“One employee handed in his notice and I can’t afford to replace him. So we’ve dropped down to milking twice a day now — at five in the morning and five in the evening,” said Mr Oakes, who has been a dairy farmer all his working life.
He has 180 Holstein Friesians — more than twice the average UK herd of 70 cows. But despite the farm’s size, Mr Oakes reckons he is set to lose £160,000 of milking income this year after a sharp fall in milk prices.
Like oil, world milk prices have come down in response to an imbalance of supply and demand.
Global milk production is rising at 5 per cent a year while demand is growing just 2 per cent, according to Arla Foods, a UK-based dairy co-operative.
China’s economic slowdown has reduced its demand while Russia last year imposed a ban on EU dairy products in response to sanctions. The two countries account for 30 per cent of globally traded dairy products.
High milk prices in 2013 encouraged farmers to produce more, and last year’s good weather in the UK led to higher milk yields because of good grazing and better quality feed for cows.
Prices in the UK have dropped 25 per cent since late last year to a seven year low of about 20p a litre. But the cost of producing a litre of milk in the UK is 28p, according to analysts.
In the kitchen of his hilltop house, Mr Oakes voices a common complaint: “Prices don’t drop slowly — they fall off a cliff edge. We’ve gone from boom to bust in six months.”
This has contributed to the UK dairy industry’s “awful downward spiral”, according to Meurig Raymond, president of the National Farmers Union.
First Milk, another co-operative, last week told its 1,200 dairy suppliers that it would delay paying them by a fortnight, citing “a year of volatility that has never been seen before”.
There is more uncertainty on the way, with the impending abolition of the EU’s three decades old milk quota system at the beginning of April. This will allow countries such as Ireland and Germany to produce as much milk as they want, potentially providing more competition to British dairy farmers.
British MPs said on Tuesday that dairy farmers needed more protection from volatile prices and a squeeze by supermarkets.
But the British Retail Consortium, representing the large supermarkets, defended retailers’ decision to sell milk at a loss in order to attract customers to their stores.
“Some individual retailers have reduced the price of milk charged to consumers in store but they alone are paying for the price reduction — not farmers,” said Andrew Opie, BRC director of food and sustainability.
Some supermarkets — principally Waitrose, Marks and Spencer, Tesco and J Sainsbury — have supply contracts with processors and farmers that pay an agreed amount above the cost of milk production. These contracts mean that most supermarkets are paying better prices for fresh milk than farmer owned co-operatives.
However, fewer than 15 per cent of farmers have the protection of these contracts, with most selling to milk processors.
Mr Oakes, who is also a member of the NFU’s dairy board, argues that cut-price supermarket milk puts pressure on milk processors and therefore dairy farmers.
“Supermarkets say it’s a business decision but it devalues our business and tends to have a negative effect through the supply chain,” he said.
The NFU blames the drop in milk prices and price volatility for the number of dairy farmers in England and Wales halving over the past 12 years to just under 10,000.
However, that fall also reflects industry consolidation and an increase in milk yields as a result of more intensive dairy farming. The average cow produced 14 per cent more milk in 2013, compared with a decade earlier, while the average herd size has also increased, according to DairyCo, a division of the Agriculture and Horticulture Development Board.
George Eustice, farming minister, said low prices were a short term blip caused by 2013’s high prices and supply and demand would rebalance.
The NFU, dairy processors and government all agree that the long term outlook for dairy is good, as rising middle classes in China, Africa and Russia demand better nutrition.
But in the meantime Mr Oakes has put off investment plans. He said his children “don’t want to go into farming — they’ve decided there’s more to life than milking cows.”
Source: Financial Times
