Cheap milk is costing farmers dearly

26 January 2015

Sitting in a Northumberland farmhouse kitchen talking over a cup of tea, it quickly became clear to me that all is not well in the UK dairy industry.

Farmers Richard, Chris and Denis explained to me how they were struggling to deal with a substantial fall in the price they receive for the milk they produce, down by 10 pence per litre over the last 8 months.  For the average UK dairy farmer, with 180 cows, a 1p per litre fall in the price of milk results in a fall in income of £15,000 per year.  Brothers Richard and Denis have 300 cows, so every 1p cut in the price they receive is a £25,000 per year loss of income.

The National Farmers Union (NFU) says this situation is leading dairy farmers to leave the industry at an alarming rate, with around 60 having left in December alone.

Reductions in milk prices might seem like good news for consumers under pressure from squeezed living standards, but cheap food does not guarantee quality produce. If dairy farmers continue to go out of business, consumers will increasingly have to buy milk that is imported from abroad, and without the Red Tractor Mark there will be no guarantee of high standards, including those relating to animal welfare.

The fall in milk prices is a complex issue, with many causes. Dairy farmers across Europe have seen a decrease in demand for their milk as a result of the Russian ban on importing farm produce from the EU due to the situation in Ukraine, made worse by China reducing dairy imports due to their economic slowdown. Meanwhile countries including Ireland and New Zealand have significantly increased their production, and following a very good summer for grass across the EU the European market is now ‘flooded’ with milk.

The fact that global forces impact on local farmers in my constituency in the North East of England shows that we need to work together on practical solutions at both a national and a European level.  At a national level, the Labour Party are proposing the following steps:

First we want to see more powers given to the Groceries Code Adjudicator, Christine Tacon, whose role it is to ensure there is fair play between British food processors and retailers, so that she can take action across the supply chain.  Currently her scope is limited to supervising the relationship between food processors and retailers including the supermarkets, thus excluding farmers, who usually supply to supermarkets via a processor.

Giving the Adjudicator more powers and a wider scope is long overdue and is backed by the Department for Environment, Food and Rural Affairs, politicians and the NFU. The Adjudicator herself made calls over two years ago for more powers to fine retailers who do not respect industry standards and regulations.

Second, Labour wants the government to write to the banks encouraging them to be as supportive as possible of dairy farmers during this difficult period, including making loans available.

Thirdly, in the longer term we want to see farmers working together more, in order to increase their clout in the market and move themselves up the supply chain, by investing in food processing and the production and marketing of processed products such as cheese and yoghurt, as this is where the money can be made.

Fourth, it is clear that customers have an important role to play, by demonstrating to the supermarkets that they do not want to be unwittingly involved in putting UK dairy farmers out of business as a result of buying cheap milk.

There is a helpful parallel to be drawn here.  In the 1990s Christian Aid, Oxfam and other major development agencies campaigned hard to get UK supermarkets to stock fairly traded goods from the developing world. Central to this campaign was the encouragement of customers to request their supermarket managers to stock goods carrying the Fair Trade Mark. In doing so, the public were able to show their willingness to pay slightly more for products guaranteeing farmers from poor countries a fair deal. This campaign proved successful, with the supermarkets responding by stocking fairly traded products such as coffee, tea and bananas, which customers then bought.

A similar campaign, with customers asking supermarkets to guarantee a fair price paid to UK farmers for milk and the other products they produce, could have a major impact. This would demonstrate - as in the case of the Fair Trade campaign - that while price is a significant consideration for most customers, many would be willing to pay an additional few pence in exchange for a guarantee that farmers are not being exploited.

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