As the NFU’s dairy board chairman, I am often asked, inside and outside of the dairy industry, how are dairy farmers faring at the moment? It's a common question as the volatility of dairy markets and public campaigning often grab headlines. It’s always a difficult question to answer. On average, the dairy sector is doing alright. The Defra average farmgate milk price for February was 29.75ppl, which is well above the 5-year average. The weather in the UK in 2020 was average. Feed prices last year were, on average, in line with many other years.
The problem is that an ‘average’ dairy farm doesn’t actually exist – there will not be one farm in the country that had an average milk price, average weather, average input costs etc. We all face different challenges and the averages hide a massive disparity which we need to make sure is accounted for.
Currently, the extremities are pretty stark. We have seen the weather shift dramatically from a wet winter almost immediately into a cool, dry spring which is massively hampering grass growth. Feed prices have rocketed recently which, coupled with the restricted grass growth, is pushing the cost of production skywards for many dairy farmers. The agricultural policy environment is also highly uncertain with the removal of BPS and the threat of further environmental regulation in the pipeline.
Milk prices
The biggest disparity we see in the dairy sector at the moment is the milk price. Going back to the ‘average’ – at 29.75ppl it sounds reasonable to many, and I’m sure policymakers presented with this information would view the dairy industry as doing very well considering some of the challenges of milk prices in the past. But this disguises a massive issue with the ‘haves’ and the ‘have nots’ which we are seeing right now. The difference in farmgate milk prices is massive and for many it is a 4-7ppl gap between what they are receiving from their processor, compared to some of their counterparts and in some cases, the differences are even more extreme.
Farmgate prices are always going to see some variation. Dairy businesses operate in different markets, have different customers and different impacts from market shocks such as COVID-19 or Brexit. But these differences have been consistent for the last three years now. Those on the lowest farmgate prices have been at the bottom for a long time and seem to be stuck there.
I have long talked about the issues in the liquid milk market which need sorting out. There has been a lot of consolidation in the processing sector and liquid capacity taken offline, which was supposedly helping to reduce the overcapacity issue. Dairy market demand during COVID-19 has actually been very strong, following an initial period of volatility. The GDT, the global dairy trading market, has been at almost record levels in the past few months, partly driven by demand in China for dairy products.
Supply chains
The question we need to ask about our supply chains is, how come some seem to be making returns from the marketplace and others do not, and why has this persisted for so long? From an NFU perspective, we have lobbied for a long time about the need for increased transparency and collaboration in the dairy sector. The reform of dairy contracts we believe will play a vital part in improving the longer-term relationships in the dairy sector, but it doesn’t help the here and now for those dairy farmers who are struggling to make ends meet and facing rising production costs.
So, what are the solutions? We need to find a way to bring up the entire dairy industry – ‘A rising tide lifts all boats’ should be applicable, but there are some parts of the dairy market being left behind. In the long term, we see that the changing dynamic between processors and farmers as being crucial to finding a better way forward. The attitude of ‘them and us’ has shifted considerably over the past few years and we now see much more trust, collaboration and co-operation, and a focus on how to work together to achieve common goals. We believe the long-awaited reform of dairy contracts will form the cornerstone of this changing dynamic over the next few years.
New export strategies
Then there is our marketplace. As we move away from the traditional European markets and into the post-Brexit trading environment, there will be opportunities presented for the dairy sector. The NFU Dairy Board is keen to progress a new export strategy to ensure we play our part in unlocking new markets and seizing any opportunities that arise. This is especially important when we look at trying to repair the broken liquid milk market, by accessing alternative markets.
Innovation and added value are crucial as well. We want to see more investment in the processing sector for this to happen as it will be a big part of the future of the UK dairy industry. There are people making money out of liquid milk at the moment, but it is done through branding, creating new exciting products and marketing. Something that liquid milk has been missing since it has been sadly commoditised.
In the short term, we need to see the gap between the highest and lowest closed as soon as possible. It’s not about bringing the top down, it’s about making sure the market works for all those dairy farmers producing for it, ensuring it is transparent and working towards a more sustainable future.
For policymakers and decision-makers, it is essential that we recognise the ‘haves’ and the ‘have nots’ and not assume the dairy industry is doing just fine. And for my fellow farmers, I promise we will work with the entire dairy industry to solve some of these issues. I’ll do my best to organise some rain as well, but not making any promises there.