World markets offer hope of price rises for dairy farmers

MOST shoppers have only the vaguest notion of the price they will be asked at the check-out for a litre of milk. Milk, quite simply, is a must on the shopping list.

Down on the farm it's a different matter. It costs 16p-18p to produce a litre of milk. Farm gate prices at just over 19p a litre leave a meagre profit margin, and almost nothing for capital investment.

However, there have been tentative signs in recent weeks that at last the multiples and the processing sector have realised that unless farmers are adequately rewarded, milk could soon be in short supply. The UK has a quota - a Brussels licence to produce - for 14 billion litres of milk a year. Figures for the year to 31 March, have yet to be published, but it is a racing certainty that for the third successive year, production will be well under quota.

The industry-wide organisation Dairy UK responded in a positively to a report by the NFU of England and Wales and the Royal Association of British Dairy Farmers highlighting the plight of producers in the face of steadily rising costs and the realisation of an impending supply problem.

Jim Begg, director-general of Dairy UK, said: "There has been clear evidence recently that supermarkets - the biggest customers of farmers - and dairy companies are striving to give the best possible deal to producers."

The background to those remarks lies in clear indications that virtually all agricultural commodity prices are firming on international markets and opportunities are opening up, especially in the Far East.

Mr Begg went on: "This industry is demand-driven. Product innovation and differentiation, and strong branding, is imperative to meet increasingly sophisticated consumer needs with British products.

"British companies have demonstrated their capacity to innovate and they will continue to invest in plant and ideas. Britain's dairy farmers are among the most efficient in the EU with the largest average herd size and are well placed to meet consumer concerns about issues embracing the environment and animal welfare."

That message was reinforced yesterday by news that First Milk, the UK's largest farmer-owned dairy business with about 3,000 members, is to raise the price paid for milk by 0.3p per litre with immediate effect and suspending the 0.3p per litre levy on members' production until the end of November.

Richard Greenhalgh, chairman of First Milk, said: "We view this price increase very much as an initial step and are fully aware of the current financial situation for dairy farmers. To move our price up between now and the autumn, we are following a number of routes. On the liquid side, Tesco have set the benchmark [with an increase to dedicated suppliers] and we are in discussions with our processor companies to ensure that this momentum is maintained."

Earlier this week First Milk announced a major deal to supply Asda with a range of regionally branded cheddar cheeses. The hope is that this deal, and others under negotiation, will be translated into higher ex-farm milk prices.

Mr Begg said: "The industry is engaging constructively with its customers to drive more profit into the dairy supply chain. Effective partnerships are essential to adding value and to reward efficiency."