Low prices force UK dairy farmers out

Britain's milk industry is haemorrhaging farmers at an alarming rate, with industry leaders expecting up to one in four to go out of business by the end of the decade.

So many loss-making farmers are quitting that fewer than 15,000 may be left by 2010, a far cry from the 200,000 registered in 1950.

The problems are rock-bottom milk prices and EU farm reforms bringing biting competition.

"Low milk prices - it's quite simply the main pressure. I don't think there will be a meltdown but I believe we could end up with around 15,000 dairy farmers by the end of the decade," Tom Brigstock, chief executive of the Royal Association of British Dairy and Beef Farmers (RADBF), said. "I think 70 per cent of milk producers aren't making any profit at all. We've got a milk price of 18-19 pence (48c) per litre and an average total cost of production in most areas of 21-22 pence. It's been going on for years."

Latest figures from the Milk Development Council show the UK at the bottom of the EU milk price league, with a 14 per cent gap between the UK and the EU average, the widest since the data were first compiled in 1992.

Britain is Europe's third largest milk producer, with some 2.2 million dairy cows and an average of 87 head per herd.

Germany and France have around 4.4 million dairy cows each, but an average herd size of 35.

And although the post-war years have resulted in vast changes in feeding systems, improved genetics and more skilful farm management, experts say the problems really only start at the farm gate.

"Government policy may be very much about adding value, but most dairy farmers only want to be farmers - they don't want to be entrepreneurs," Brigstock said.

The protectionist Milk Marketing Board, which controlled prices, was scrapped in 1994, forcing the industry into a free trade environment.

The EU introduced a single farm payment scheme this year, under which dairy subsidies will dwindle to nothing by 2012, to be replaced by a payment which will be available whether or not farmers milk.

Farm leaders say the prospect of falling milk prices and disappearing support gives little incentive for certain dairy farmers to continue.

"Unless some of these costs are recovered through higher milk prices ... many dairy farmers will take the tough decision to cease milk production," National Farmers' Union dairy chairman Gwyn Jones said.

The number of processors is falling too, as cost-cutting and efficiency goals spur a wave of consolidation among the big milk buyers.

Only last week, Britain's third largest milk processor Dairy Farmers of Britain (DFB) said it was shutting its 210-million-litres-a-year Llangadog creamery in South Wales because of poor financial performance, with the loss of around 200 jobs.

"There's a bit of a shakeout going on, with various businesses being sold and I guess more will be sold in the future ... and there will be less companies in the sector in three years than there are today," DFB chairman Malcolm Smith told Reuters.

For producers and processors to make a profit, Smith said, the industry needed to switch from bulk supplies to more profitable niche markets. "Innovation. It's not something we've been historically very good at, but we have to offer what people want."

Smith cited the success of French dairy giant Danone, which enjoys a roaring trade in Britain selling yogurts and health drinks, as an example of what can be achieved.

"Milk has to be turned from a dull, bland and worthy but fatty product into a new sexy soft drink to compete with the likes of Sunny Delight and Coke or bottled water," Brigstock said.

Britons drink less milk these days, though much more than their European counterparts.

Dairy Council data show an average of nearly 2.2 litres a week were consumed in 2002 compared with 2.7 litres 40 years ago.

However, sales of cheese and yogurt - the key areas for milk processors in future - continue to grow.

- REUTERS