Background
Growth in output
The UK (like other countries around the world) has seen increased milk production throughout 2013/14 as farmers have naturally reacted to favourable market and climatic conditions over the last 12 months. Through the Dairy Board’s vision for the future, ‘Compete to Grow’ the NFU’s focus has been to create a commercial and political environment in which British dairy farmers can compete in a growing global market place.
These principles and this direction of travel is echoed in the whole industry dairy strategy ‘Leading the Way’, which has been signed up to by around 50 dairy organisations, processors, retailers, banks and consultants.
The global market
It is clear to see that throughout this summer, returns from wholesale prices have dropped. On the Global Dairy Trade (GDT) auction average prices have fallen by around 31% between January and July 2014. Around the world farm gate milk price falls have been attributed to these diminished returns.
The Russian ban of all dairy imports from the EU, America, Canada, Australia and Norway on 7 August, further destabilised the situation and created uncertainty, slowing trading in many circumstances. The UK market has felt the impact of this global situation, with the price of bulk cream (which impacts on the returns to liquid milk processors) dropping -13% between July and August this year.
NFU working for you in Brussels
The European Commission announced last week that emergency measures will be used to support milk products and alleviate some of the short term pressure on the sector. These actions will include Private Storage Aid (PSA) and will be in place for all EU member states to utilise.
While the details of this proposal are yet to be determined, the NFU will be lobbying on behalf of British dairy farmers for Cheddar to be included in any final proposal and for a clear strategy to prevent a future collapse of the market when stocks are released.
The suggestion of the UK government purchasing product and distributing dairy commodities free of charge, on our own door step, brings with it risk. For instance, the threat of further domestic price deflation and creating a subsequent vacuum to be filled with imported product.
NFU Dairy Board Chairman, Rob Harrison, said: “I will be attending emergency meetings this week in Brussels to represent UK dairy farmers and to push for appropriate and relevant action from the European Commission.
I will be calling for four things:
- for private storage aid measures to include cheese (including non-protected origin/designation) as well as skimmed milk powder and butter
- for product to be kept in store for at least a year to reduce the risk of collapsing the market, while the Russian ban is still in effect
- for the commission to focus on promotion of EU dairy products in important growing export markets
- for the commission to investigate ways to release product from storage, that minimises the impact on the domestic market place.
The domestic market
The domestic retail market remains very tough. We were bitterly disappointed that retailers felt the need this year to reduce the shelf price of milk. We have made clear that any retail price cut absolutely must not be passed on to farmers further down the supply chain.
It is vital that retailers continue to support British produce and that milk buyers maintain long term commitments with their producers. Since the NFU-led SOS Dairy campaign in 2012, the voluntary code has increased competition in the marketplace, helping to define fairer terms for UK dairy farmers. It is important that this continues to work for a sustainable dairy sector, as well as to prevent any opportunism in the future.
Longer term prospects
Despite the recent and ongoing difficulties, demand for dairy products is still rising globally. However recent price pressure and volatility hits very hard on farm. Farmers need clear signals from the market and even further transparency in farm gate pricing. Pricing decisions must be clear and fair to all parties, ensuring that when the market recovers, these gains are passed back to farmers.