Wednesday, 25 July 2012

Paying more for fresh milk wont help all farmers.

Today in the Daily Post the Archbishop of Wales....Dr Barry Morgan insisted everyone was responsible for ensuring farmers got a “fair price” – not just the dairies and supermarkets.

He is quoted as saying “It is shameful and immoral it now costs many farmers more to produce milk than they are able to sell it for." And “We are short-changing our dairy farmers and that is a matter of justice and morality." And “We are all responsible and we all have to be prepared now to pay a fair price for a quality product because Fair Trade begins at home.”

But morality is all fine and fair if you have the money to pay the extra in the first place. Lest we forget its not only dairy farmers who have it hard, and the disposable income of most households has fallen. So you have a choice organic milk, premium pasteurised or long life milk, cause the kids don't really like milk these days - what would you do, when money is tight? - I bet then the morals of the choice wont enter into it.

The Archbishop makes the same mistake that many whom have jumped on the bandwagon have made - us paying more for your fresh milk at the retailer; whilst it may help some dairy farmers, it won't help all dairy farmers. Let me explain, Dairy UK's White Paper 2012 tells us that in the UK last year of the 13,647 million litres of raw milk available, the amount sold as milk for consumption was 6,954 million litres or around 51% of total volume.

Now the majority of this milk is sold by the big retailers, with Tesco being the largest in the sector, and hence sets the price to some degree. But most supermarkets have put in place ‘integrated supply arrangements’. Under these systems, a retailer obtains their supply of liquid milk exclusively from a specific group of farmers. The raw milk from these farms is processed under segregated arrangements and delivered to the retailer as liquid drinking milk.

For example Dairy UK says that Tesco have 700 farmers in their scheme. And most schemes will pay extra for quality of supply, and others factors when the contract was entered i.e bad weather payments or increased feed costs etc. Fresh milk for consumption is not something you can import over large distances, and as such is a premium product, and supermarkets will make a great play on supplying their milk from local suppliers.

Which leaves the other 49% of raw milk produced the 6,693 million litres of milk.

It is these dairy farmers whom have suffered most, because of a 'perfect storm' being increased fodder and feed costs and a reduction in price paid on the world market. Dairy UK says Following developments in the world market, EU commodity prices have been on a downward trend, with particularly sharp falls in the value of butterfat. However, prices are now generally cyclical, so a recovery can be expected in the second half of 2012.

Reflecting developments in commodity markets, average EU farm gate prices weakened marginally from the beginning of 2012. However, they remain still well above the level of prices seen in 2008/09.

Not forgetting that many of these products can be exported over large distances. New Zealand for example exports 87% of their milk. And as such the price of Whole Milk Powder, Anhydrous Milk Fat, Skim Milk Powder, Butter Milk Powder, Milk Protein Concentrate, Rennet Casein, Cheddar Cheese (Cheddar) and lactose are set internationally.

If you think about it that's nearly everything with milk in it from your choc bar, to your daily bread or your ice cream. And whilst I know its difficult for dairy farmers and some may decide to pack it in altogether, let's be clear making milk a moral issue isn't really the answer dairy farmers are looking for.

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