Dairy decline goes on – and we will soon pay the price

Published on Monday 13 October 2008 22:17

MILK production in the UK last month was the lowest it has been for well over a decade – and the number of serious dairy farmers in Scotland is now little more than a third as many as there were in the early 1980s.

During September production was 983 million litres, well down on the August figure of 1.06 billion litres and 44 million litres short of September 2007. Cumulative milk production throughout the first six months of 2008, at 6.65 billion litres, was down by 161 million litres on the same period in 2007.

September's was the lowest monthly figure since February 1995 when farmers were, unbelievable as it sounds now, pouring milk down the drain to avoid paying a punitive levy for being over quota. The ex-farm milk price was about 25p per litre.

In the early 1980s there were over 3,000 serious dairy farmers in Scotland: today that figure is little more than 1,330 and shrinking almost daily.

Dairy farmers have been warning both the supply trade and politicians for several years that there is a real possibility that milk will become less abundant unless producers are paid a realistic ex-farm price.

Consumers have very little idea of how much a litre of milk costs in supermarkets, and even less of how much farmers are actually paid.

That carton of milk is in the "must have" category for most shoppers. The rapidly declining band of dairy farmers will, at best, be receiving 28p per litre whereas consumers will be paying 60p-80p for the same volume. The economics of milking cows 365 days a year are increasingly difficult to justify, particularly at a time when production costs continue to rise.

Milk production throughout the EU is subject to a quota regime established over 25 years ago to avoid the creation of huge surpluses of butter and allied products. The UK has an annual quota of 13 billion litres, but production has come nowhere near that for several years.

The decline in Scotland is replicated in England and Wales, according to Ian Potter, a leading industry commentator and quota broker.

He said: "The latest producer statistics show that numbers leaving the industry are still increasing in England and Wales, with 53 packing up in September compared to 44 in the same month last year.

"By the end of October there will be less than 12,000 dairy farmers in England and Wales."

About a million litres of milk – the annual output of a typical dairy farm – is now being "imported" from Northern Ireland into Scotland each day, with unconfirmed reports of smaller quantities crossing the Channel into England.

Processing plants that make cheese and butter are finding that daily deliveries are too low to maintain full capacity. First Milk, the farmer-owned co-operative with about 3,600 members in Scotland, England and Wales, recently announced a rationalisation of activities, with some job losses in Cumbria.

Dairy farmers contend that they require at least 30p per litre to make a worthwhile margin and leave cash for capital investments in upgrading their facilities. Some dairy companies are paying a shade over 28p per litre, but milk sold on the spot market can change hands for as little as 22p. That tends to drag down the entire market.

The multiple retailers pay lip service to supporting dairy farmers with contracts based on a cost-plus basis. But they know that if shoppers pick up a carton of milk when entering a store they are liable to spend more on other items. Milk is seen as a loss leader by many supermarkets, but one that they can afford – at least in the short-term.