Downward Spiral of Milk Prices is Unacceptable

UK - The Tenant Farmers Association has said that the continuing downward pressure on farm gate milk prices paid by dairy processors is leaving dairy farmers in an unacceptable position.
calendar icon 3 July 2012
clock icon 2 minute read

TFA National Vice-Chairman Stephen Wyrill said: “With dairy farmers tied into contracts with processors requiring 12 months notice of termination what we are seeing is economic slavery. There also appears to be a suspicious tendency for a price cut by one processor to be quickly followed by a price cut from another. It would appear that retailers and processors are able to call the shots to the detriment of primary producers."

The standard milk price paid to the farmer is now around 24p to 25p per litre against an average cost of production of 30p per litre leaving the typical dairy farmer with 100 cows some £50,000 to £60,000 out of pocket.

“On top of the price reductions a number of dairy processors, whose net worth already number in many billions of pounds, are requiring farmers to invest a proportion of their milk price in new processing capacity. This has been ongoing for a number of years on the basis that the profits will be fed back to primary producers as the new capacity comes on stream. However there is no evidence that this has happened or ever will happen. With dairy farmers struggling to make ends meet, surely the dairy companies should be offering to help and invest in farmer’s businesses,” said Mr Wyrill.

“We need fairer contracts and greater transparency. Farmers should have the ability to exit contracts at short notice in response to price changes. If the market will not deliver this then it should be imposed by legislation. The forthcoming Groceries Code Adjudicator should have strong powers of investigation to look both at trading practices and the true returns to dairy processors from selling the milk they take from primary producers,” said Mr Wyrill.

There is evidence of better practice with Sainsbury's increasing its standard price to farmers to just over 30.5p per litre from 1 July. Sainsbury’s uses a tracking formula which reflects the costs of feed, fuel and fertiliser paid by farmers.

“Sainsbury’s uses a cost plus approach to determine price so average profit levels are always fixed. However, it is a step in the right direction and keeps dairy farmers’ businesses alive and kicking. The TFA would encourage other major dairy companies to follow suit rather than pursuing their current, apparent objective of bringing producers to their knees,” said Mr Wyrill.

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