‘Something has to give and if the price of milk doesn’t give then producers will,’ says Oxfordshire dairy farmer David Christensen in a stark assessment of the peril his industry faces as the surge of costs pushes agricultural finances into the red.
Christensen, whose family business manages a herd of around 1,000 cows, says costs were already rising due to upheaval caused by the pandemic and Brexit, but the war in Ukraine has “pushed inflation to similar levels to those I have never seen in 30 years of farming”.
He is a member of Arla, Britain’s largest dairy co-operative, which has sounded the alarm as the financial crisis forced UK milk production to fall – a trend that could threaten future milk supplies.
Ash Amirahmadi, managing director of Arla Foods UK, said fresh milk production had for some time provided “little or no profitability to farmers”, but the situation was now serious as the Ukraine crisis fueled inflation agricultural costs.
“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 is in milk supply, as farmers are now producing 4% less milk than a year ago, after experiencing seven to eight years of growth.
The most recent official figures show that over the past year the cost of a pint of milk has risen from 7p to 49p, an increase of 17%. However, the price of milk in stores last year was lower than in 2012, even though production costs increased.
The price consumers pay is different from the amount farmers receive, and they earn more than before. Over the past year, Arla has raised its farm gate prices by 31% to nearly 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 keeping up.
This spike in farming costs meant Arla’s customers, which include supermarkets and restaurant chains, would have to dig deeper to help farmers weather the storm, Amirahmadi said.
“In the very short term, we need to put our arms around the farmers and support them by paying them enough to cover their costs, to make sure the milk is flowing,” he said.
The main costs of a dairy farmer are feed, fuel and fertilizer and all have been subject to steep price increases. “Last year I was paying 62p or 63p for the diesel I use in the tractors; the last charge I bought was £1.29,” says Christensen. “It’s come back a bit but, despite that, it’s a huge increase.”
“Food is my big cost and traders are struggling to commit to a price for next winter but are talking about at least a £100 a tonne increase. I use over 1,200 tonnes a year , if not more, so that’s an increase of £120,000.
Proportionally, the cost of fertilizer has jumped the most, says Christensen, whose milk is sold under Tesco’s own brand. “I use urea fertiliser, and this time last year I was paying around £310 or £315 a tonne, but just got a price this morning and it’s £930.” This would increase his fertilizer bill over a year by £60,000.
Faced with such a scorching picture, there are fears that some farmers are considering quitting the industry. “Those are big numbers,” says Christensen. “For many years we absorbed smaller increases by becoming more efficient, adapting – that’s how we dealt with a deflationary milk price. The reality is that when you get to those kinds of numbers, you just can’t absorb them, so something has to give.