Farmers hold emergency summit as dairy crisis hits

Farmers want supermarkets to give up some of their margin on milk. Photo / Bloomberg

British farmers held an emergency summit this week, amid warnings that many are facing financial ruin because of plunging milk and meat prices.

The National Union of Farmers called the meeting in London as part of a campaign to highlight the plight of its members who are struggling to make money as global food prices hit a six-year low.

Meurig Raymond, the NFU president, has called on retailers and processors to take action and has asked for a meeting with ministers to discuss the plight of both dairy and livestock farmers.

A combination of falling demand from China, the Middle East and North Africa and overproduction has pushed prices well below the cost of production in some sectors.

Dairy farming has been hit particularly hard. Almost 240 of Britain's 12,000 dairy farmers have sold their herds since January, when the slump in the milk price began to bite.

Rosie Maltby, the NFU's dairy adviser, said the trend had accelerated with 53 farmers in England and Wales quitting dairy farming in July. During the past year, farmers have seen the average price they receive for a litre of milk fall by about a quarter to 23p from almost 32p in mid-2014. The cost of production averages about 30p per litre.

The NFU is calling on supermarket groups to follow their peers in putting in place a pricing mechanism that supports farmers. Chains including Tesco, Sainsbury and Waitrose have deals with their suppliers to ensure they are paid above the price of production but others have failed to sign up. These price deals only help a minority of dairy farmers, with the NFU estimating about 10 per cent of farmers have a contract that tracks the cost of production.

To address the wider problem and help ease financial pressure on farmers, the union is asking retailers to give up some of their margins on milk sales and pass them back down the chain. The NFU said a supermarket price war has compounded the situation. In June 2014, dairy farmers received 68 per cent of the price a consumer paid for liquid milk. A year later, this share has fallen to 55 per cent. In contrast, during the same period the retail price for four pints of fresh milk has fallen 7 per cent against a slump of more than a quarter for farm gate milk prices.

But Ash Amirahmadi, head of milk and member services at Arla, a global co-operative owned by 13,500 farmers, including 3000 in Britain, dismissed attempts by the NFU to target retailers' margins and blamed the farmers' plight on the drop in the global milk price.

He also warned that some of the supermarket chains that had signed up to the cost of production contracts were reviewing them.

Mr Amirahmadi said farmers would benefit more from an initiative similar to the one that Arla launched this week. It is planning to introduce a new label on Arla branded products that would identify the milk to consumers as coming from a "farmer-owned" processor where all the profits are returned to the farmers.

The initiative would require retailers to agree to three principles: pay the market price; put in place a mechanism to deal with price volatility; and agree to long-term contracts with farmers to cover a milk price cycle of three years.

The NFU summit was also called to highlight the drop in meat prices, particularly lamb, with the union concerned about the threat to farmers from imports from New Zealand.

- The Financial Times Ltd