Dairy Prices - Environment, Food and Rural Affairs Committee Contents

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 With milk prices altering weekly, any price we quote here will be out of date by the time we publish: the most recent figures from the Department for Environment, Food and Rural Affairs (Defra) are from September, when the UK average was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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