Summary
UK dairy farmers are in a financially difficult position
and have been experiencing low incomes since the deregulation
of the dairy market in 1994. It costs the UK dairy farmer between
18 and 23 pence to produce a litre of milk and yet, since 2000,
average farmgate milk prices have varied between 16 and 20 pence
per litre. Therefore, on average, farmgate prices are not high
enough to cover farmers' costs.
The thrust of our findings is that the dairy market
is not operating properly. The structure of the dairy sector is
complex and there is a lack of transparency in the dairy supply
chain. This has meant that, although the 2003 increases in the
retail prices of liquid milk and cheese in fact appear to have
been transmitted to farmers, farmers perceive that they have been
treated unfairly. Moreover, despite our best efforts in this inquiry
to determine who takes what share of the retail price of a litre
of liquid milk, we were unable to account for some 18 pence.
Our recommendations urge the Government to take steps
to improve transparency in the dairy supply chain, in part by
improving the information about the dairy market that is available
and communicating that information to farmers. We also recommend
that Government address the engrained adversarialism and blame
culture that continues to characterise the dairy industry. Some
of the answers we received in the course of taking evidence were
at best opaque, if not disingenuous, making this a difficult inquiry
to undertake and to conclude.
Given the constraints under which it is operating,
the UK dairy industry shows some evidence of being an efficient
industry but it would appear that it could benefit from greater
horizontal and vertical integration. We urge the Government to
take steps to foster an environment that is conducive to such
structural change and consolidation and that could result in greater
efficiencies still.
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