UK Dairy Industry: Current Issues and Challenges

The financial difficulties for farmers caused by low milk prices have put the spotlight on the UK dairy industry in recent years.

UK Dairy Industry Trends

Milk prices are generally at a very low level. This, as well as many other farming problems, prompted two farming crisis summits of the UK farming unions and Ministers (across the UK) in summer 2015 and a special meeting of EU Agriculture Ministers in September 2015.

A number of global commodity factors are in play for all milk producers including the on-going Russian trade embargo, a weak Euro, high milk supply and weak demand from Chinese buyers due to China seeking to become more self-sufficient in dairy products.

Estimates for the cost of milk production vary from 25-30 pence per litre (ppl). Contract prices for liquid milk in February 2016 ranged between 32.34 pence per litre (ppl) and 19.02 ppl with an average farmgate price of 25.57ppl (including farm bonus payments). Farmers who are directly supplying supermarkets or providing milk for niche markets are tending to get the highest prices.

However, the long term prospects for the industry are seen as positive with strong export growth.

Global demand for dairy products is expected to grow by around 2% per annum over the next 10 years with the increase in demand mainly coming from developing economies in Asia, South America and Eastern Europe/Russia.

House of Commons Library Briefing, UK Dairy Industry Statistics (January 2016) provides information on a range of dairy industry trends and intra-UK comparisons.

Support measures

Farming unions have accepted that there are no quick fixes but have regularly highlighted government action that can help. Dairy UK (Northern Ireland) and the Ulster Farmers’ Union have organised a major conference in May 2016 to explore the role of government policy in helping dairy businesses to manage margins.

The European Commission and UK Government have put in place measures to support the industry through the current financial difficulties (e.g. €500m EU dairy package, UK tax measures) as well as looking ahead to increase its resilience to future volatility (EU/UK work on futures markets).

These measures have been welcomed by the farming unions and the dairy industry but they would like to see the further action or increased efforts in the following areas:

• country of origin labelling for dairy products
• increased role for the Groceries Code Adjudicator
• longer term contracts
• ensuring the Basic Payment Scheme 2016 runs smoothly to avoid payment delays
• improving price reporting so that farmers can manage their own risk.[1]
• the proposed UK Food and Farming Strategy to provide clear strategic direction

This view is supported by the House of Commons Environment, Food and Rural Affairs Committee’s report on Farmgate Prices (March 2016) which follows up on its report on Dairy Prices (January 2015).[2]

The House of Lords EU Environment and Energy Sub-Committee is currently conducting an inquiry on price volatility – Responding to price volatility: creating more resilient agriculture.

The Dairy All Party Parliamentary Group has also produced a March 2016 report Putting Dairy Back on the Daily Menu highlighting the key role dairy plays in leading a healthy lifestyle and looks at how government can work more effectively with the UK dairy industry to ensure that dairy consumption is encouraged among all ages.

[1] NFU online, NFU takes farming issues to the Prime Minister, 16 March 2016

[2] EFRA Committee, Dairy prices, Fifth Report of Session 2014–15, 14 January 2015, HC 817