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Crisis or blip? What farmers think of the dairy market situation

Two years on from the SOS dairy campaign, milk prices are falling once again. Alistair Driver has been speaking to dairy farmers to gauge the mood of the industry.
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The current situation, as prices continue to tumble, is uncomfortable for all milk producers.


With some farmers already receiving prices well below the 30ppl mark, all the signs are we have not seen the end of the cuts yet.


So is this a return to the dark days of 2012 – and industry again in crisis? Or is it merely blip on an otherwise upward curve which will ultimately bring rewards over the next decade?


Unlike two years ago, milk producers are divided on this question.


When we spoke to four dairy farmers round a Gloucestershire kitchen table to gauge their views, they were adamant the current situation is not comparable to the events of 2012 when a perfect storm of harsh price cuts, high costs and poor weather left farmers hanging on for dear life.


Not yet at least.

Weathering the storm

Rob Harrison, the NFU’s dairy board chairman and host for the day, has endured a bumpy ride since he became an Arla Milk Link member last year, taking the ‘rough’ of the current cuts, with the ‘smooth’ of the winter’s high prices.


Mr Harrison, who milks 200 cows near Moreton-in-Marsh, believes with costs lower than two years ago and the cuts coming from a position of relative strength, most farmers can weather the storm.


“The milk price has dropped and the market is not pretty but the price has been better in the past couple of years and if you are competitive, you can survive,” he said, adding that a lot of farmers are taking a ‘business-like approach’ to the current market



Cheltenham dairy farmer Rob Newton, who supplies Cotteswold Dairy, said the big difference with two years ago is there is no more clarity about why prices are falling.


“There is still huge volatility but I think processors have learned their lessons now. You can see what is going to happen this time. There is more awareness among farmers,” he said.

Time to protest?

The farmers around the table all supported the SOS Dairy campaign but were divided on whether the current situation justifies the same response.


Michael Righton, a tenant dairy farmer from Moreton-in-Marsh, said the SOS Dairy campaign was ‘absolutely fundamental’ and had a ‘massive impact’ on the fortunes of the sector.


“It taught dairy farmers what they could do if they stand together. It was good publicity. The protests did more in a few days than two years of negotiations,” he said.


“If there were protests to be done again I think we need to keep it up because what we achieved was so great.”


The other farmers warned protests could not always provide the answer.


Mr Newton said: “This time I can see why prices are dropping so I would not go to protest.”


Mr Harrison said protests can be effective at the right time but can also be a ‘blunt tool’. “We don’t want to overuse it,” he said.


‘I’ll be there’ - support for milk protests grows

For some farmers, the current situation is every bit as bad as 2012 – and could get worse.


Paul Ratcliffe, who milks 110 cows at Sudbury, Derbyshire, has seen a big drop in the value of the milk he supplies to Arla but little reduction in his cost base.


“I looked at my figures and I was actually earning the same when I went to London two years ago [for the SOS Dairy meeting] as what I’m earning now,” he said, refuting the suggestion lower costs are softening the blow.


“What’s gone down? Corn might have come down a few quid a tonne. Nothing has come down in my eyes yet. The milk price has.”


Mr Ratcliffe blames supermarkets for ‘shafting farmers’ by ‘putting milk on the shelves cheap’ as they fight for market share.  


He accepts the price cuts can be blamed ‘to an extent’ on the global market but not to the degree claimed by processors like Arla.


A regular supporter of Farmers For Action (FFA) protests over the years, he expects to be out again over the next few weeks.


“Of course I will support them. I’ll be straight there,” he said, adding that he expects more farmers to support protests once the impact of the price starts ‘hitting home’ over autumn.


Graham Brassington, who milks 180 cows on a council tenancy holding at Blurton, near Stoke-on-Trent, has spent £200,000 on robot milkers and recently took on a member of staff for the first time.


The price he is paid by a local processor has come down three times in recent months. He is expecting another 2ppl to come off in October.


“It is starting to hurt and it is going to hurt a lot more in two months’ time. If the 2ppl goes, we are going to have to find the wages from somewhere else,” he said, adding he was now relying on selling some lambs to ‘plug the gap for milk’.


He acknowledged processors needed to ‘bring prices back’ to reflect the global market position but claimed they were going too far and taking advantage of the situation.


He said ‘regrettably’ protests were now the only answer. “I will definitely be there. It’s a shame but it is the only thing that makes a difference. All I want is a fair price and a return on the business I have invested in.”


A better functioning supply chain?

The farmers agreed one of the legacies of SOS Dairy was, on the whole, a better functioning supply chain today.


“2012 came at the end of a dysfunctional decade,” Mr Harrison said.


“We missed out on the peaks but we got the troughs. The processors used those peaks to basically buy market share and as soon as the rough times came they got caught with their trousers down and passed it back to the farmer.”


“Today, at least we have got a market-led price and better collaboration between processor and producer.”


The voluntary dairy code of practice, had made a ‘positive’ difference to relationships, the farmers said.


James Appleby, an organic dairy producer from the Vale of Evesham, said the code had enabled him to switch milk processors more quickly than would otherwise have been the case. He handed his notice in to Dairy Crest after a price increase, activating the three-month release clause to join Cotteswold Dairy last September.


Mr Righton said communications from his milk buyer, Freshways, had improved, even though it had not signed up to the code.


