Milk and milk products - frequently asked questions
Price
Regulation
Production
What is the current farmgate price of milk?
The farmgate price is updated by Defra Statistics around the ninth or tenth of every month.
Why is the farmgate price of milk low?
The reasons for the low UK farmgate price of milk are complex and include, at different times and in different combinations: exchange rates; the prices on world and community markets; domestic supply and demand, the relatively low value of the product mix, the historically low level of product innovation within the UK, and also the structure of the UK dairy industry.
What is the Government doing about the price of milk paid to farmers?
Government believes that the setting of milk prices is a commercial matter to be resolved by private negotiation which should take place within the parameters set by competition law and that the market must determine prices.
What about the increased profit margins for retailers?
In their emerging findings from their investigation into the groceries market, the Competition Commission noted that supermarkets are retaining an increasing share of the retail price for milk. The Commission will be looking at this further (as well as other primary produce sectors). We welcome this.
What about an independent regulator or ombudsman for the dairy sector?
There have been a number of calls for an ombudsman or regulator over the years. The Government supported the finding of the Environment, Food and Rural Affairs Select Committee's inquiry into milk pricing in June 2004, which concluded that there was no compelling evidence for setting up such a body. It is difficult to see how a regulator could determine a fair price other than by reference to a market price. A price regulator would almost certainly be incompatible with EU competition law, or with the common organisation of the market in milk and milk products. It would also be premature of the Government to contemplate the establishment of an industry regulator before conclusions of the Competition Commission's investigation into the groceries market are known. This is expected in February 2008.
What is the Government doing to help the dairy sector?
The Government is helping the industry to help itself. Partly, but not exclusively through the Dairy Supply Chain Forum, Defra has funded various pieces of work to improve the evidence base for the dairy sector. These studies and reports have helped inform the debate within the industry about future prospects, dispel some myths, and challenge and change thinking.
Defra has invested considerable amounts of money specifically aimed at the English dairy sector. For example, under the Agriculture Development Scheme, Defra has awarded grants of over £1.3 million to projects that aim to help the dairy sector become more efficient.
In England, the Government is helping the dairy sector become more efficient and market-focused through a range of measures, including support for English Farming and Food partnerships (which is promoting collaboration and co-operation between farmers and between farmers and the rest of the food chain), the Food Chain Centre (which has been promoting benchmarking and investigating the scope for efficiencies with supply chains) and the Dairy Supply Chain Forum (which has aimed to increase the efficiency and promote the sustainable development of the dairy supply chain).
Is the Government worried about the number of dairy farmers leaving the industry?
The trend of producers leaving the industry is not new. For example, in 1943 there were 100,000 producers. When the Milk Marketing Boards were abolished in 1994, there were around 28,000 producers in England and Wales. There are now around 13,778. According to the Milk Development Council's report Dairy Supply Chain Margins 2005-06, the rate of farmers leaving the industry has hardly changed in the past five years and is around 6-6.5%. As with all industries, some restructuring is inevitable and desirable (although we accept it is painful).
The trend of declining producer numbers is not restricted to the UK. In some cases in the EU, the number of dairy farmers leaving the industry has been much higher than in the UK (e.g. Spain, Portugal, and Greece). A similar trend can be seen in USA and Canada. This reflects a global trend towards fewer, larger herds. Economy of scale is no doubt one of the drivers behind this trend.
Is poor profitability causing farmers to leave the sector?
Profitability is key. We must not forget that some producers make a profit at current farmgate price levels. We accept that many do not, but there is considerable variation in the costs of production at producer level, coupled with ignorance about production costs. We accept too, that dairy is a capital intensive sector, and that low profitability will make it hard for some producers to consider investment. There is more that producers can do for themselves to improve profitability.
Those who choose to leave the industry make the business decision to do so for many different reasons. Profitability may be one reason, but there are others such as health, staffing problems, retirement, emigration, diversifying into different commodities and issues about succession.
Will there be a downturn in UK milk production because of the number of dairy farmers leaving the industry?
The short term trend does appear to show that milk production has fallen. However, it is too early to tell whether this is a long term trend or has been caused by price, weather, restructuring etc. The UK is more often under quota than over it (and milk quotas are being increased by 1.5% between 2006/07 and 2008/09). The UK is still producing more than 13.5 billion litres of milk each year.
However, it must be remembered that quota is a limit on production and not a target. We believe that milk quotas are an unnecessary imposition on farmers, and have been pressing for their removal for some time. We encourage farmers to produce for the market, rather than to meet quota.
If UK milk production falls, will more milk be imported?
Not necessarily. Given that the farmgate price of milk in the UK is one of the lowest in the EU, it is unlikely that processors or retailers would switch to imported raw milk, at least at this stage. This is especially true in the case of liquid milk.
Even if, in the unlikely event that production fell by several billion litres, the UK would still have plenty of raw milk for the liquid milk market (of 6,601 billion litres). We currently export more fresh liquid milk than we import, and much of that will be cross-border trade between Northern Ireland and the Republic of Ireland.
A study on the potential for GB-European trade in liquid milk commissioned by Defra confirmed that there was relatively little overseas trade in liquid milk from Great Britain, but also found that the UK milk market was relatively well integrated with the wider EU market. We hope that the study will give the UK dairy industry a clearer evidence-based picture of the barriers, constraints and opportunities that exist for importing and exporting liquid milk.
Page last modified: 16 September 2007