Cheap milk

In defence of cheap milk

Supermarket chain Morrisons has been getting it in the neck from dairy farmers over the past couple of weeks, with high-profile protests at the falling price of milk. Protesters cleared the shelves of milk at one store and blocked access to Morrisons distribution centres. It’s not exactly France, where farmers’ protests are legendary for their scale and militancy. But Britain’s milk producers have clearly had enough.

Anyone with a heart should have sympathy for people whose livelihoods are being threatened by forces beyond their control. But why the obsession with Britain’s dairy farmers – and what, if anything, should we do about it?

Morrisons is not alone in being painted as the ‘bad guy’ in all this. Other chains, like Asda, Lidl and Aldi, have also been criticised for not guaranteeing at least to cover the costs of milk production. Some big stores, like Tesco, Sainsbury’s and Marks and Spencer, already have contracts with farmers to buy milk at prices that provide a small profit on every litre. But Morrisons et al buy their milk from big milk-processing companies, like Arla (a farmers’ cooperative) and dairy giant Muller, both of which base their prices on the open market – and prices there have been in freefall for the past year or so.

Dairy farmers have been hit by something of a perfect storm. Production is up thanks to good weather. In 2014, Russia banned the import of food from the EU and US in response to Western sanctions, leaving producers in Eastern Europe looking for a new market for their products. Until the sanctions, roughly 25 per cent of EU cheese production went to Russia.

Meanwhile, demand from China for powdered milk has fallen. Even New Zealand, which had done very well from producing milk for the Chinese market, is suffering because of the downturn in Chinese consumption. And, in April, the EU’s quota system for milk production was scrapped, allowing dairy farmers to produce as much as they liked. The result has been a rise in supply in Western Europe that is outstripping demand, forcing prices down.

What can farmers do? Raising the efficiency of production, through greater economies of scale and employing best practices, can help, but many family farms don’t have the capital or the size to do this. Selling their milk as a commodity means they compete, like-for-like, with milk on the international market and have to accept whatever the going rate is for their product. Some are converting their milk to cheese or other dairy products that they can sell at more of a premium – though even this is a limited market.

Otherwise, farmers have to ‘sweat their capital’ more, using their land and buildings for other purposes, like bed-and-breakfast rooms or even taking another job on the side – hardly an easy option given the long hours farmers already work.

The alternative is to find a way of demanding a higher price. This is where the protests come in. Some farmers believe the answer is to get supermarkets to up their prices. But fresh milk is an item that shoppers are very price-sensitive about.

Supermarkets already sell big cartons of milk at a loss – £1 for four pints in most stores – to get the punters through the doors. In any event, about half of the nation’s milk goes to the processing companies to make cheese, yogurt and other products, and those processors can easily buy on the open market at knock-down prices. Raising the price at a handful of supermarkets would, at best, be a partial solution…..

Spiked-online: Read the full article (it’s excellent!)