National Farmers' Union of Scotland : 20 January 16 - Depth of Scottish Dairy Crisis Unprecedented

Article date:

20 January 2016

News Article Number:

13/16

Supply chain must act now to share the risk

The ongoing price pressure on Scottish dairy farmers is unprecedented in severity and duration. The past week has seen two more milk buyers, Muller and Sorn, drop the price paid to their farmers.

NFU Scotland believes that politicians across all parliaments, milk buyers, processors, and retailers must be in no doubt that the vast majority of dairy farmers in Scotland are faced with a huge task to maintain their businesses through the current crisis. Dairy in Scotland is a vital part of the rural economy and has huge potential, but for the primary sector, the current crisis cannot be overstated.

NFU Scotland's Policy Manager George Jamieson said: 'It is critical and undeniable that all parts of the supply chain must better share the risks and the rewards of the volatile market we now face. Dairy producers are currently carrying too much of the burden and have not benefited enough from the opportunities.

'Analysts remain convinced that the future is positive for the dairy sector, but for this to be a reality then we must see tangible evidence that processors, retailers and all end users, governments and the consumer can all work collaboratively to overcome the massive challenges of peaks and troughs of volatility and competition. Scotland wants to be a part of dairying's future, but all parties cannot take dairy farmers for granted.

'While demonstrations and lobbying resulted in some well-meaning initiatives from some retailers, and we are aware that some processors have worked hard to limit price cuts, the situation is now more serious than ever, and we need more meaningful strategic initiatives from our customers that are more subtle and effective than reactive discretionary pricing.

'There are still anomalies and a lack of transparency in dairy chains which ferments uncertainty and a crucial lack of trust.

'An excellent example of failure within a chain is mature cheddar. Sales of mature cheddar have risen by 2.9 percent in volume in the past year, while extra mature sales have risen by 6.4 percent. That is fantastic growth in a competitive food sector but not one that has benefited producers as farmgate prices have fallen by 20 percent in the same period.

'Given that the average shop price of cheddar is £6.55 per kg - or £6550 per tonne - but the wholesale cheddar price is only £3,200 per tonne, then the retailer's margin on a hugely important product like cheddar is well over 50 percent. That leads to justifiable questions as to why supermarkets are not sharing that level of profitability with producers at this critical time.

'On recent price cuts, while unwelcome, Arla and Muller's non-aligned farmers will have avoided the worst effects of weak markets, courtesy of the scale and efficiency of these businesses. The added value products produced by these firms, although dragged down by weak commodity prices, have proven more resilient in the current turmoil but these latest cuts come at a time of year when on farm costs for a dairy farm are highest.

'Sorn Milk and First Milk remain very exposed to the fluctuations in World and European commodity markets. The challenge facing both these companies over recent times has been the very poor returns from balancing and powder markets, which has left little margin to pay their farmers. Their price reflects the best returns they can get from their markets, but it is not sustainable for their producers.

'NFUS continues to work hard on behalf of all its dairy farming members. We have met with Sorn Milk this week and met with First Milk recently. NFUS has also recently met Muller, and discussed the decision-making around the recent price cuts and its plans to integrate the recently acquired Dairy Crest business.

'Muller Wiseman and Dairy Crest have been commendably proactive in engaging with producer representation, and we are keen to see and help this progress to even more effective engagement with Muller. Collaborative, meaningful producer representation is a critical progression and the opportunity has never been more appropriate.'

Ends

Contact Bob Carruth on 0131 472 4006