The last time Marlborough News Online went to see Tom Maidment at his dairy farm near Marlborough was during the summer milk crisis in 2012. Then he was getting 27p a litre as a member of the Milk Link co-operative.
Soon afterwards Milk Link merged with Arla Foods – an international co-operative based in Denmark and the largest dairy producer in Scandinavia.
Arla is owned by its farmers – 13,500 of them of whom 3,000 are British – and all the profits go back to Arla’s farming members.
Today Tom Maidment – who has 500 milking cows – is getting 24.81p per litre: “That’s not as bad as some.” And some farmgate prices do not meet current production costs.
Now the dairy industry is facing another crisis and one major group – First Milk – has told its 1,400 members it has cash flow problems and there will be a fortnight’s gap before they get their next milk cheque.
One thing is clear, the number of dairy farms in Britain has halved since 2002 to about 10,000. The National Farmers’ Union says 60 dairy farmers went out of business last month and they fear the number of dairy farms in Britain could fall to 5,000 by 2025.
Trying to find out what has caused this latest crisis you must enter a maze of macro and micro reasons and blame. Most obviously in the firing line are Britain’s supermarkets – the headlines tell us some of their bottled water is now more expensive than their milk.
On Tuesday (January 20) MPs issued a fierce attack on the supermarkets and said they should be fined if they sell milk at unfair prices. It looks a bit as though the MPs were making a noise to hide the fact that the government is most unlikely to offer immediate help.
The finger of blame also points to President Putin who responded to Western sanctions after his seizure of Crimea by banning imports of European daily products. A decision that just added to an already worrying glut in Europe of dairy products: the weather conditions in 2014 were so favourable for dairy farmers that production in Europe rose during the year by seven per cent.
In fact weather around the world favoured dairy farmers in 2014 and the price of dairy products – and thus of milk – is now part of the global marketplace. Tom Maidment: “If you’re looking for a crumb of comfort, it’s very unlikely that sort of weather will repeat itself very often.”
Another crumb comes from a dairy sector analyst who believes the international milk market should improve by the third quarter of 2015. But there are many different international issues in the way – including the recent drop in China’s dairy imports.
This price crisis has come before it was supposed to. At the end of March the milk quota system ends and the free market is unleashed in earnest – perhaps the supermarkets looked ahead to that and thought they could cut the prices now and then again in April: “Retailers,” Tom says, “will make a shilling on milk if they can – some of them are in trouble too.”
All this has led to great volatility in the price of milk. And as one local producer explained the problem to Marlborough News Online, dairy farmers cannot cope with volatility as arable farmers can.
Arable farmers can sell part of their crops ahead of the harvest. As Tom Maidment puts it: “We don’t have a mechanism to sell forward on contract – it would probably only be possible for milk powder because that’s traded as an international commodity.”
Arable farmers can, as the last government wanted them to do, diversify. Dairy specialists have not just a 24/7 job on their hands, but a 365 day a year one as well. It is almost impossible for them to diversify and many are very exposed to this volatile pricing ‘system’.
These farmers need flexibility from their banks, but could the government help? Some countries make it illegal to sell produce at below an agreed production cost.
Intervention in the market is much too European for most Anglo-Saxon politicians. There is an EU intervention floor price for milk set at the very low figure of 17p per litre – it was set low to prepare for the withdrawal of support.
Britain has seldom reached its European production quota level – last exceeding it in 2003. Tom Maidment: “That should have been a spur to production, but we got so disillusioned with the industry – people couldn’t see a profit in it.”
There is a ‘tax averaging’ mechanism under which tax can be spread over a three year period – so evening out changes in famers’ income. But in America, another local producer told us, they allow farmers to put a percentage of their earnings in good years into a fund to hedge against future bad years – and the tax on that money is only due when it comes out of the fund to support farmers in a lean year.
That might be a bit of a challenge to HMRC’s systems. But perhaps it is what coalition minister Liz Truss meant in her recent speech by promising greater access to hedging against price volatility on international markets. Watch out for the Chancellor’s next budget speech.
In the meantime dairy farmers in Wiltshire have one eye on the milk price and another on their tests for bovine TB. On the plus side feed prices are down easing winter costs and the plummeting oil price will be a boon.
With so many factors in play Tom Maidment takes a realist’s view: “Nobody knows what’s going to happen. It’ll correct itself.” After all, Putin may back down and the ‘supermarket adjudicator’ may be given her big stick by the government.
One thing is certain: after the end of quotas in March, many countries will be trying to increase their production – and with its reduced number of dairy farmers, Britain will not be in the vanguard of that movement.
One of the countries gearing up to increase production is Ireland. Tom Maidment knows of an Irish dairy farmer who is going to move to grass only production (that will be across nine or ten months of the year with no winter milking) on costs of 23 Euro cents a litre – that is less than 20p a litre. His annual output will fall, but his margins will rise.
That sort of production is no good for a year-round liquid milk contract, but fine for a processing contract such as for milk powder. If that is the future, another farmer warned, we could end up drinking UHT milk like the French.
Future of old folks’ Christmas lunch secured
