Policy Markets Processing

Is Anyone Making Money From Milk?

ANALYSIS - Dairy farmers the world over are suffering from unsustainable farmgate prices.

30 January 2015

2 minute read

In China this week, despite its well documented new taste for dairy, farmers have tipped milk down drains and fed it as pig swill.

Previously, farmers across many key export regions were buoyed by rising global dairy demand, resulting in the market being “flooded” with milk.

Production conditions, lower feed costs after consecutive good harvests and, in the case of the European Union, imminent milk quota abolition supported the increase.

Bullish outlooks on dairy demand have been the catalyst in the US too, where the positive fortunes of the dairy export market have contributed farms to get more milk out of more cows.

However, this month has seen many dairy farmers across the world sell up.

A year of extreme market volatility has proved too much for many farms, plunging the Global Dairy Trade Index to a five year low. China has stepped away from the market after imports rocketed in early 2014 to take imports for the year to 70 per cent.

Crisis talks have been held across Europe. Protests at discounting milk and actions to promote it have featured in Spain and the UK particularly.

In China, there are big regional variations, with prices “desperate” in some areas. Shandong and Hebei on the East Coast and rural Qinghai in central China are worst affected, according to the Chinese government news agency.

Farmers here enjoyed peak prices of 5.7 yuan (91 cents) per kilo in 2013, which have since almost halved to 3 yuan per kilo.

"At these levels, it is hard to keep the business running anymore," farmer Zhang Xuekai told the agency.

Once running an 800 strong dairy herd, Mrs Xuekai has sold most of her herd, leaving her milking 170 animals. A farmer involved in the same Yili cooperative now has 38, down from a herd of 73.

Feed costs are not helping. Daily spend on one farm amounts to 3,330 yuan, with the daily milk cheque earing 3,000 yuan.

News of price pressure also reached New Zealand farmers this week then the ANZ Bank New Zealand said prices would be “well below break-even for many dairy farmers.”

Those supplying Fonterra have seen farm gate payment forecasts crumble by over NZ$2 to NZ$4.70 per kilo of milk solids. Westland Milk Products has described its own price review, currently at NZ$5 as “unwelcome news for our shareholders, but not unexpected”.