The farmers stressed, however, the first true test of how much supply chain relations had improved would come now in a market moving downwards.

Survival of the fittest

The four farmers sitting around Mr Harrison’s kitchen table, looked to the past to put the current situation in context.


Mr Appleby recalled the dark decade from 1997 to 2007 when the industry struggled to cope with de-regulation and the introduction of milk quotas, allied with unfavourable currency movements, a hostile trading environment and the knock-on effects of BSE and foot-and-mouth.


“It was a period when everyone else was making money but we were clinging on by our fingertips. We could – and perhaps should – have got out,” he said.


“My 30-year-old son asks me why I have not invested more in the business. I say I spent a lot of it on milk quota and the fact there is a herd of cows here at all means you are bloody lucky because two-thirds went out.”


But he says things are very different now. “The market fundamentals are as good as they have been since the mid-1990s.


“It is not brilliant but as long as you are controlling your costs, you can expand as long as you can fund it and the price, until recently, has not been bad.”


Mr Righton tells a similar story. “We basically just dug our heels in. We thought it can’t get any worse. We were covering our costs and making a little bit. We thought if we can do this at 21-22ppl we can keep going and if it gets better we can buy a bit of quota,” he said.


“Prices are better now than they have been for five years at least.”


Mr Harrison added: “It has been tough but potentially it might stand us in better stead. It has made us question our costs. The guys who are still in are the guys who are more competitive.”


Producer numbers

Producer numbers

This graph, based on DairyCo figures, shows how dairy farmer numbers in England and Wales are close to falling below the 10,000 mark.


More than 6.500 have quit the industry since 2003. In Scotland, the number dropped below 1,000 for the first time this year.


A positive future

Despite the current pain, all four farmers said they – or their family – planned to expand over the next few years, a sentiment reflected in Farmers Guardian’s survey.


Mr Righton has invested about £250,000 on a rented farm over the past five years to improve and expand the facilities.


“We are milking twice as many cows, we have twice as many staff and probably twice as much profit because we have ridden the storm,” he said.


Currently milking 240 cows on two main rented holdings, he hopes to move towards 300 cows by obtaining more land on and off the estates.


“I am optimistic I will remain profitable,” he said. “We have also got beef and arable but the dairy subsidises everything else. My dad always said to me, ‘if you don’t have cows you don’t have anything else.’ I think he was quite right.”


Mr Newton believes the overall outlook, based on long-term market trends, remains ‘good’ but said farmers would have to take the rough with the smooth.


“We will see volatility on price and it will go below cost of production, he said.


“You have just not got to get too excited when the price is good and too depressed when it’s not.”


Mr Harrison, in his NFU role, launched a joint industry growth plan this summer outlining how dairy farmers can produce an extra 4 billion litres a year to eliminate the UK’s dairy trade deficit by 2025.


He said: “Overall, there is potentially good money to be made from dairying. It is probably one of the best areas to be in over the next five years.


“There are caveats – the return on capital is still not great and there is a lot of investment needed. It is not a licence to suddenly make a fortune but for guys who are good at what they do there is an opportunity to make a decent living.


“This year has not been as good as last year but there is still the demand in the UK and Europe and, actually, next year might be better.”


Mr Appleby, who hopes to partly hand over to his sons within the next few years, also remains ‘optimistic’.


“We shall expand. We need to increase the grazing platform to do that. I do not know whether we will end up with 500 cows or 800 cows but certainly that is the ambition of my sons.


“Our fundamental aim is to make sure when the price is low we are covering our costs and that we can make hay while the sun does shine.”



Milk prices

Milk prices

After a relatively stable period from the end of 2012, when UK farmgate recovered to consistently average above the symbolic 30ppl mark, peaking at more than 34ppl last autumn, prices have fallen throughout 2014.


The above graph does not take into account the latest of wave of cuts which analysts predict are still to come.

Bovine TB - the blot on the horizon

Other than the current price woes, in a generally upbeat discussion, there was one blot on the horizon. All four farmers we spoke to in Gloucestershire were struggling – or had faced a problem recently – with bovine TB.


“I would say TB is the biggest cloud on the horizon,” said Mr Appleby who arrived having just overseen a 60-day TB test. “We have just gone clear for the first time in two years and are now on six month testing. A number of times we have gone over the last 10 years only to go down again at the six month tests.”


“Being under restriction puts huge pressure on housing – sometimes you have no alternative but to shoot bull calves. It is disheartening – but you just have to live with it.”


Mr Righton, who is currently under TB restriction, described it as a ‘huge problem’.


“TB is one of the main issues going forward because of the uncertainty and the burden of testing – knowing you have got to do it all again in 60 days. It is just so disheartening.


“We can’t buy or sell anything. Then there’s the stress, not just on the cows and the drop in milk yield but on us. It is the worst job on the farm.”


Mr Harrison said the loss to the industry from b TB was ‘huge’. “If you look at the impact on confidence and investment, it is the thing that is holding us back, particularly in the South West. We need to get on top of it,” he said


The frustration with bTB, as always in the hotspot areas, is that beyond the two small pilots, only part of the root of infection is being addressed.


Mr Harrison acknowledged there is no easy or cheap option of dealing with bTB in wildlife. But he said: “We have got cattle measures and we are controlling the disease in cattle but to have an effective TB policy, you have to control it in wildlife as well.”


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