Tuesday, 20 January 2015

Milk prices: That was then, this is now.

From the FT, March 2014:

Mark Allen, chief executive of Dairy Crest, one of Britain’s biggest milk processors and maker of Cathedral City cheddar, says: “It is a much better time to be in dairy than for many years”.

Milk producers are luxuriating in a rare combination of rising prices and falling costs, and improving terms of trade between them and the supermarkets and processors.

Even though three large supermarket groups – Tesco, J Sainsbury and Co-operative Food – cut the retail price of 2 litres of milk to £1 this month, it is not the farmers being squeezed this time. Changes to farming contracts, and an improved relationship between producers and retailers, mean the supermarkets are more likely to take the margin hit.

From the BBC, January 2015:

MPs have urged the government to do more to protect dairy farmers from sharp falls in milk prices.

The Commons Environment, Food and Rural Affairs Committee said farmers were being forced out of business every week by factors beyond their control. The remit of the government's groceries watchdog should be extended to cover dairy suppliers, its report said.

The government said it was doing all it could to help farmers cope with the "volatility of the global market"...

BBC environment correspondent Claire Marshall said to keep cattle well fed and looked after costs a farmer about 30p for each litre of milk produced - but most were being paid just 20p a litre.

"Intense competition among supermarkets is also having an effect," she said. "In several supermarkets you can now buy four pints of milk for just 89p."

Farmers have held protests, urging supermarkets to pay more for their milk.


Shiney said...

My heart bleeds for them....

We supply packaged goods and we don't have MPs whining about the volatility of the global market on our behalf.


Also - last nights Panorama on Tesco. What a load of cock. As for Leahy and 'the culture changed after I left'..... well, 'nuff said.

DBC Reed said...

The market-price fixing system is never going to work with agriculture as became obvious in 19th Cent USA.You cannot plant out some crop expecting a good price when it's likely to plunge in the succeeding months for natural reasons. In the US during the Populist and Granger era, maize would ripen in the West first and by the time it was being harvested in the East, the market was already flooded and no price was to be had.(Remember the scene in Days of Hope where the farmer is on the ticker-tape machine waiting for the moment to harvest based on up-to-the-minute market information).Clearly some minimal planning has to be done to stop over-planting and overstocking and a low price guarantee has to keep the farmers in business until they can try again another year with something more dependable. Obviously this was the basis of the Milk Marketing Board and the CAP until Thatcherite weirdos got to work.
The lead times of building up a herd of cattle are too long to be wiped out by sudden fluctuations in price levels and terms of trade with supermarkets who act as rent seekers renting out their most prominent shelves for very hefty rent-premiums.
If a situation tends to monopoly ,it is clearly best, based on experience rather than a blind faith in market forces ( false gods according to the Pope) to have a quasi monopoly working in the public interest.

Roger said...

Five years feast - and everyone gets on bandwagon, five years poverty - oversupply, five years reasonable money, that used to be the milk farmer's life. Now the cycle is compressed - both ways. Too many 'dog-n-stick' farmers in the trade but any attempt to set up a 4000 cow unit meets opposition from county councils and the woolly hat brigade and no help whatever from Defra or the politicians. Dog-n-stick goes down better with the meeja. So a wry chuckle seeing the pols blaming the wicked old supermarkets - instead of themselves. Anyone for yet another museum of country life - that's British politics.

. said...

DBC Reed: or perhaps the milk producers could enter into longer-term contracts with their customers? This is, after all, exactly what the energy retailers are being moaned at for doing.


paulc156 said...

We already pay too much for housing, public transport and energy without the price of milk going up to keep marginal milk producers in business.
I buy organic milk though because I'd rather pay a bit extra to get a superior product from happier cows :). Personally, I'd rather see much higher standards of food production with similarly higher prices but with the typical Brit paying way over the odds for housing, rail travel and petrol it's obviously not a vote winner.

Mark Wadsworth said...

S, but you are not a major landowner, they are sacred.

DBC, as BE says, least-bad solution is long term contracts. Or even better, the farmer throw in the towel and sell their farms to supermarkets and just work for normal salary.

R, ah yes, the dog-n-stick is more like a proper landowner and sacred, not like these bastards using modern, efficient and thoroughly unscenic things like "huge sheds".

PC, again, high house prices are (strangely) a Good Thing, low consumer prices are also A Good Thing but when it comes to farm produce, the rights of one group of landowners (farmers) trump the rights of other landowners (supermarkets).

Bayard said...

"R, ah yes, the dog-n-stick is more like a proper landowner and sacred"

I think it's more likely to be the fact that dog 'n' stick fits in better with the FBRI.

"high house prices are (strangely) a Good Thing"

Not so strange if you consider that the majority of homeowners are going to be sellers at some point in the future. They are looking first at what they can get for their house, only second what they will have to pay for another one.

DBC Reed said...

Farmers would probably like long-term contracts; they would reinvent the stability that the Milk Marketing Board provided.So you can be sure the supermarkets will not offer them, preferring to keep the farmers dangling on a string.( I am not sure lumping working farmers in as landowners as though they are all rent seeking is entirely fair).
The wild ad lib suggestion that the supermarkets should take over dairy farms and introduce huge sheds is laissez faire gone mad ,as it usually does, back beyond the 1870's , when Joe Chamberlain officially called a halt to it in Birmingham.The old pro CAP argument was that it was necessary to keep the population dispersed in small farming communities because the infrastructure was already existed that way, and cramming the displaced agricultural population into workless conurbations was not necessarily a good thing.

Graeme said...


I never knew that Joseph Chamberlain stopped farmers from agglomerating in Birmingham. Do you have a reference?

DBC Reed said...

Chamberlain's Radical Programme.His proposal to stop farmers "agglomerating" was Three Acres and a Cow.

Bayard said...

"The wild ad lib suggestion that the supermarkets should take over dairy farms and introduce huge sheds is laissez faire gone mad"

Not really; in the current situation, all the risk is being shouldered by the farmers, whilst all the subsidy is, ultimately, being pocketed by the supermarkets. If the supermarkets owned the farms and the farmers were employees rather than tenants, then the supermarkets might still be getting all the subsidy, but they would also be taking all the risk. In an uncontrolled, laissez faire market, why would they want to do that?