at Kite Consulting, said with the breakeven milk price for UK milk production at 45p/litre, it would be “completely unsustainable” for dairy farmers to produce milk.

“Some of the good operators can produce milk at 32p/litre and for the bad ones it is as much as 60p so the breakeven price is roughly 45p,” he added.

“If the actual market follows the futures market and traders think that the world can make milk within 12 months at 32p/litre, they are living in a dreamland.”

AHDB outlook

The AHDB’s projection for the 2023 calendar year is 12.43bn litres, up 0.3% from 2022.

Its lead dairy analyst, Patty Clayton, said that outlook was “highly dependent” on how milk prices and input costs develop, and the impact of further reductions to farm payments and labour shortages on farmer confidence and production decisions.

Futures give a guide to prices but are not always accurate – for instance, the average UK milk price was predicted to peak at 60p/litre in 2022, but the actual figure was 50.44p.

In reaction to growing market volatility, Muller intends to introduce new milk contracts for suppliers this spring with less emphasis on global commodity volatility.

The company said these agreements would give farmers “greater levels of certainty, stability and transparency”.