Concerns for dairy farmers as milk price cuts cause losses

Farmgate milk prices have dropped further below the cost of production for many dairy enterprises in the past week, leaving farmers in a loss-making position.

Several milk processors have now decreased milk prices for five consecutive months, with values in May down by almost 30% compared with the beginning of the year.

Industry figures suggest it is currently costing farm businesses on average about 40-45p/litre to produce milk, while most farmgate prices are in the region of 35-40p/litre.

See also: Silage season gets under way in South West and Wales

Limited demand and increased supply across Europe were the two main reasons mentioned behind the latest drops by processors.

UK wholesale values in April were down for cream, butter, skimmed milk powder and cheddar. The actual milk price equivalent (Ampe) market indicator also dropped during April, falling by almost 3p/litre to 31.81p/litre.

Spring peak 

But while milk supply is approaching the annual spring peak, Nick Holt-Martyn, principal consultant at The Dairy Group, said supply was actually fairly stable and there is not too much milk in the UK market.

“April supply increased by 0.3% and, when you compare it with the five-year average, it is up by 0.6%, so it is hardly the cause of any weaknesses,” he said.

“There was a hiatus before Easter in the European market, and since then the European market has been falling – that’s the reason for the markets weakening.”

Mr Holt-Martyn said at the retail end there had been nothing like the fall in prices that there had been for farmgate values.

“At some point, markets will stabilise, but at the moment, although the retailers are protesting, there is actually no evidence that prices are falling at the retail end.

“Someone in the supply chain is filling their pockets, and it’s not the farmers and it’s not the processors. The only people who are filling their pockets are the retailers,” said Mr Holt-Martyn.

If milk prices remain at these levels and there is a prolonged period of losses, some dairy businesses are likely to cut back production.

The number of registered holdings in England and Wales decreased by 2.1% (161 holdings) in the past six months to total 7,549, according to figures from the Food Standards Agency.

Some optimism

Wholesale dairy values rose by 2.5% at the latest fortnightly Global Dairy Trade event on 2 May, a second consecutive uplift.

UK milk volumes are likely to drop slightly following the spring peak, and some farmgate milk prices have already begun to stabilise into June.