Dairy farming boom adds to processing woes

By Neil Merrett

- Last updated on GMT

Related tags: Milk

A number of leading dairy co-operatives worldwide have announced
continuing rises in payouts to their suppliers and farmers as the
cost of milk continues to surge.

The increase comes as dairy processors are being put under pressure from both a dwindling supply of dairy products like milk powder, and the need to adapt their production to meet growing demand for specialised products. First Farms, the UK's leading dairy cooperative said today that a "highly unusual combination of circumstances around the world"​ was ensuring that the industry was paying much higher prices to farmers for it milk. The claims are set to further compound the woes of dairy processors, by suggesting that the higher prices for goods could remain in place for the next three to four years. Company chairman Richard Greenhalgh said that though the current market prices were vital for preserving the milk supply, which has strong undergone volume declines as farmers are forced out of the industry. "It is evident that international demand for skimmed milk powder will impact on theUKfor some years,"​ he stated. "As a result, the price paid to dairy farmers will have to rise if a sustainable supply of liquid milk and cheese for the home market is to be ensured."​ Greenhalgh's comments were included in a report by agri-business consultancy, Promar International, commissioned by First Milk to highlight concerns and patterns in the global dairy market. The report found that prices were in part being driven by increasing demand for dairy products such as skimmed milk powder in emerging markets like China, Latin America and North Africa. This increase has been compounded further by constraints in the international supply chain resulting from droughts in Australia and EU reforms on quotas for dairy farming. Restructuring within the US, and financial pressures in New Zealand were also proving to be detrimental to supply. Markets like Russia, India and Brazil are expected to significantly increase their own milk production outputs in the coming years, the report added, granting some hope for processors over surviving the price rises. However, it is not just the farmers in the UK, that are leading to processors feeling the pinch of higher raw material costs. Last week, New Zealand dairy group Fonterra announced it had amended it supplier payout for a second time in the space of two months on the back of current market conditions. The company's suppliers will now receive 6.40 per kilogram of milk solids for the 2007/08 season, up 87 cent on its original payout announced in May. Group chairman Henry van der Heyden said the unprecedented conditions in the global market had encouraged it to make further amendments to its payouts. "The strength of the market is such that we have seen the EU reduce subsidies on dairy products to zero for the first time since their introduction more than 30 years ago,"​ he stated. The Danish co-operative group Arla said earlier this month that it too was paying more to its suppliers to reflect market prices.

Related topics: Markets

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