First Milk back from the brink – but price cut looms

Scots dairy farmers face a price cut this month. Picture: John Devlin
Scots dairy farmers face a price cut this month. Picture: John Devlin
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Last week in a series of meetings across the country, First Milk producers were told that the company had pulled itself back from the edge of the financial precipice which threatened its existence.

Chief executive Mike Gallacher revealed the organisation – the country’s largest farmer-owned dairy business – expected to deliver an operating profit of £4 million for the year ended 31 March 2016. This compared with a loss of £20m in the previous year. Over the same 12 months, the debt of the business had reduced to £33m from a peak of £84m in 2014-15.

While producers who have been on the receiving end of below cost of production prices for the past couple of years may have been slightly gratified their company was still in existence, yesterday’s announcement by First Milk of a further price cut this month might financially break some of them.

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In making the announcement that producers’ milk prices would drop by between 0.72p per litre and 0.61p per litre, First Milk’s Paul Flanagan blamed falls in the worldwide market.

Commenting on the cut, NFU Scotland’s milk policy manager George Jamieson said it followed moves by all the major milk buyers in Scotland – Muller, First Milk, Lactalis, Arla, Grahams – who had made similar announcements of price cuts coming into force in the coming weeks.

Jamieson called on processors and retailers to accept a greater share of the costs and risks involved in producing milk. If they did not, he warned, there could be irreparable damage done to Scotland’s milk production base.

He added: “Many Scottish dairy farmers are now well into a second consecutive year where milk prices are substantially below the cost of production with little likelihood of any uplift in the months ahead.”

Jamieson, who was speaking from Brussels, where he has been attending European meetings on the dairy crisis, said: “While we can accept that the collapse in dairy commodity prices is a global issue, there is a strong argument that other parts of the chain are forcing a disproportionate share of weak market prices onto producers.

“Milk processors, while under competitive pressure, continue to use their power of discretionary pricing to manage their margins, as they compete for market share. While at the retail end, there is little sign that consumers are benefitting from some of the weakest dairy markets in living memory as retail prices remain virtually unchanged.

“Those in the dairy supply chain who have the power to exert downward pressure on milk prices must display a greater degree of empathy or rational understanding that their behaviour has very serious long-term consequences for supply.”

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Jamieson said that if there was not more voluntary levelling out of the inequalities in the milk supply chain, a compulsory option that delivered a collaborative, efficient supply chain in the dairy sector must be considered.

“A priority for NFUS is to work with government and stakeholders, including banking leaders, in an active, focussed working group, to help Scotland’s dairy farmers navigate through the very challenging months ahead.”