UK milk output up amidst fragile future

By Neil Merrett

- Last updated on GMT

Related tags: Milk, Dairy farming, Dairy, Uk dairy farmers

UK dairy farmers remain committed to stepping up production levels
amidst ongoing EU agricultural reforms, though further falls in
their profitability could yet lead to significant output decline,
according to recently published findings.

About 37 per cent of the country's milk producers are now expecting to increase production in the country from just 20 per cent in 2007, according to the latest Farmer Intention Survey carried out by association group DairyCo. The findings suggest that this apparent change of attitude is unlikely to turnaround processor and consumer supply concerns just yet though, with the country's milk production expected to fall by 0.6 per cent over the next two years. Groups like the UK-based National Farmer's Union (NFU) has therefore reiterated calls for greater support from the industry, possibly through contracts, to ensure that the milk supply remains stable. Farmer commitments ​ For the moment, the report suggests that UK intentions to increase milk production reflected a dwindling number of farmers looking to quit the sector this year, down to 7 per cent from 17 per cent in 2007. Price sensitivity ​ As part of this year's report, DairyCo said it has also delved into the impact of price sensitivity on these attitudes during 2008. In the case of a 2 pence per litre (ppl) drop in prices, an estimated 30 per cent of British farmers would quit the industry, according to the survey's findings. Under the same test, should the price paid to farmers fall by 4 ppl, 65 per cent of those surveyed said they would have to consider quitting the industry. The findings suggest that this scenario would amount to the loss of 5.2bn litres of milk being produced every year. "These findings correspond with the recent sentiments of the processing sector which seems to be ever more aware of the current situation,"​ DairyCo stated. "With farmers' costs increasing on an almost daily basis, this snapshot of industry intentions emphasises the fragility of British milk supply with adequate returns being the most essential factor for a sustainable milk industry."​ Gwyn Jones, chairman of the NFU'S dairy board, said earlier this month that processor contracts needed to address these concerns. "Repairing the weak link in the chain to protect farmers from the volatility of commodity markets and provide stability and transparency is crucial if famers are to have the confidence to invest in their businesses and stay in dairying long term,"​ he stated. "With milk in short supply, and buyers falling over themselves to secure their supply base, farmers are in a much stronger negotiating position and must take full advantage of this opportunity to put in place a proper contract." EDA view ​Despite calls from some cooperatives working in the UK market for the introduction for some kind of 'fair trade' system to protect dairy farmers, The European Dairy Association (EDA) believes that the market must continue in its current direction. Dr Joop Kleibeuker, head of the EDA told earlier this year that such a measure could serve only to distort agricultural reforms designed to ensure profitability for everyone in the milk supply chain. "The ongoing reforms of the European Common Agricultural Policy (CAP) have meant that there is no bottom in the market but also no ceiling,"​ he said. "This is the choice we have made in European dairy, and we are confident that there is a good future ahead for the entire industry on the world stage."Farming reforms​ Kleibeuker conceded that with the dairy industry now working towards a system where prices paid for milk are defined by market development, costs were likely to be more volatile. "For farmers supplying milk to the dairy industry and consumers, there are times when it is difficult to cover costs, but there are also moments when it is hard for processors as well,"​ he stated. "We are all working within these developments, so everyone has to cut costs where possible to maintain profit."​ Ultimately, Kleibeuker said that the CAP reforms were vital to ensure that farmers could cover their costs in a way that ensured value for processors and consumers as well as allowing for future investment.

Related topics: Markets, Fresh Milk

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