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Tuesday, May 17, 2022

‘It’s unsustainable’: Skyrocketing inflation squeezes UK dairy farmers’ budgets

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Milk production is starting to fall as sharp increases in the cost of fuel, feed and fertilizer outweigh increases in farm gate prices.

“Something has to give and if the price of milk doesn’t give then farmers will,” says Oxfordshire dairy farmer David Christensen in a stark assessment of the danger facing his industry as skyrocketing costs push farm finances. to red

Christensen, whose family business runs a herd of about 1,000 cows, says costs were already rising as a result of the turmoil caused by the pandemic and Brexit, but the war in Ukraine has “pushed inflation to levels I have never seen before.” seen in 30 years of farming.”

He is a member of Arla, Britain’s largest dairy cooperative, which has sounded the alarm as financial tightening forces UK milk production to fall, a trend that could threaten milk supplies in the future.

Ash Amirahmadi, managing director of Arla Foods UK, said fresh milk production had for some time provided “little or no returns to farmers” but the situation was now acute as the Ukraine crisis stoked cost inflation. agricultural.

“It’s unsustainable,” he said. “The cost of producing milk is rising like never before and our farmers continue to experience significant inflation. The risk of that is on the milk supply because farmers are now producing 4% less milk than they were a year ago, after having seven or eight years of growth.”

The most recent official figures show that over the past year the cost of a pint of milk rose from 7p to 49p, an increase of 17%. However, the price of milk in stores last year was lower than in 2012, despite the fact that production costs have increased.

The price consumers pay is different from the amount farmers receive, and they are earning more than before. Last year, Arla increased its farm gate prices by 31% to almost 38 pence a litre, but costs continue to rise. Some supermarkets have direct contracts with farmers based on their own production cost models; however, analysts suggest that these contracts are not holding up.

This increase in farm costs meant that Arla’s customers, which include supermarkets and restaurant chains, would have to do more to help farmers weather the storm, Amirahmadi said.

“In the very short term, we need to embrace the farmers and support them by paying them enough to cover their costs, to make sure the milk flows,” he said.

A dairy farmer’s main costs are feed, fuel, and fertilizer, all of which have been subject to large price increases. “Last year I was paying 62 pence or 63 pence for the diesel I use in the tractors; the last load I bought was £1.29,” says Christensen. “It’s come back a little bit but, despite that, it’s a big increase.”

“Feed is my big cost and traders are struggling to commit to a price for next winter but they are talking about an increase of at least £100 a tonne. I use over 1,200 tonnes a year, if not more, which is an increase of £120,000.”

Proportionally, the cost of fertilizer has increased further, says Christensen, whose milk is sold as Tesco’s own brand. “I use urea fertilizer, and this time last year I was paying around £310-315 per tonne, but I just got a price this morning and it’s £930.” This would increase your fertilizer bill for a year by £60,000.

Faced with such a torrid outlook, it is feared that some farmers may consider leaving the industry. “These are big numbers,” says Christensen. “For many years, we have absorbed smaller increases by becoming more efficient, scaling up, which is how we have dealt with a deflationary milk price. The reality is that when you get to these kinds of numbers, you just can’t absorb them, so something has to give.”

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