1 Introduction
Milk price
volatility
1. During the summer and autumn of 2014, substantial
drops in milk price led to calls for new support for dairy farmers,
and some disruption as some farmers blockaded processing plants
to protest against low price levels. This sharp reverse in dairy
farming fortunes came less than 12 months after milk prices reached
their highest level in recent years, but also after a similar
sharp price decline in 2012. With milk prices altering weekly,
any price we quote here will be out of date by the time we publish:
the most recent figures from the Department for Environment, Food
and Rural Affairs (Defra) are from September, when the UK average
was 30.81 pence per litre (ppl), about 6.6% down on the September
2013 figure; media reports from December suggest prices around
23 or 24 ppl were being offered to farmers in some areas. Rob
Harrison, the National Farmers Union dairy board chairman, told
us prices had fallen about 30%, or about 8 ppl; milk prices had
peaked at 34.55 ppl in November 2013.[1]
2. While markets mean that prices rise and prices
fall, the frequency, suddenness and sharpness of milk price fluctuations
have brought new volatility to a sector in which long-term changes
in methods of production have also left dairy farmers vulnerable:
in 1995 there were 35,741 dairy producers in the UK, and it is
widely believed that the number may dip below 10,000 for the first
time in early 2015.
3. Dairy farmers face further uncertainty over the
next 12 months, too, with unpredictable demand in global markets
affecting worldwide prices for liquid milk and other dairy products.
The EU quota system for milk production is due to end in April.
The voluntary code of dairy practice introduced in response to
the 2012 price drops has been welcomed for stabilising some contract
terms for producers, but may not have done a great deal to stabilise
prices.
4. None the less, the future picture is not all dark.
There is a general expectation that worldwide demand for dairy
products will continue to grow at around 2 to 3% a year: George
Eustice MP, the Under-Secretary of State responsible for farming,
believes the current price difficulties are a "short-term
blip" resulting from production spikes caused by 2013's strong
prices and that the market will find a new equilibrium longer
term.[2] Production in
the UK rose by about 8 to 10% in the past year, and average farm
business income for dairy farmers in England in 2013-14 was £87,800.[3]
1 Q2, and DairyCo Market Information, UK, GB and NI Farmgate Prices,
published 30 October 2014. Back
2
Q83 Back
3
Defra (DAI0016), and Q78 Back
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