UK Dairy Report Begs for 'Fair Trade'

UK - A new report published today (3 March 2008) highlights the precarious condition of British dairy farming and calls for a ‘fair trade’ price to be paid to farmers for their milk, after a decade in which they have been forced to sell at a price well below the real cost of production.
calendar icon 3 March 2008
clock icon 3 minute read

The Real Price of Milk was commissioned by leading farmer-owned dairy business, First Milk and produced by respected agri-business consultancy, Promar International.

The report calls for a new formula to calculate a consistently fair price, one that takes account of rising production costs, and allows farmers to make a profit so that they can re-invest in their businesses. It argues that farmers should be paid the equivalent of 29.64ppl.

Rising production costs

The report details the rising costs that have been absorbed by dairy farmers in recent years, including animal feed, fertiliser and fuel – all subject to fluctuations in global market conditions.

And while those same global conditions led to a series of rises in the price paid to dairy farmers in 2007, those rises were more than cancelled out by spiralling costs.

A declining industry?

A decade of low prices have brought dairy farming in Britain close to crisis point:

  1. The number of dairy cows is falling (by 250,000 or 11% of the national herd in five years);
  2. Total milk output has declined by more than 800 million litres (6%) over the same period;
  3. Farmer numbers are also falling at a rate of 6.5% per annum, as older farmers choose to exit the industry and the younger generation, seeing no profitable future, choose alternative careers;
  4. Many of those that remain are unable to reinvest in their businesses, leading to a creaking farm infrastructure.

Making a profit

For many years, the cost of milk has been taken as the equivalent of the price of milk, with no allowance made for farmers to make a profit and re-invest in their businesses. Indeed, many dairy farmers have sustained losses over many years, saved from bankruptcy only by the asset of their farms. The report calls for the recognition of the need for farmers to make a profit so that they can invest for the future.

The real price of milk

The report calculates the price that should actually be paid to farmers, taking account of increasing production costs, family labour and a profit margin on 10%. It calculates that while the average price paid in 2006/7 was 17.4ppl, the real price paid for milk in 2008/9 should be 29.64ppl.

Cost Area 2006-7 £ 2006-7 ppl 2008-9 £ 2008-9 ppl
Total variable costs 87,036 10.21 114,756 12.81
Total overhead costs 101,187 11.87 123,948 13.83
Total costs 188,223 22.08 238,704 26.64
Profit for investment       3.00
The real price of milk       29.64

First Milk chief executive, Peter Humphreys says: “For many dairy farmers, we are at a pivotal moment. While the price paid for their milk has risen significantly, further cost rises are inevitable and extensive investment is needed. These factors must be recognised in the prices paid for farmers’ milk.

“I believe that there is a common will in the supply chain to achieve a sustainable dairy industry in the UK, and this report is aimed at generating further debate towards achieving this objective.”

TheCattleSite News Desk

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