Co-operatives are the way to address dairy farmers’ woes
The recent drastic fall in the price of milk has left producers exposed to complex market forces. NICK MATTHEWS suggests a long-term solution
AT LAST, ministers have begun to wake up to the crisis in the dairy industry.
The fear in many rural areas must be that the Tories will let dairy farmers go the way of coalminers.
Interestingly there is one Conservative MP trying to stop this happening.
I have some sympathy for the challenges faced by Jim Paice, chair of dairy farmers’ co-operative First Milk.
The dramatic changes in world milk prices have created a multimillion-pound cashflow hole in First Milk and for the 1,300 farmer-members who have been called upon to help bail it out.
These farmers face tough times, delayed payments and a big increase in capital contributions to the co-op.
For all dairy farmers the problem is that milk has become a globally traded commodity.
Prices went up when new markets opened up in Russia and most importantly, in China.
With more women working and a series of crises in domestic Chinese supply the door was opened up for the large players to enter the Chinese market.
However what goes up can also come down.
The round of price cuts in Europe began when Arla, the huge transnational Scandinavian, German and British co-op, announced last August that it was slashing milk prices because already weak prices had been worsened by the retaliatory sanctions that Russia has imposed on the EU.
This is on top of record British output and the cut-throat prices amongst British supermarkets, which often see milk sold at prices cheaper than water.
It may seem like a left-wing cliche but the crisis in the industry can be traced back to Mrs Thatcher.
Farmgate milk prices used to be set by the Milk Marketing Board, covering England and Wales and Scotland.
The board, established in 1933, bought milk from farmers and sold it to processors and dairies.
This perfectly rational system of natural monopolies was destroyed when the Tories, those champions of the countryside, abolished them in the Agriculture Act of 1993 leading to the collection and distribution of milk for processing being deregulated.
Since then global influences have increased.
About 10 per cent of the world’s milk is globally traded in the form of milk powders, cream, butter and commodity cheddar. Prices are set in three big producer areas in the US, the EU and New Zealand.
One of the world’s largest co-ops is the New Zealand dairy co-op Fonterra.
It is the world’s leading global milk processor, transforming over 15 billion litres of milk a year in New Zealand together with 2bn litres from Australia and nearly 3bn from Latin America. Fonterra own GlobalDairyTrade which is an auction platform for internationally traded commodity dairy products.
Its website says it was “Established in 2008 to provide a reliable, transparent price discovery platform for globally traded dairy commodities.”
The auctions occur twice a month, bringing together hundreds of qualified bidders from more than 90 countries, with a range of sellers from Europe, the US, India, Australia and New Zealand.
Now the Chinese economy has been slowing, reducing the demand for imported milk — much of which comes from New Zealand. So this has affected the price Fonterra can get for its milk when releasing it onto the world market.
Meanwhile the EU price for milk set is in euros, so farmers have also to be currency speculators.
From April 1 the EU milk quota system will end, meaning that Europeans can increase production just in time for a global slump in the industry.
Dairy farmers now find themselves not knowing how much milk to produce or how much they will be paid.
They have to keep their eyes on the weather, the cost of fertiliser and on economic growth in China.
In Britain we are pretty much self-sufficient in liquid milk, although we do import around £1.3bn worth of cheese, butter and yoghurt.
If we allow these trends to continue it can only lead to the destruction of more dairy farms and increase the pressure for the introduction of mega-dairies, at who knows what cost to animal welfare and the landscape.
There is a powerful argument that we have abrogated responsibility for our food security to the EU, which cares more for the spivs and speculators in international markets.
Clearly we need to regain control of our agricultural sector from the EU so that we can rationally plan for the future, recreating a properly regulated modern milk marketing system.
In the short term, British dairy farmers need stronger co-ops.
Farmers Weekly recently argued that “There’s a thought that British farmers don’t do co-ops like their continental cousins, that they take a shorter-term, more individual view.”
Well, if that is their view it can only lead to their destruction. Fonterra and Arla co-ops are serious players in the industry.
There is surely a lesson here for First Milk farmers to get behind their co-op.