See below for my comments on the parlous state of the UK milk industry.
The region’s dairy sector has suffered serious decline in the past five years, with the loss of more than 100 businesses.
Some 800 dairy farmers operated in Yorkshire and the Humber in 2008 and now, just 655 remain, figures from DairyCo show as industry leaders warned of ailing investor confidence and called for a massive push to champion British food and farming or face an even greater challenge in feeding the nation.
Dairy farming was particularly badly hit in North Yorkshire by the demise of Dairy Farmers of Britain, the co-operative milk processor which went into receivership in June 2009.
Many small farmers in the Dales have been unable to find alternative buyers for their milk.
There has been an increase in milk prices in recent months but producers are still earning too little to invest in dated milking parlours, said Nick Everington, chief executive of the Royal Association of British Dairy Farmers.
“While we welcome the recent price increases which together with lower feed costs have contributed to an increase in margin over purchased feed, we continue to argue they’re insufficient, not only for farmers to maintain their business status quo, but also for reinvestment purposes and to subsequently prompt a firm commitment to the sector,” he said.
“For a sustainable dairy farming business, all British producers require a fair price for their milk, one that not only covers the cost of production, but also allows sufficient income for reinvestment.”
The UK farm gate milk monthly price ranged between 28.99p and 33.76p per litre in July.
Despite a better milk price, Nigel Watson, a dairy farmer at Mount Pleasant Farm near Driffield, is deciding whether to invest in his milk parlour or exit the sector completely. “Only seven or eight years ago there were eight dairy farms in our village and now there’s just two. We have taken some of the slack of producers that have gone out but not all. We now have 150 cows.
“Some came out because they came to a crunch point where they had to decide to make a big investment or not and if you’re getting on a bit you stop and think whether that’s something you’re prepared to do.
“We’re looking at putting robotic milkers in but you’re looking at about £2,000 a cow. We have got to try and justify that in terms of our lifestyle and financial returns.
“There are a lot of people around my age in the industry, in their late 40s or early 50s, having the same thoughts.”
In the poultry sector, farmers operating mixed farms have been driven away from keeping birds, said Richard Griffiths, director of food policy at the British Poultry Council who identified a move towards larger poultry units to justify the cost of rearing birds.
“It’s gone from poultry being an add-on to a mixed farm to being more popular for dedicated large-scale poultry farms because of the investment needed to make it economically viable. For the average poultry farm now you’re looking at about six sheds with 20,000 birds in each.
“At the other end of the scale we are seeing some consistency with seasonal producers – geese and turkeys. It’s really that middle ground where people have a few thousand birds that they can’t make it commercially viable.”
I say this to anyone who listens: in my view the traditional British dairy industry is dying, set for a long and painful croak until in phase one, almost all milk will be imported from Europe, in particular Poland and Romania until that becomes too expensive and phase two, derived from huge super dairies run by three or so powerful processors. In a free market economy, the government should not intervene to force supermarkets to sell milk at a fair price instead of a loss leader. The government knows the impact this has on farmers and with my conspiracy hat on is letting it happen quite willingly as the end of their ‘let’s destroy farming, we will start with foot and mouth’ campaign. I should say that I do not think the supermarkets are the main villains here.
Economically, farmers are not being paid a fair price for the milk they produce and this is at its simplest why they are leaving the industry in droves. Socially, there is a demand for milk, though increasingly it is for low fat and the latest innovation is P2 milk for those who are lactose intolerant. According to DairyCo, the market for cheese sales has increased by 1.5% year on year in May 2013 with almost 99% of all UK households buying cheese through the year – but – and this is a big but, the average selling price was £6.48 per kg. We know that over 60% of all cheese sold in the UK is cheddar. Who can make cheese at that price? Certainly not small artisan cheese makers, making small batches and with their cost base. £6.48 is a very unrealistic selling price per kg and can only be achieved by the huge processors taking advantage of vast economies of scale…..and cheap milk.
I don’t completely blame the supermarkets for the plight of farmers – are the public prepared to pay a fair price? Some say they are and in a small number of cases, I get the feeling that lip service is paid to this by some but do the public really understand or maybe even care about the plight of farmers: that so many are going out of business because they cannot make a margin on the price of a litre of milk? Historically, under the Milk Board and other reincarnations, farmers were paid a fixed price per litre and they were secure in the knowledge that their monthly milk cheque would arrive. I know I will get shot down by any dairy farmers reading this, but did that lead to running businesses that were not profitable or a propensity for under investment whilst guaranteed income would arrive?
