British dairy farmers have urged processors to pay a fair price for their milk as they face into a tricky market following a heatwave-induced shortage.
This summer’s heatwaves have led to poor grass and milk volumes falling an estimated 3.1% in June compared to the previous year, according to the country’s Agriculture and Horticulture Development Board (AHDB) and July looks to be even lower.
Yet farmers say that while prices quickly fell at the start of the year amid a global glut, now spot prices are on the up they are struggling to persuade processors to lift their contracted prices by an equivalent amount.
What’s driving the market down?
“The same marginal market spikes that drove the market down, must surely now push prices up,” said Ian Harvey, chair of the dairy board at the National Farmers Union (NFU).
“I would love to say that we have seen milk prices rise with similar elasticity – but, unfortunately, we are still seeing a big range in milk prices.”
While the milk spot price has risen to nearly 50p per litre (ppl) in response to a fall in volumes and those on aligned contracts with supermarkets are getting over 40ppl. Harvey said some farmers are still being paid well below the cost of production at less than 30ppl.
To cope with the higher volumes of recent years, many processors have introduced volume management schemes as part of dairy contract to try to ensure supply is linked with processable demand.
Milk spot prices are on the rise
Many farmers worked with their milk buyer to reduce volumes whilst the price was dropping, Harvey said. “However, as we see the spot price rise above core “A” litres, it is vital that milk buyers stick to the contractual terms they themselves developed and transparently demonstrate to suppliers how they are honouring agreed upon pricing schedules.”
Harvey added that processors paying below-market-prices to dairy farmers is “not acceptable”, undermines trust and is something “we know the new ASCA (Agricultural Supply Chain Adjudicator) will be watching closely.”
In July 2024, the UK government passed new laws to make milk purchase contracts fairer and clearer. They apply to contracts to purchase cow’s milk arranged directly between dairy farms and processors or dairy goods manufacturers.
