Tide may turn for dairy sector as UK leads Europe in restructuring

Published on Tuesday 30 June 2009 20:05

DAIRY farmers have endured a dismal six months with a succession of price cuts and the collapse of the farmer-owned Dairy Farmers of Britain (DFB) into administration, with the membership suffering serious losses.

However, the tide may turn over the next few months, according to a report by Kite Consulting, independent market analysts, who have published the findings of their overview of the sector on behalf of Dairy UK, an industry-wide organisation.

Kite's summary states: "The UK dairy industry is ahead of Europe in terms of re-structuring and our analysis shows the opportunity to stabilise milk production in the years ahead, if farmers have the confidence to invest and grow their businesses. The replacement heifers are clearly in the pipeline.

"However, world stock levels will be a primary influence on market values moving forward. Tracking stock levels will therefore be as important as small changes and will have a significant impact on price. Although we face a volatile future, profitability for good dairy farmers will improve in the medium-term compared to recent years."

In October the average UK ex-farm price was 27p per litre, but by late April this had declined to 23.8p, a fall of 12 per cent.

Some EU member states have suffered even more: in the Netherlands the fall has been 20 per cent; in France 21 per cent.

The European Commission has introduced emergency measures, including intervention and export refunds, but Kite regard this with caution. It says: "It is too early to tell what impact these moves will have."

Farmers may plead with buyers to pay more for milk, but all major dairy companies are subject to the global scenario – and it is hugely volatile. For example, world milk powder prices reached a low of $1,900 a tonne in February 2009 before rising to $2,150 in May, then falling back in the last few weeks.

The typical Scottish dairy farmer with 140 cows, which is the largest average herd size in the EU, is not immune to these colossal fluctuations, but Kite remains positive.

"Our view is we will see a lag in improvements to UK farm gate prices of 6-12 months. But we believe prices will increase and we are not returning to the days of consistently poor values.

"We remain confident for the future of good farm businesses, but believe there is a need for the supply chain to work more closely together, building mutual trust and confidence."