Policy Markets Processing

Dairy Crisis: What Can Ten Pence On Milk Do?

GLOBAL - A supermarket’s ten pence pledge on a new brand of milk has been welcomed by UK farm leaders this week but many say producers can help themselves by curbing production.

14 August 2015

3 minute read

Dairy farms from New Zealand to New York are feeling the effects of high milk supplies, and while UK-based retailer Morrisons has been commended for its four pint carton initiative, many economists say it is time farmers turned the taps off.

In New Zealand, Europe and the US, farmers are being told that cutting production will bring benefits.

Levy board DairyNZ is telling producers to cut supplementary feeding and cover lower production with lower costs.

“Removing unprofitable production from our systems is good for individual farm businesses, and will send the market a signal that New Zealand farmers will not produce marginal milk at a loss,” said DairyNZ chief executive Tim Mackle told farmers last month.

This summer has seen milk dumped and processing capacity stretched in the north east of the US.

This is according to the University of Wisconsin’s Professor Bob Cropp who suggested US farmers could address their own prices by cutting production and allowing US prices to recover ahead of the international market.

He wrote that if dairymen successfully reduce milk output, US milk prices could improve by the year-end and into the New Year, significantly earlier second half of 2016, the forecast upturn for the rest of the world.

The US “All Milk Price” is currently at $16.5/hundredweight, around ten dollars lower than last year’s spring and fall peak or just short of $26. The disastrous 2009 saw lows of $11.50.

Across Europe, prices are averaging 20 per cent below last year as farmers continue protesting against what the European Milk Board calls a “never ending downward spiral” in prices.

For some the answer lies in the retailers paying a “fair” price, but some voices in the industry point to a global markets crisis which cannot be helped by supermarkets.

EU farming leaders blame the Russian ban, currency flux and a badly managed phase-out of milk quotas, with lessons not learned from the Swiss quota abolition.

And meanwhile China’s much discussed imports situation continues to disappoint on previous strong years.

Latest intelligence from the European Commission’s Milk Market Observatory shows WMP; Butter and Oil and SMP imports for January to May down on 2014 by 54, 31 and 40 per cent respectively.

But the Morrisons pledge signifies a “welcome first step” for the National Farmers Union, which has this week celebrated major media exposure across various channels for its campaigning.

Union President, Mansel Raymond, pledged to work across all food sector to get a “fair price” from retailers, revealing ongoing talks to support cheese, butter and yoghurt.

NFU dairy board chairman, Rob Harrison said: “We are pleased that Morrison’s has acknowledged the desperate situation that farmers find themselves in and that retailers have a role to play in finding a solution.

"Shoppers have been telling us, as well as independent studies, that they are willing to pay more for milk and today’s announcement from Morrison’s will enable them to do just that.”