As the supermarkets are not forced to increase the cost of a litre of milk to the public – it is the processors that buy low and sell low. Interestingly, according to Defra, ’around 67% of milk processed in the UK is processed by 9 companies each processing over 300 thousand tonnes per annum. These 9 companies only account for around 1.9% of UK milk processing companies. When it comes to the number of large companies supplying liquid milk to the market, around 87% of UK milk output comes from five companies. A similar situation is seen in the cheese market, with around 78% of cheese output in the UK coming from 8 companies. ‘
So, if more and more British dairy farmers are leaving the business – and I do not blame them, what is the future for small artisan cheese makers? There are a number of potential opportunities: first work with a larger concern who has contracted local milk and buy milk from them. We tried to do this with our friends up the road but I was told by one of the directors that the staff didn’t like it as we were competing with them. As if!! Whether that was true or not or whether that was a feeling of the Board, I will never know, but if it was the latter, this kind of attitude is pretty petty and hopefully not indicative of a potential solution in the future. If small cheese makers do club together with larger ones and buy their milk, this will of course further impact on price as the big guys will put a fair slice of their margin on it, which could squeeze them out of an already very tightly priced artisan market.
Second potential solution: take on your own animals. The downside of this is that this then requires extra skills, knowledge, space, time and cost. Keeping a herd of cows or goats is a very different proposition to making cheese with bought in milk. I have cheesey friends who do keep their own animals and know that in some cases, the cost of milk production is more expensive than the milk I buy in and I do not have the hassle of maintaining happy animals. Of course, theirs may be better quality, though I am happy with our quality and having your own animals adds to the ‘story’.
Third potential solution: use imported milk, though this could be tricky for the small artisan cheese makers who are not in a position to buy, let alone store upwards of 15,000 litres and then what of local provenance? It is common knowledge that many large cheese makers already do buy in good quality imported milk though they would not thank me for saying so. Having said this, there is an increasing shortage of milk in Europe so this may become a non option over time.
Fourth potential solution: a controversial one, but maybe if the large super dairies are allowed to get going, there would be more milk for the entire industry. However, whilst the large processors can buy in cheap good quality milk from Europe and given current public opinion about super farms, this may not be a solution. Maybe when European milk prices rise as they are already, (because European farmers are now also experiencing the same problems as their UK counterparts) this may be a more thought of potential solution. But you will have to get around the ‘but cows eat grass and should be outside’ brigade.
Fifth potential solution: offer to pay a farmer more money per litre than they currently receive from their contracted customer, whether this is a cheese maker or a processor. If allowed, they would probably bite your hand off. The major problem with this is that the farmer is contracted i.e. is unable to sell milk outside his contract. I understand that a farmer needs a contract in order to secure customers for a product that is given 365 days a year – no one wants waste but they should be paid appropriately.
I have run out of solutions. What irks me is the number of people we help to learn to make cheese who plan to make cheese commercially is that they cannot get hold of small quantities of milk because all the farmers they approach are under contract. This is stifling small company growth and start ups. We hear there is a movement for more local sourcing, more local food but it is so damn difficult for small producers to buy their raw material – milk. And I truly believe that there are a large number of people wanting to start their own dairy processing, whether it is yoghurt, ice cream or cheese: in the case of new entrants to the cheese industry, the number of new subscribers to the Specialist Cheese Making Association bears this out.
At the risk of being very controversial, I believe that unless farmers are allowed to renegotiate their contracts and enter into a free market to sell to numerous sources, and earn more money from smaller customers and lower amounts from the larger ones i.e. have a mixed portfolio of customers, there is no happy ending to the UK dairy industry. This solution would need the blessing though of the large processors (not the supermarkets) who essentially control the supply and price paid of milk in the UK. Is this likely to happen? I don’t think so. What could make it happen?
Personally, I think the tipping point will occur when it becomes no longer economic for the large milk processors to continue to import cheap European milk and then maybe they will start their own super farms which no-one will ever hear about, but they will secure their own supply.
Cheese prices will rise and maybe even supermarket milk. I think they will continue to contract remaining local farmers to top up their requirements. I think there will be even more consolidation amongst the top layer and good secondary layer of processors but also protectionist policies to drive out and destroy smaller competitors and this is why I do not think the farmers will ever be allowed to have a mixed portfolio of customers therefore earning more and possibly stay in the industry because they are rewarded to do so: the supply chain will be bought in house by the big players.