Milk prices continue to drop

As milk price continues to fall I was not surprised to learn that almost five per cent of dairy farmers in England and Wales have left the industry in the last 12 months leaving only 9,777 in production compared with 10,225 a year ago.

With little prospect of an increase in price on the horizon this trend is likely to continue, although I suspect the profile of the farmers leaving the industry will probably be closely correlated with the buyer to whom they are selling their milk.

This is because the gap between the price being paid on the best and worst milk contracts has widened vastly over the last year. Those farmers supplying milk to purchasers whose price reflects  the fall in world market prices have found the value of their milk plummet.  

In contrast those farmers who are lucky enough to have secured a contract with one of the big supermarkets, where the price being paid is usually linked in some way to the cost of production, have found their milk price has remained relatively firm.  For example the Dairy Crest Sainsbury contract is offering around 30.4p per litre in July compared with 19p from First Milk, a farmer owned co-op.

However, farmers on the premium supermarket contracts must not be complacent because Tesco has written to the 650 farmers in its Tesco Sustainable Dairy Group saying major industry changes have forced them to rethink their contracts.  Exactly what this will mean is not yet clear but it seems inevitable that Tesco will be looking to address the gap between the premium price they are paying for their milk and the cut price deals they are offering on the shelves as a result of fierce competition in the retail sector.

Other supermarkets which run similar programmes to Tesco such as Waitrose and Sainsbury’s have told Farmer’s Weekly that they have no plans to review their contracts.  Similarly, M&S have publicly announced their intention to continue with their Milk Pledge to pay a fair price to farmers covering their cost of production.

Tesco is feeling the pinch and looking to save costs wherever it can.  Reviewing their milk contract is an obvious target because they can secure milk from the wider market place at significantly less than they are currently paying their farmers.  


However, Tesco need to appreciate that they must treat their supply chain fairly and even if the contract is reviewed, it must still reward their suppliers appropriately for the high standards of welfare and hygiene Tesco demands, on which I am sure they will not want to compromise.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk