FW Opinion: Liquid milk warning bells ring loud and clear
The lethal combination of retail pricing policies, an oversupplied market and wafer-thin margins all round is making for a very uncertain future for milk producers supplying liquid processors.
It’s not a new risk, but we make no apology for returning to the subject, as it feels as though things are hotting up in this important sector.
The administration of Tomlinson’s Dairies was a very harsh blow and many producers remain dangerously out of pocket from the effect of losing six weeks’ milk income.
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Business editor, Farmers Weekly
Muller’s review of its Scottish supply base, resulting in 14 farmers being given notice that their milk is no longer required, is the most recent development.
The 14 appear to have little prospect of finding another milk buyer, except with very hefty transport charges.
For Muller’s remaining 216 Scottish supplier farms, there are transport charges that will slice a hefty chunk off their milk cheques.
The rationalisation and closure of processor sites across the UK continues, and there are rumours of further mergers, hopefully bringing better financial stability, but also reducing the number of buyers.
One recent casualty is the long-established Campbeltown Creamery on Mull, home of Mull of Kintyre Cheddar.
After First Milk announced its closure, the 29 farmers supplying the creamery launched a fundraiser to help them buy the site.
However, the funding did not materialise and so, after almost 100 years of cheese production, it will close.
Debt to survive
Promar’s results show that 45% of milk producers saw their net worth fall in the financial year ending March 2019, after rising feed and energy costs outstripped improvements in milk prices and production.
Better-performing businesses took on the most new debt, using it to invest, while poorer performers were using debt to survive.
Under this type of pressure, producer numbers continue to fall, with the AHDB’s latest review putting the number in England and Wales at 8,820 – a drop of 30-35 since February this year.
As the Promar figures show, some of those remaining are expanding. As processor sites close and some leave the liquid sector, their risk grows larger in terms of milk prices, margins and the financial security of buyers.
Alongside the cost/price squeeze, the challenge of recruiting and retaining good people also grows, as do the demands of regulation and climate challenge, and the new requirements it will impose on milk production.
Output continues to grow, with the latest figures showing April to end of August UK milk production at 6,946m litres – up 2.9% on the same period last year.
One consolation is that Brexit is less of a risk for the liquid sector than for the cheese and organic markets.
However, these have both been hit hard by the imposition of a 25% import tax by the US, in retaliation for state subsidies to aircraft manufacturers in several EU countries.
The recent rise in sterling’s value has also made their job more difficult.
Fresh liquid milk consumption still accounts for about 50% of farmgate output.
Consumption is declining, albeit slowly, but consumer trends can change incredibly fast – witness the proliferation of alternatives to the real thing over the past couple of years.
Milk is the highest-value commodity at farmgate level, worth £4.5bn in 2018 and double the value of the UK’s entire wheat crop.
Its high nutritional value must be reflected in the retail price tag and in the food service sector.
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