Select Committee on Environment, Food and Rural Affairs Ninth Report


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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