24. UK farmgate prices reached a high soon after
deregulation in 1994; since 1996, they have, on the whole, declined.
Evidence we have received indicates that it costs the UK dairy
farmer anywhere between 19 and 23 pence to produce a litre of
milk. Since 2000,
average farmgate milk prices have varied between 16 pence per
litre (ppl) and 20 ppl.
Average farmgate prices are therefore not high enough to cover
farmers' costs. Milk Link told us that, in the past seven years,
most dairy farmers' income has exceeded the national minimum wage
only twice and the effective rate of pay has averaged £2.90
an hour. The following
table illustrates the low incomes experienced by dairy farmers
in recent years:
25. Farmgate prices are influenced by several factors.
Prices of liquid milk and other milk products are affected by
the value of the EU intervention price, which is itself affected
by the sterling to euro exchange rate. Liquid milk is sold almost
entirely on the domestic market, whereas other dairy products
are sold on the world market and are therefore affected by factors
such as currency movements and fluctuations in worldwide supply
26. UK farmgate prices are not only inadequate to
recompense farmers for the cost of milk production, they are also
consistently below the EU average. The National Farmers' Union
for England and Wales (NFU) has cited the following figures by
way of comparison:
EU average farmgate milk prices by country:
per 100 kg
27. Several studies have examined farmgate prices
in the UK. In the course of our inquiry, frequent reference was
made to a report published by the MDC in March 2003, and commissioned
from KPMG, Price and profitability in the British dairy chain
(the KPMG report).
We refer to the KPMG report in our commentary below.