Cheaper isn’t always better, even though it appears to have a short term benefit. Sure customers may accept competitive pricing benefits offered by large retailers, but there is a more important question to ask: What is it doing to the UK milk industry?
Already reports are reflecting that current trends are unsustainable. While some farmers have contracts with the bigger retailers, these aren’t really as beneficial as they seem. While they might be supplying bulk quantities of milk, the bottom line is that farmers are currently being paid less than their cost of production per litre of milk.
Unfortunately the dairy industry has been on this downward trend for several years already and it appears now to be close to the tipping point. As farmers are racking up debt, will the UK dairy industry collapse? What has caused this and what are possible solutions that could potentially help save the industry?
What has been the cause of the UK dairy industry demise?
There are many theories that place the blame at various parties, however, in the end it’s likely a combination of all of these factors that have led to this critical point. These are some of the primary factors:
Demand not meeting predicted market growth
It was predicted that China and Russia would be emerging export markets for the UK milk industry. However with the Russian ban on EU produce this has not materialised and farmers who have invested in expanding their production are now facing huge debts with little prospect of returns.
Emergence of intensive dairy farming
Traditionally most dairy farms in the UK are small scale family run operations with herds of 200 cows or less. Based on the US model of intensive farming some suppliers are trying to push farmers in the direction of intensive farming. The problem is that this type of expansion is costly and negatively impacts on the quality of the milk produced. Ultimately it is a lose / lose situation for the farmers. Increasingly, due to competitive and market pressures, diary farmers have to abandon their livelihood and this can only spell disaster for the industry.
Selective contracts by large retailers
While there are a few farms that have secured contracts with major suppliers and retailers it is just a small portion of the dairy industry. In addition even those farmers who do have contracts are still being squeezed on price. The status quo is not sustainable and it is up to suppliers to push back and work towards a more sustainable pricing model if the dairy industry in the UK is to be salvaged.
Lack of transparency in the dairy supply chain
The concern is not necessarily that the price of dairy will increase but rather that there is a lack of transparency within the supply chain. Not only are farmers expected to supply milk at below cost, but it appears that somehow the figures don’t add up. Somewhere, someone must be making some profit otherwise the situation would not have been perpetuated. The question is who? Is it the large retailers that have a reputation of a dictatorial approach to the industry or is it the food industry suppliers and manufacturers that are holding all the cards?
What is a possible solution?
It will take some bold moves in the food manufacturing and dairy industry to prevent a complete collapse. Many believe that it is the responsibility of the suppliers to band together and stand up against the retailer bully tactics. At the same time it is vital to re-negotiate supply contracts with farmers so that they can start to make a recovery from the downward spiral the industry currently finds itself in. In the end consumers may have to pay more for milk, but in a country where milk is often cheaper than water this shouldn’t come as a surprise.
Most importantly the objective of this should not be so that retailers or suppliers can increase their margins yet again, but rather to consider the bigger picture and how helping the dairy industry to recover, is in everyone’s interests in the long term. See what Food Manufacture are saying about it all Milk price fall shows pressure on supply chain