NFU dairy board chairman Rob Harrison has urged dairy farmers to think again about expanding production to spread costs when the processing capacity is not there to take the milk.
Mr Harrison, who will step down from his role in March to focus on his Gloucestershire farm, painted a gloomy picture of the dairy market in his final address to NFU council on Tuesday.
He said the long-term downturn was being exacerbated by continuing high levels of global over-production, including in the EU and UK, which made it difficult to negotiate price rises.
“All commodity markets are extremely depressed," he said.
"The first GDT auction of this year was down by 1.6 per cent and production is out of kilter with demand across Europe and the UK."
Despite the depressed prices, UK production was 3 per cent up last year on what had been a big year in 2014, while other northern European countries like Ireland and Denmark are ‘really pulling out the plugs with no quota restrictions’, he said.
“That is having a big effect on world markets,” he said.
“I think the market is going to remain depressed for the rest of this year. Potentially things could improve later this but it could be next year before we see much improvement.
“A lot of that is driven by supply. It makes it difficult to argue the case for an increase in prices if farmers continue to produce more milk.”
Mr Harrison was challenged on the need, in light of the demand-supply imbalance for the NFU dairy board to revisit its 2013 ‘Compete to Grow’ document, which highlighted opportunities for the UK to produce an additional ‘four to five billion litres of milk’.
Mr Harrison stressed the document, as it name suggested,was predicated on two conditions that remain true today.
Expansion of UK supply must be built on improving efficiency, enabling farmers to be competitive on the global market, and conditional of the development of extra UK processing capacity.
There was significant scope to build capacity to produce more milk products in the UK to help boost exports and displace imports, he said, although he acknowledged this was a major challenge.
But, in the meantime, the actions of some farmers in upping production was ’helping no-one’.
“There are a lot of producers out there who need to look at what they are doing and making sure they producing more in the hope they are going to spread their costs.
“In the long-tern nobody is better off and collectively it is not helping the situation."
"In certain parts of the country, such as Wales and Scotland, we have seen a massive growth in milk production without any growth in processing capacity as well."
“We need to be more joined up.”
Mr Harrison told the council NFU representatives were due to meet Meadow Foods within the next fortnight to the processor’s recent treatment of its 650 suppliers.
Mr Harrison, who has heavily critical of the company after it slashed its A price to 19ppl at short notice despite posting healthy profits, was joined by council members and NFU president Meurig Raymond in condemning the company.
As well as the ’unjustified’ price cuts, farmers criticised the lack of engagement by the company, which is nit signed up to the dairy code, with its suppliers.
Mr Harrison said the company’s actions were ’unfair and morally wrong’.
In a statment last week, the company said: "We realise the pressure low milk prices put on our producers and we will continue to make every effort to move prices back upwards as soon as possible.
"However, the price Meadow Foods pays for its milk reflects the challenging market conditions."
The National Living Wage, now less than three months away from becoming reality, will place huge additional burdens on horticulture businesses already under significant price pressure, the NFU’s horticulture chairman has warned.
From April, the NLW will set a minimum wage rate of £7.20 for people over 25, a 50p increase on the current National Minimum Wage (which will continue to apply for those aged 21 to 24).
Yorkshire grower Guy Poskitt said the new rate would cost his business ‘£150,000 to £180,000 a year in wages’, plus a further £20,000 in the ‘hidden cost’ of employers’ national insurance contributions.
He told the NFU council this sort of situation would be repeated across the country and would have a massive impact on incomes, with wages, for example, typically accounting for 70 per cent of soft fruit growers’ costs.
“This is the biggest challenge the industry has got at the moment,” he said.
“There is no way Government will back down from it because it’s a key policy. But we are lobbying the Government to try and mitigate the effect, particularly for seasonal workers and the hidden national insurance cost.
“We are also working hard with retailers to help them understand the situation it has created, particularly for growers who had negotiated contracts prior to the Government announcement about the NLW.”
Mr Poskitt suggested the EU referendum presented a further potential threat to labour supply.
“On Europe, all I will say is without eastern European workers horticulture will not survive,” he said.
The concerns around labour costs come at a time when retailers appeared to be engaged in a ‘race to the bottom’ on prices, he added.
“I have seen this Christmas products sold at less than the price I have been getting - 29p for a bag of carrots in Aldi. What will happen next year? You buy your turkey and you get your vegetables for free?
“The Race to the bottom is not only dangerous to the industry but it is under-valuing our product.”
The NFU and British Sugar are starting discussions on post-quota sugar contracts which could see growers and processor share the ups and downs of the volatile market.
NFU sugar board chairman William Martin told the NFU council talks had already started with the processor on how contracts would look after quotas finally disappear in 2017, including a joint meeting in Peterborough attended by 400 people.
Mr Martin there was a ‘very positive sense’ among growers about wanting to be part of that post-quota industry.
“They understand things are going to be tough from time to time. But they want to feel both sides, grower and processor, have a stake in the ups and downs and we are not just at the bottom of the heap having to take the miserable medicine when appropriate without the opportunity to share in the better times as well.
“One of things we are studying is how sugar beet contracts can offer growers the opportunities, if they want, to share in some of the fluctuations of the sugar market.
“What it will look like and how it will operate I don’t know but there is a gain for British Sugar on this and I think they understand why growers want it.”
“I think I is encouraging we have an industry wanting to work together with their customer rather than standing further apart shouting at each other.”